<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRA INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 8731 54-1820933
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
AMERICAN CENTER
8300 BOONE BOULEVARD, SUITE 310
VIENNA, VIRGINIA 22182
(703) 748-0760
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EARLE MARTIN, PRESIDENT
PRA INTERNATIONAL, INC.
AMERICAN CENTER
8300 BOONE BOULEVARD, SUITE 310
VIENNA, VIRGINIA 22182
(703) 748-0760
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
PETER D. SCHELLIE, ESQ. JOHN F. OLSON, ESQ.
BINGHAM DANA LLP GIBSON, DUNN & CRUTCHER LLP
1200 19TH STREET, N.W., SUITE 400 1050 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036-2400 WASHINGTON, D.C. 20036-5306
(202) 778-6150 (202) 955-8500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01.................. 3,162,500 $12.00 $37,950,000 $11,500
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</TABLE>
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(1) Includes 412,500 shares of Common Stock that the Underwriters have the
option to purchase from the Company to cover over-allotments, if any. See
"Underwriting."
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997
P R O S P E C T U S
2,750,000 SHARES
PRA INTERNATIONAL, INC.
COMMON STOCK
--------
All of the 2,750,000 shares of Common Stock $.01 par value per share (the
"Common Stock") offered hereby are being sold by PRA International, Inc. (the
"Company").
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The
Company has applied for quotation of the Common Stock on the Nasdaq National
Market under the symbol "PRAI."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSION(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total (3)........................ $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated expenses of $ , payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 412,500 additional shares of the Common Stock, on the same terms as set
forth above solely to cover over-allotments, if any. See "Underwriting."
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively.
--------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as, and if delivered to and accepted by
them, and subject to certain conditions. It is expected that the shares of
Common Stock offered hereby will be available for delivery on or about ,
1997 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York.
--------
SMITH BARNEY INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
WESSELS, ARNOLD & HENDERSON
, 1997
<PAGE>
------------
The Company intends to distribute to its stockholders annual reports
containing audited financial statements and will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THIS COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
PRA and the Company's logo are trademarks of the Company. This Prospectus
also includes trademarks of companies other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. All references to the "Company" in this
Prospectus refer to PRA International, Inc., a Delaware corporation, and its
subsidiaries. Unless otherwise indicated, all financial information and share
and per share data in this Prospectus reflect the relevant data for the
Company, and assume that the Underwriters' over-allotment option will not be
exercised. The offering of the shares of Common Stock, par value $.01 per share
(the "Common Stock"), of the Company is referred to herein as the "Offering."
Simultaneously with the closing of the Offering, all of the 1,658,082
outstanding shares of Series A 9% Cumulative Redeemable Convertible Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"), of the
Company shall be converted into 3,266,421 shares of Common Stock, which
conversion is on the same ratio as the stock split described below, and the
certificate of designations establishing the Series A Preferred Stock shall be
eliminated from the Company's Restated Certificate of Incorporation. Except as
otherwise indicated, all information presented in this Prospectus is adjusted
to give effect to such conversion of, and elimination of the certificate of
designations for, the Series A Preferred Stock. In addition, except as
otherwise noted, all information presented in this Prospectus reflects a 1.97-
for-1 stock split of the Common Stock and the amendment of the Company's
Certificate of Incorporation, each of which is to be effected prior to the
closing of the Offering.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Many of these forward-looking statements, as contemplated in the Private
Securities Litigation Reform Act of 1995, can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend," "plans,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The matters described in "Risk
Factors" and certain other factors noted throughout this Prospectus (and in
exhibits to the Registration Statement of which this Prospectus is a part),
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those indicated by
such forward-looking statements.
THE COMPANY
PRA International, Inc. (the "Company") is a leading contract research
organization ("CRO"), providing clinical research and development services on
an international basis to the pharmaceutical and biotechnology industries. The
Company believes that, based on net revenues, it is one of the 10 largest full-
service CROs in the world focused on managing human clinical trials. It also
believes that it is one of only several of these CROs capable of providing a
full range of clinical development services on an international basis. Since
January 1, 1996, the Company has conducted 288 programs for 68 sponsors,
including 22 of the 25 largest international pharmaceutical companies in the
world as measured by revenues and 11 of the 25 largest biotechnology companies
in the United States as measured by market capitalization. The Company
currently has preferred provider relationships with eight pharmaceutical and
biotechnology companies and is one of the three principal vendors of CRO
services at another seven pharmaceutical and biotechnology companies. The
Company's pro forma net revenues for the six months ended June 30, 1997, giving
effect to the April 1, 1997 acquisition of International Medical Technical
Consultants, Inc. ("IMTCI") as if it had occurred on January 1, 1997, were
approximately $21.0 million. On September 30, 1997, the Company had
approximately 614 employees.
The Company offers a full range of services on a global basis that comprise
the clinical development process, from preparation of Investigational New Drug
("IND") applications and first-administration-in-man (Phase I) studies, through
large-scale clinical trials (Phases II--III) studies, to product marketing
registration in
3
<PAGE>
the United States and Europe and post-marketing (Phase IV) studies. Specific
services performed by the Company include clinical program development, study
protocol design, project management, investigational site selection, regulatory
document management, study compliance monitoring, medical monitoring, data
collection and management, biostatistical analysis, medical writing and
regulatory document preparation and submissions. In addition to these standard
services, the Company offers specialized services that it believes enable it to
offer greater value to its clients. These services include single site proof of
concept studies, senior level strategic advisory services, investigational site
management services, a centralized Investigational Review Board ("IRB"), and
long term safety assessment and reporting services.
The Company has provided clinical research and development services in North
America since 1982 and in Europe since 1992. The Company conducts its
operations through four trials management centers in the United States located
in Virginia, Kansas, New Jersey and California, one European trials management
center located in Mannheim, Germany, a 56-bed inpatient facility and a
dedicated outpatient clinic in the Kansas City area, seven investigational
sites located in the Kansas City area, Atlanta and Savannah as well as
investigational affiliations in Surrey, England and San Juan, Puerto Rico, and
a data management center in Swansea, Wales. In 1996, the Company derived 69% of
its net revenues from United States operations and 31% of its net revenues from
European operations and, for the six months ended June 30, 1997, the Company
derived 80% of its net revenues from United States operations, the increase
being largely due to two acquisitions in the United States, and 20% from
European operations.
The Company utilizes a decentralized operating model that empowers local
professionals at each of the Company's trials management centers to make key
operational decisions while supporting large-scale, global trials. By
strategically locating full service trials management centers near major
sponsors and permitting each center to be responsive to clients, the Company
believes it enhances service quality and client relationships. All of the
Company's trials management centers are integrated through shared business
practices, standard operating procedures and common information systems. As a
result, each trials management center can deliver services reflecting the
international expertise, support and resources of the entire Company.
The Company believes that its depth of clinical management is significantly
greater than that of other CROs of similar size and scope and that, drawing on
these resources, it has developed significant expertise in clinical development
as well as in a number of therapeutic areas. The Company's staff of 614
employees includes an extensive roster of senior level scientific, regulatory
and clinical experts providing direction and oversight to clinical development
projects and day-to-day operations, including 16 who are M.D.s, 35 who have
Ph.D.s, 3 who are Pharm.D.s, and 74 others who have master's level degrees. In
addition, the Company has retained a number of distinguished industry advisors
and consultants who assist as needed in providing input into drug development
and regulatory approval strategies for clients and in developing
recommendations concerning potential improvements to the Company's clinical
development procedures. The Company believes that this depth of clinical
management has enabled it to establish significant expertise in a number of
therapeutic areas, namely oncology, central nervous system disorders,
cardiovascular diseases and allergy and respiratory conditions.
The pharmaceutical and biotechnology industries spent an estimated $35.0
billion in 1996 on research and development, of which the Company estimates
$18.0 billion was spent on the types of services offered by the Company. Of
this amount, approximately $6.0 billion was outsourced to clinical trials and
site management businesses. The Company believes that the CRO industry will
continue to grow due to (i) cost containment pressures causing pharmaceutical
and biotechnology companies to shift fixed costs to variable costs by
outsourcing drug development services, (ii) the globalization of the drug
development process, (iii) the increasing complexity of drug regulations and
clinical trials, and (iv) continued growth of the biotechnology industry, which
increasingly makes greater use of CROs. In addition, the Company believes that
many pharmaceutical and biotechnology companies are designating a limited
number of preferred provider CROs to assist in larger projects, further fueling
the growth of large full service CROs capable of conducting trials on an
international basis and further emphasizing therapeutic expertise and value-
added services.
4
<PAGE>
The Company's strategy is to (i) continue to focus on providing clinical
trials management services on an international basis, offering a full range of
services at each of its trials management centers, (ii) expand and enhance
areas of therapeutic expertise, (iii) continue to provide value-added services
that enhance the Company's core service offerings, (iv) continue to invest in
and enhance the Company's information technology, and (v) continue to grow
internally and through selected acquisitions that expand the Company's
geographic presence, enlarge the scope of its therapeutic expertise, or enable
it to provide additional value-added services.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered................. 2,750,000 shares
Common Stock to be outstanding after
the Offering...................... 7,753,053(1)
Use of proceeds...................... To expand services offered through internal growth,
acquisitions and geographic expansion; enhance
information technology; enhance therapeutic expertise;
repay certain outstanding indebtedness; increase
working capital and for other general corporate
purposes.
Proposed Nasdaq National Market
symbol............................ PRAI
</TABLE>
- --------
(1) Based on the number of shares outstanding as of October 15, 1997. Excludes
(i) 1,737,398 shares of Common Stock reserved for issuance upon exercise of
outstanding options at a weighted average exercise price of $4.83 per share,
(ii) 236,136 shares of Common Stock reserved for issuance upon exercise of
an outstanding warrant at an exercise price of $1.06 per share and (iii)
115,981 shares reserved for future grant under the Company's 1997 Stock
Option Plan, all as of October 15, 1997. See "Management--Stock Incentive
Plans" and Note 10 of Notes to Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- ------------------------
1992 (1) 1993 (1) 1994 (1) 1995 (1) 1996 (1) 1996 (1) 1997 (2)
----------- ---------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Professional fee
revenues............... $5,308,576 $8,427,788 $11,324,602 $13,656,890 $27,480,424 $11,482,017 $21,337,690
Less reimbursed costs .. (468,238) (1,031,325) (1,273,185) (1,422,963) (5,970,684) (2,088,441) (3,290,456)
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net revenues........... 4,840,338 7,396,463 10,051,417 12,233,927 21,509,740 9,393,576 18,047,234
Operating costs and
expenses:
Direct costs........... 3,725,828 4,947,683 6,277,195 8,260,925 14,951,791 6,452,725 13,032,130
Selling, general and
administrative........ 1,402,153 2,753,569 2,853,080 3,334,028 4,160,843 1,912,286 3,995,790
Depreciation and
amortization.......... 259,246 354,127 281,578 257,895 446,926 180,683 640,118
Stock repurchase and
other equity -- -- -- -- 643,599 -- 22,106
compensation.......... ---------- ---------- ----------- ----------- ----------- ----------- -----------
Total operating costs
and expenses.......... 5,387,227 8,055,379 9,411,853 11,852,848 20,203,159 8,545,694 17,690,144
Income (loss) from
operations............. (546,889) (658,916) 639,564 381,079 1,306,581 847,882 357,090
Other income (expense), (1,989) (56,581) 37,115 (247,975) (126,068) (186,396) (166,734)
net.................... ---------- ---------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (548,878) (715,497) 676,679 133,104 1,180,513 661,486 190,356
Provision (benefit) for 104,654 (288,297) 230,197 -- 415,652 232,906 90,499
income taxes........... ---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... (653,532) (427,200) 446,482 133,104 764,861 428,580 99,857
========== ========== =========== =========== =========== =========== ===========
Preferred stock
dividends (3).......... -- -- -- -- (403,791) -- (874,390)
Accretion on common
stock warrants and
Series A Preferred -- -- -- (714,606) (1,897,071) (1,665,999) (57,582)
Stock (4).............. ---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income (loss)
available to common $ (653,532) $ (427,200) $ 446,482 $ (581,502) $(1,536,001) $(1,237,419) $ (832,115)
stockholders........... ========== ========== =========== =========== =========== =========== ===========
Pro forma net income $ (0.12) $ 0.04
(loss) per share (5)... =========== ===========
Pro forma weighted
average shares
outstanding (5)........ 5,718,857 6,977,297
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------
ACTUAL AS ADJUSTED (6)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 2,355,846 $19,932,322
Working capital................................... 1,648,621 21,750,316
Total assets...................................... 36,374,777 53,951,253
Seller notes payable.............................. 5,329,581 --
Long-term debt, including current portion......... 4,563,872 540,370
Redeemable Series A Preferred Stock and common
stock warrants................................... 20,128,894 --
Stockholders' equity (deficit) ................... (6,331,876) 40,726,577
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
SUPPLEMENTARY FINANCIAL INFORMATION:(7)
Pro forma net income (loss) per share as
reported..................................... $(0.12) $0.04
Impact on pro forma net income (loss) per
share of:
Accretion on common stock warrants............ 0.33 0.00
Stock repurchase and other equity
compensation................................. 0.11 0.00
------ -----
Supplementary net income per share............ $ 0.32 $0.04
====== =====
</TABLE>
- --------
(1) Does not include the results of IMTCI, which was acquired by PRA
International, Inc. on April 1, 1997 or the results of The Crucible Group,
Inc., which was acquired by IMTCI on May 19, 1997.
(2) Includes the results of IMTCI from April 1, 1997, the date of acquisition
by PRA International, Inc. and the results of The Crucible Group, Inc. from
May 19, 1997, the date of its acquisition by IMTCI.
(3) Primarily represents accrued (non-cash) dividends on Series A Preferred
Stock which will be forfeited upon the effectiveness of the Offering (see
Notes 3 and 8 of Notes to the Consolidated Financial Statements).
(4) Represents a non-cash adjustment to record the difference between the
carrying amount of redeemable common stock warrants and Series A Preferred
Stock and their redemption amounts. The redemption features of the
redeemable common stock warrants were removed in October 1996. The
redemption feature of the Series A Preferred Stock will expire upon the
conversion of the Series A Preferred Stock into Common Stock upon the
effectiveness of the Offering (see Notes 3 and 8 of Notes to the
Consolidated Financial Statements).
(5) See Note 3 to the Consolidated Financial Statements for discussion of the
computation of pro forma income (loss) per share and pro forma weighted
average shares outstanding.
(6) Adjusted to give effect to (i) the sale by the Company of 2,750,000 shares
of Common Stock in the Offering at an assumed initial public offering price
of $11.00 per share (after deducting the estimated underwriting discount
and offering expenses payable by the Company) and the application of the
net proceeds therefrom, (ii) the conversion of all outstanding Series A
Preferred Stock into Common Stock, (iii) the acceleration of unearned
compensation expense related to stock options which vest upon the effective
date of the Offering and (iv) the recognition of an extraordinary loss on
the extinguishment of debt using proceeds from the Offering.
(7) Supplementary net income per share reflects what net income per share would
have been before non-cash accretion on redeemable common stock warrants and
non-cash stock repurchase and other equity compensation.
6
<PAGE>
THE COMPANY
The Company was incorporated in 1996 when it was formed to become the
holding company for Pharmaceutical Research Associates, Inc., a Virginia
corporation ("Associates"), which was incorporated in 1982. The Company's
European operations are conducted principally through Associates' wholly-owned
subsidiary, Pharmaceutical Research Associates GmbH ("PRA GmbH"), which was
formed in Germany in 1992. In the last quarter of 1996, Associates formed a
wholly-owned subsidiary, Pharm. Research Associates (UK) Limited ("PRA
Limited"), a United Kingdom private company through which the Company operates
its data management facility in Swansea, Wales.
On April 1, 1997, the Company acquired International Medical Technical
Consultants, Inc., a Kansas corporation ("IMTCI"), which in turn acquired The
Crucible Group, Inc., a Georgia corporation ("Crucible"), on May 19, 1997. In
October, 1997, IMTCI formed a wholly-owned subsidiary, IMTCI (UK) Limited, a
United Kingdom private company ("IMTCI Limited"), for the purpose of acquiring
the assets of Clinical Research Limited, a site management organization with
an investigational affiliation with St. Helier Hospital in Surrey, England.
The Company's principal executive offices are located at American Center,
8300 Boone Boulevard, Suite 310, Vienna, Virginia 22182, and its telephone
number is (703) 748-0760.
7
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully before making an
investment in the Common Stock offered hereby.
LOSS OR DELAY OF CONTRACTS; PRICING UNDER CONTRACTS
Most of the Company's contracts are terminable without cause upon 30 to 60
days' notice by the client. Clients terminate or delay contracts for various
reasons including, among others, the failure of the product 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;
the inadequate performance of the CRO, including the quality of data provided
and the CRO's failure to meet agreed upon schedules; clients' decisions to
downsize their product development portfolios; insufficient patient enrollment
or investigator recruitment; and production problems resulting in shortages of
required clinical supplies. Quality control is critical to CROs since not only
can contracts be terminated by sponsors as a result of poor CRO performance,
but these terminations also may affect a CRO's ability to obtain future
contracts from the sponsor involved and, possibly, others among the relatively
small number of companies that sponsor trials.
The Company does not believe that its backlog as of any date is necessarily
a meaningful predictor of future results. The loss or delay of a large program
or contract or the loss or delay of multiple smaller contracts could have a
material adverse effect on the Company, because such terminations could lower
the level of staff utilization, which would adversely affect profitability. A
majority of the Company's contracts for the provision of its services are
fixed price, with limited variable components, although a significant portion
of these contracts are modified in scope during the course of these contracts,
which permits price adjustments. In the case of fixed price contracts, the
Company bears the risk of cost overruns. Underpricing of contracts or
significant cost overruns could have a material adverse effect on the Company.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business--Contractual Arrangements" and "Business--Backlog."
MANAGEMENT OF GROWTH
The Company has experienced rapid growth over the past five years throughout
its operations. The Company believes that sustained growth places a strain on
operational, human and financial resources. To manage its growth, the Company
must continue to improve its operating and administrative systems and to
attract and retain qualified management, professional, scientific and
technical operating personnel at reasonable cost that does not adversely
affect margins. The Company believes that maintaining and enhancing both its
systems and personnel at reasonable cost are instrumental to success in the
CRO industry. The Company continually upgrades its systems and has made a
significant investment in this area in the past two years. However, there can
be no assurance that such measures will prove adequate, that these upgrades
will be effectively or efficiently implemented, or that it will be able to
enhance its current technology or obtain new technology that will enable its
systems to keep pace with developments and the sophisticated needs of its
clients. The nature and magnitude of the Company's growth introduce risks
associated with quality control and client dissatisfaction due to delays in
performance or other problems. Foreign operations also involve the additional
risks of assimilating differences in foreign business practices, hiring and
retaining qualified personnel and overcoming language barriers. Failure to
manage growth effectively could have an adverse effect on the Company. See
"Business--General," "Business--Employees" and "Management."
VARIATION IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have been and will continue to be
subject to variation, depending on factors such as the commencement,
completion or cancellation of significant contracts, the timing of
acquisitions, the mix of contracted services, foreign exchange rate
fluctuations, the timing of start-up expenses for new offices and services,
the growing of the site management organization and the costs associated with
integrating acquisitions. The Company has experienced, and expects to continue
experiencing in the future, some
8
<PAGE>
seasonal variations in its revenues, in part due to seasonal variations in
certain diseases or conditions that are the subject of clinical trials. The
Company believes that quarterly comparisons of its financial results should
not be relied upon as an indication of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations and Quarterly Results."
INTEGRATION OF ACQUISITIONS
The Company has made three acquisitions of various sizes since March 31,
1997. See "The Company." There can be no assurance that the Company's
management will be able (i) to integrate successfully the operations of these
acquired companies into its business, (ii) to sustain, on a combined basis,
the operating performance that each of the Company and the acquired companies
had on a standalone basis or (iii) to effectively implement the Company's
operating or growth strategies. See "Business--General" and "Management." The
Company reviews acquisition candidates in the ordinary course of its business.
Acquisitions involve numerous risks, including the expenses incurred in
connection with the acquisition, difficulties in assimilating operations, the
diversion of management's attention from other business concerns, and the
potential loss of key employees of the acquired company. Acquisitions of
foreign companies involve the additional risks of assimilating differences in
foreign business practices, hiring and retaining qualified personnel, and
overcoming language barriers. There can be no assurance that any future
acquisitions will be successfully integrated into the Company's operations.
See "Use of Proceeds" and "Business--Company Strategy."
SITE MANAGEMENT BUSINESS
With the acquisitions of IMTCI, Crucible and the assets of Clinical Research
Limited, the Company acquired investigational site management operations. The
Company expects that its site management organization ("SMO") business will
provide site management services to sponsors directly and to both the
Company's clinical trials management business and other CROs. See "Business--
Additional Value-Added Services." Some CROs may be reluctant to use the site
management services of a competitor and this could have an adverse effect on
the Company's site management business. See "Business--Competition." In
addition, the Company plans to continue expanding its investigational site
management business in order to achieve what it believes to be the optimal
scale for long term success in this area. If fully implemented, this would
require a substantial investment and it involves a strategy that is largely
unproven. The Company's efforts to expand its SMO business are at an early
pilot stage and will require significant investment, and there can be no
assurance that the Company will be able to achieve this expansion in a
profitable manner or be able to expand to a scale optimal for SMO operations.
There can be no assurance that the Company will be successful in these
efforts. In addition, the site management business may not grow at the same
rate as the trials management business, if either of these businesses should
grow at all, and the margins for the SMO business may be less than those of
the CRO business. See "Business--Company Strategy."
DEPENDENCE ON USE OF OUTSOURCING; CLIENT CONCENTRATION
The Company's net revenues are highly dependent on research and development
expenditures by companies in the pharmaceutical and biotechnology industries.
Among other risks, this makes the Company dependent upon the industries' use
of outsourcing and, due to the nature of the industries, subject to
concentration of resources. To date, the Company believes that it has
benefited from the growing tendency of pharmaceutical and biotechnology
companies to outsource their product development programs to independent CROs.
Any reduction in the outsourcing of research and development expenditures in
these industries could have a material adverse effect on the Company.
The Company has in the past derived, and is likely to continue to derive, a
significant portion of its net revenues from a relatively limited number of
major programs or clients. Further concentration would be experienced if, as
the Company anticipates, sponsors rely increasingly on preferred provider
relationships (as described in "Business--Customers and Marketing"). To the
extent that it is able to do so, the Company intends to enter into these
arrangements. This could have the effect of increasing the Company's reliance
on a smaller
9
<PAGE>
number of sponsors. In 1995, two clients accounted for approximately 13% and
11% of the Company's net revenues. During 1996, two different clients
accounted for approximately 13%, and 11% of the Company's net revenues. For
the six-month period ended June 30, 1997, two different clients accounted for
approximately 15% and 10% of the Company's net revenues. The loss of any such
client could have a material adverse effect on the Company. Customer
concentration in the CRO industry is not uncommon and the Company is likely to
continue to experience such concentration in the future, particularly if
preferred provider relationships become a more dominant aspect of the CRO
industry. See "Business--Industry Overview," "Business--Company Strategy," and
"Business--Customers and Marketing."
COMPETITION; INDUSTRY CONSOLIDATION
The Company competes against other CROs, in-house development at large
pharmaceutical companies, and, to a lesser extent, universities and teaching
hospitals. Some of these competitors have greater capital and other resources
than the Company. As a result of competitive pressures and the potential for
economies of scale, the industry is consolidating rapidly. This trend, as well
as a trend by pharmaceutical companies and other clients to limit outsourcing
to fewer organizations, in some cases through preferred provider
relationships, is likely to produce increased worldwide competition among the
larger CROs for clients and acquisition candidates. There are few barriers to
entry for small, limited-service entities entering the CRO industry, and these
entities also may compete with established CROs for clients. The Company
believes that major pharmaceutical, biotechnology and medical device companies
have been developing preferred provider relationships with full-service CROs,
effectively excluding other CROs from the bidding process. The Company's
preferred provider relationships are not contractual and are subject to change
at any time. The Company may find reduced access to certain potential clients
due to preferred provider arrangements with other competitors. In addition,
the CRO industry has attracted the attention of the investment community, and
increased potential financial resources are likely to lead to increased
competition among CROs. Increased competition may lead to price and other
forms of competition that could adversely affect the Company. See "Business--
Industry Overview," "Business--Customers and Marketing" and "Business--
Competition."
DEPENDENCE ON KEY PERSONNEL
The Company relies on a number of key executives including: Earle Martin,
its Chairman, President and Chief Executive Officer; Joachim Vollmar,
Executive Vice President, European Operations; James C. Powers, Executive Vice
President, Business Development; Patrick K. Donnelly, Executive Vice President
and Chief Financial Officer; and Dr. Robert Dockhorn, Executive Vice
President, IMTCI. The loss of the services of any of the Company's key
executives could have a material adverse effect on the Company. There can be
no assurance the Company will be able to continue to attract and retain
qualified personnel. See "Business--Employees" and "Management."
POTENTIAL LIABILITY
Clinical research services involve the testing of new drugs and devices on
human volunteers pursuant to a study protocol that has been approved by an
impartial review board with medical and non-medical members. This testing
creates risks of liability for personal injury, sickness or death of patients
resulting from their participation in the study. These risks include, among
other things, unforeseen adverse side effects, improper application of a new
drug or device and the professional malpractice of medical care providers.
Many volunteer patients already are seriously ill and are at heightened risk
of future illness or death. In connection with its provision of contract
research services, the Company contracts with physicians to serve as
investigators in conducting clinical trials on human volunteers. Although the
Company does not believe it is legally accountable for the medical care
rendered by third party investigators, it is possible that the Company could
be held liable for the claims and expenses arising from any professional
malpractice of the investigators with whom it contracts in the event of
personal injury to or death of persons participating in clinical trials. The
Company also could be held liable for errors or omissions in connection with
the services it performs, including in connection with
10
<PAGE>
providing site management organization services. The Company also could be
liable for the general risks associated with a Phase I facility including, but
not limited to, adverse reactions to the administration of drugs. The Company
believes that its liability risks are reduced by (i) contractual
indemnification provisions with clients and investigators, (ii) insurance
maintained by clients and investigators and by the Company, (iii) various
regulatory requirements, including the use of IRBs and (iv) the procurement of
each volunteer's informed consent to participate in the study. Contractual
indemnifications generally do not, however, protect the Company against
certain of its own actions, such as negligence. The contractual agreements are
separately negotiated with clients, and the terms and scope of indemnification
vary from client to client and from trial to trial. The financial performance
of these indemnities is not secured, and the Company bears the risk that the
indemnifying party may not have the financial ability to fulfill its
indemnification obligations. The Company maintains professional liability
insurance that covers worldwide territories in which the Company currently
does business and includes drug safety issues as well as data processing and
management errors and omissions. There can be no assurance that the Company
will be able to maintain such insurance coverage on terms acceptable to the
Company. The Company could be materially and adversely affected if (i) it were
required to pay damages or bear the costs of defending any claim outside the
scope of, or in excess of, a contractual indemnification provision or that is
beyond the level of insurance coverage that is in effect (if any), or (ii) an
indemnifying party does not fulfill its indemnification obligations. See
"Business--Potential Liability and Insurance."
DEPENDENCE ON GOVERNMENT REGULATIONS; POSSIBLE NONCOMPLIANCE
Regulations regarding the development and approval of drugs and biological
products have become increasingly stringent in both the United States and
Europe, resulting in a need for more complex and often larger clinical
studies. The Company believes that these trends have created an increased
demand for CRO services from which the Company's business benefits. Human
pharmaceutical products and biological products are subject to rigorous
regulation by the United States government, principally the Food and Drug
Administration ("FDA"), and by foreign governments, principally the European
Medicines Evaluation Agency ("EMEA"), if products are tested or marketed
abroad. Because the Company offers services relating to the conduct of
clinical trials and the preparation of 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. A relaxation of the
scope of regulatory requirements, such as the introduction of simplified
marketing applications for pharmaceuticals and biologics, could decrease the
business opportunities available to the Company. In addition, the Company's
failure to comply with applicable regulations relating to the conduct of
clinical trials or the preparation of marketing applications could lead to a
variety of sanctions. Such sanctions could have a material adverse effect on
the Company. See "Business--Government Regulation."
UNCERTAINTY IN HEALTH CARE INDUSTRY AND POTENTIAL HEALTH CARE REFORM
The United States federal government, many state governments and a number of
foreign governments have undertaken efforts to control growing health care
costs through legislation, regulation and voluntary agreements with medical
care providers and pharmaceutical, biotechnology and medical device companies.
In recent years, several comprehensive health care reform proposals have been
introduced in the United States Congress. In Germany, there has been increased
governmental interest and involvement in the health care sectors. The
objective of the increased governmental initiatives has been generally to
expand health care coverage and to reduce the growth of total health care
expenditures. While none of the comprehensive reform proposals have been
adopted, health care reform may again be addressed by the U.S. federal
government or by other domestic and foreign authorities. Implementation of
comprehensive or incremental government health care reform may adversely
affect research and development expenditures by pharmaceutical, biotechnology
and medical device companies, which could decrease the business opportunities
available to the Company. The Company is unable to predict the likelihood of
such legislation being enacted into law or the effects such legislation or
cost containment pressures would have on the Company. See "Business--Industry
Overview" and "Business--Government Regulation."
11
<PAGE>
RISK OF HAZARDOUS MATERIAL CONTAMINATION
The Company's clinical and site management activities have involved, and may
continue to involve, the controlled use of hazardous materials. Although the
Company believes that its safety procedures for handling the disposal of such
materials comply with the standards prescribed by state and federal laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for damages which, to the extent not covered
by existing insurance or indemnification, could have a material adverse effect
on the Company.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after the Offering. The initial public offering price
will be determined through negotiations between the Company and the
Underwriters and may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market price of the Company's Common
Stock could be subject to wide fluctuations in response to variations in
operating results from quarter to quarter, changes in earnings estimates by
analysts, worldwide market changes and competition in the CRO industry and
general economic conditions. Furthermore, the stock market has experienced,
and may further experience in the future, significant price and volume
fluctuations unrelated to the operating performance of particular companies.
These market fluctuations may have a material adverse effect on the market
price of the Company's Common Stock.
THE EFFECT OF CERTAIN CHARTER PROVISIONS; POTENTIAL PREFERRED STOCK ISSUANCE
Pursuant to the Company's Restated Certificate of Incorporation, to be
effective upon the closing of the Offering (the "Restated Certificate of
Incorporation"), special meetings of the stockholders may be called only by
the Chairman of the Board, the President or a majority of the Board of
Directors of the Company. The Restated Certificate of Incorporation also
provides for staggered three year terms for members of the Board of Directors
and the Company's Amended and Restated By-Laws (the "By-Laws"), to be
effective upon the closing of the Offering, contain specific procedures for
director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. In addition, the Company has 5,000,000
authorized shares of preferred stock of the Company (the "Preferred Stock"),
none of which will be outstanding upon completion of the Offering. Pursuant to
the Company's Restated Certificate of Incorporation, the Board of Directors
has the authority to issue Preferred Stock in one or more series, and, to the
fullest extent permitted by law, to fix the rights, preferences, privileges
and restrictions, including dividend, conversion, voting, redemption
(including sinking fund provisions) and other rights, liquidation preferences
and the number of shares constituting any series and the designation of such
series, without any further vote or action by the stockholders of the Company.
The Company has no present plans to issue any shares of Preferred Stock. The
amendment of any of the foregoing provisions of the Restated Certificate of
Incorporation requires an affirmative super-majority (two-thirds) stockholder
vote. Furthermore, the Company is subject to the provisions of Section 203 of
the General Corporation Law of Delaware. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person that, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. These charter and statutory provisions may
have the effect of deterring hostile takeovers or delaying or preventing
changes in control or management of the Company, including transactions in
which stockholders might otherwise receive a premium for their shares over
then-current market prices, and also could limit the price that investors
might be willing to pay in the future for shares of Common Stock. See
"Description of Capital Stock."
12
<PAGE>
DILUTION TO NEW INVESTORS
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net pro forma tangible book value per share of the
Common Stock of $7.53 per share. See "Dilution."
CONTROL BY CURRENT STOCKHOLDERS
Following the Offering assuming no exercise of the Underwriter's over-
allotment option, the Company's current stockholders will beneficially own
approximately 72% of the shares of Common Stock on a fully diluted basis, after
giving effect to the exercise of all outstanding options and other rights to
acquire Common Stock, and approximately 65% of the outstanding shares of Common
Stock and a single stockholder will beneficially own 33% of the shares of
Common Stock on a fully diluted basis, and approximately 41% of the outstanding
shares of Common Stock. As a result, such current stockholders will have the
ability to control the election of the Company's directors and the outcome of
corporate actions requiring stockholder approval. This concentration of
ownership could have the effect of discouraging potential take-over attempts
and may make more difficult attempts by stockholders to change the management
of the Company. See "Principal Stockholders."
ABSENCE OF DIVIDENDS
The Company has no present plans to pay cash dividends to its stockholders
and, for the foreseeable future, intends to retain all of its earnings for use
in its business. The declaration of any future dividends by the Company is
within the discretion of its Board of Directors and will be dependent on the
earnings, financial condition and capital requirements of the Company, as well
as any other factors deemed relevant by its Board of Directors. In addition,
the Company's current credit facility with First Union National Bank contains
covenants prohibiting the payment of cash dividends without the consent of the
lender. See "Dividend Policy."
BROAD DISCRETION IN ALLOCATION OF PROCEEDS
The Company has not designated any specific use for the majority of the net
proceeds of the Offering. Rather, the Company intends to use a majority of the
net proceeds for general corporate purposes, which may include acquisitions.
Accordingly, management will have significant flexibility in applying the net
proceeds of the Offering. See "Use of Proceeds."
SHARES ELIGIBLE FOR SALE
Upon completion of the Offering, of the 25,000,000 authorized shares of
Common Stock, 9,726,588 shares will be issued and outstanding or reserved for
issuance pursuant to the exercise of outstanding stock options and one
outstanding warrant. Upon completion of the Offering, the Company will have
7,753,053 shares of Common Stock outstanding. The 2,750,000 shares offered
hereby will be freely tradeable without restriction under the Securities Act of
1933, as amended (the "Securities Act"), except for any such shares held by
"affiliates" of the Company within the meaning of the Securities Act, which
will be subject to the resale limitations of Rule 144 promulgated under the
Securities Act ("Rule 144"). The Company believes that the remaining
outstanding shares, and the 1,414,084 shares issuable upon exercise of
outstanding options and one outstanding warrant, may be sold pursuant to Rule
144 or Rule 701 under the Securities Act in compliance with the limitations
thereof beginning 90 days after the Offering. In accordance with the terms of
the "lock-up" agreements entered into with the Company, the Company's
directors, executive officers and certain of its stockholders have agreed not
to sell the shares owned by each of them without the prior written consent of
Smith Barney Inc. for a period of 180 days following the first offer of shares
of Common Stock pursuant to this Prospectus, although in some cases, certain
transfers to affiliated parties are permitted. See "Shares Eligible for Future
Sale." Certain stockholders of the Company have the right to demand that the
Company register for resale, on not more than four occasions, an aggregate of
4,198,428 shares of Common Stock held by them or issuable upon the exercise of
one outstanding warrant. Such stockholders and certain other stockholders of
the Company have the right with respect to an aggregate of 4,380,616 shares of
Common Stock held by them or issuable upon the exercise of one outstanding
warrant to have such shares included in any subsequent registration by the
Company. See "Description of Capital Stock--Registration Rights." Sales of a
substantial number of shares of Common Stock in the public market, or the
possibility of such sales occurring, could adversely affect the market price of
the Common Stock.
13
<PAGE>
UNCERTAINTY OF FORWARD LOOKING STATEMENTS
All statements contained herein that are not descriptions of past or present
facts are based on current expectations. These statements are forward-looking
in nature and involve a number of risks and uncertainties. Actual results may
vary materially for the specific reasons discussed elsewhere in this Risk
Factors section. The Company believes that the risks and uncertainties in the
forward-looking statements are particularly significant because the Company's
strategy and projections assume, among other things, that the Company will be
able to maintain quality control, manage its growth and integrate future
acquisitions into its operations. The Company cautions potential investors not
to place undue reliance on any such forward-looking statements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered by the Company hereby, after deducting underwriting
discounts and estimated offering expenses, are estimated to be $27,132,500
($31,352,375 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share, which is the
mid-point of the range of the estimated public offering price. Of this amount,
approximately $4.0 million will be used for capital expenditures,
approximately $10.2 million will be used for the repayment of certain
indebtedness outstanding as of the date of this Prospectus and the balance of
such net proceeds of approximately $12.9 million will be retained for working
capital and other general corporate purposes including possible future
acquisitions and geographic expansion. Pending such uses, the Company intends
to invest the net proceeds in short-term, investment-grade interest-bearing
instruments.
The Company intends to repay from the net proceeds of the Offering a
subordinated secured venture capital loan of approximately $2.0 million, which
was made to Associates in August 1995 by Sirrom Capital Corporation, whose
successor is Sirrom Investments, Inc. This loan bears interest at the rate of
13.5% per annum and matures on August 10, 2000. The Company also intends to
repay from the net Offering proceeds all or a portion of (i) the $4.3 million
and $1 million subordinated notes payable by the Company to the former
stockholders of IMTCI in connection with the IMTCI stock acquisition, which
notes bear interest at the rate of 8.33% per annum and mature on April 1, 2001
and April 1, 2000, respectively, and (ii) the outstanding revolving credit
loans under the Company's current $7.5 million secured revolving credit
facility with First Union National Bank, the outstanding balance of which
bears interest at LIBOR plus 2%. That facility matures on June 30, 1999. See
Note 6 to Notes to Consolidated Financial Statements of the Company.
The Company's management will have broad discretion to allocate the net
proceeds of the Offering to uses it believes are appropriate. There can be no
assurance that the net proceeds of the Offering can or will be invested in a
manner that yields a positive return.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock for
the foreseeable future, and intends to retain all available funds for use in
the operation and expansion of its business. Pursuant to the terms of the
Series A Preferred Stock and related contractual arrangements, all accrued
cumulative dividends on the Series A Preferred Stock will be forfeited upon
the automatic conversion of the Series A Preferred Stock at the closing of the
Offering. In addition, the Company's current credit facility with First Union
National Bank contains covenants prohibiting the payment of cash dividends
without the consent of the lender. Any determination to declare or pay cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will depend on, among other things, the Company's financial
condition and results of operations, contractual restrictions now or hereafter
imposed by lenders and others, requirements of applicable law and other
considerations deemed relevant by the Company's Board of Directors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Capital
Stock."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, (i) on an actual basis, (ii) on an unaudited pro forma basis as
described in Note 1 below, giving effect to the repayment of certain debt with
proceeds from the First Union National Bank Credit Facility (the "Credit
Facility") and (iii) on an unaudited pro forma, as adjusted basis, adjusted to
give effect to the conversion of all outstanding shares of Series A Preferred
Stock to Common Stock and to give effect to the sale of 2,750,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $11.00 per share, which is the midpoint of the range of the
estimated public offering price (after deducting underwriting discounts and
estimated offering expenses), and the application of the estimated net proceeds
therefrom to repay approximately $9.4 million of indebtedness of the Company
(see "Use of Proceeds"). This table should be read in conjunction with the
Consolidated Financial Statements, the Pro Forma Condensed Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED
------------ ------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents............. $ 2,355,846 $ 2,355,846 $19,932,322
============ ============ ===========
Current maturities of long-term obli-
gations:
Related party notes payable.......... 747,734 747,734 --
Long-term debt....................... 22,176 22,176 22,176
------------ ------------ -----------
769,910 769,910 22,176
------------ ------------ -----------
Long-term obligations, net of current
portion:
Related party notes payable.......... 4,581,847 4,581,847 --
Long-term debt....................... 4,541,696 2,315,253 518,194
First Union Credit Facility.......... -- 2,226,443 --
------------ ------------ -----------
9,123,543 9,123,543 518,194
------------ ------------ -----------
Total long-term obligations........ 9,893,453 9,893,453 540,370
------------ ------------ -----------
Series A Redeemable Convertible
Preferred Stock, $.01 par value;
3,800,000 shares authorized;
1,658,082 shares issued and
outstanding (no shares issued and 20,128,894 20,128,894 --
outstanding, as adjusted)............ ------------ ------------ -----------
Stockholders' equity (deficit):
Common Stock, $.01 par value
25,000,000 shares authorized on an
actual, pro forma and as adjusted
basis;
3,046,036 shares issued on an
actual and pro forma basis and
9,062,458 shares issued on a pro
forma as adjusted basis (2)........ 30,460 30,460 90,624
Capital in excess of par value....... 3,751,460 3,751,460 50,952,690
Deferred compensation (3)............ (143,693) (143,693) --
1,545,540 shares of common stock in
treasury, at cost.................... (8,539,487) (8,539,487) (8,539,487)
Retained equity (deficit) (3)........ (1,297,553) (1,297,553) (1,644,187)
Cumulative foreign exchange adjust- (133,063) (133,063) (133,063)
ment................................. ------------ ------------ -----------
Total stockholder's equity (defi- (6,331,876) (6,331,876) 40,726,577
cit) .............................. ------------ ------------ -----------
Total capitalization........... $ 23,690,471 $ 23,690,471 $41,266,947
============ ============ ===========
</TABLE>
- --------
(1) Gives pro forma effect for the proceeds from the Credit Facility used to
repay a line of credit, a note payable and an equipment loan.
(2) Excludes (i) 1,660,320 shares of Common Stock reserved for issuance upon
exercise of outstanding options at an average exercise price of $4.42 per
share, (ii) 472,272 shares of Common Stock reserved for issuance upon
exercise of an outstanding warrant at an exercise price of $1.06 per share
and (iii) 197,000 shares reserved for future grant under the Company's 1997
Stock Option Plan. See "Management--Stock Incentive Plans" and Note 10 of
Notes to Consolidated Financial Statements.
(3) Gives pro forma effect to (i) the acceleration of unearned compensation
expense related to the stock options which vest upon the effective date of
the Offering and (ii) the recognition of an extraordinary loss as a result
of the early extinguishment of debt using proceeds from the Offering.
16
<PAGE>
DILUTION
As of June 30, 1997, the Company had a deficit in pro forma net tangible book
value of approximately $268,000, or $0.05 per share. Pro forma net tangible
book value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding
after giving effect to the conversion of the Series A Preferred Stock and the
effect of 236,136 shares of Common Stock issued pursuant to the exercise of
common stock warrants in August 1997. After giving effect to the sale by the
Company of the 2,750,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $11.00 per share, and after deducting the
estimated underwriting discount and estimated offering expenses, the pro forma
net tangible book value of the Company as of June 30, 1997, would have been
$26.9 million or $3.47 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $3.52 per share to existing
stockholders and an immediate dilution of $7.53 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $11.00
Pro forma net tangible book value (deficit) per share before
the Offering................................................... $(0.05)
Increase per share attributable to new investors .............. 3.52
------
Pro forma net tangible book value per share after the Offering.. 3.47
------
Dilution per share to new investors............................. $ 7.53
======
</TABLE>
The following table summarizes on a pro forma basis as of October 15, 1997,
after giving effect to the conversion of the Series A Preferred Stock, the
difference between existing stockholders and the new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 5,003,053 64.5% $22,646,989 42.8% $ 4.53
New investors................... 2,750,000 35.5% 30,250,000 57.2% 11.00
--------- ----- ----------- -----
Total......................... 7,753,053 100.0% $52,896,989 100.0% $ 6.82
========= ===== =========== ===== ======
</TABLE>
The preceding table assumes no exercise of outstanding options or warrants
subsequent to October 15, 1997 or the exercise of the Underwriters' over-
allotment option. As of October 15, 1997, there were 1,973,534 shares of Common
Stock reserved for issuance upon exercise of outstanding options and warrants
at a weighted average exercise price of $4.38 per share. To the extent that
these options or warrants are exercised, there will be further dilution to new
investors. See "Management--Stock Incentive Plans."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data as of December 31, 1996 and
June 30, 1997 and for the year and six-month period then ended, respectively,
have been derived from consolidated financial statements audited by Arthur
Andersen LLP, independent accountants. The selected consolidated financial
data as of December 31, 1993, 1994 and 1995 and the years then ended have been
derived from financial statements audited by Ernst & Young LLP, independent
auditors. The selected consolidated financial data as of December 31, 1992 and
June 30, 1996, and for the year and the six-month period then ended,
respectively, have been derived from unaudited consolidated financial
statements of the Company and have been prepared on the same basis as the
audited consolidated financial statements. In the opinion of management, the
unaudited consolidated financial statements reflect all adjustments that
management considers necessary for a fair and consistent presentation of the
financial position and results of operations for those periods. The results of
operations for the six-month period ended June 30, 1997, are not necessarily
indicative of the results of the Company's operations that may be expected for
the fiscal year ending December 31, 1997 or for any future annual or interim
period. The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements of the Company, and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------------- ------------------------
1992 (1) 1993 (1) 1994 (1) 1995 (1) 1996 (1) 1996 (1) 1997 (2)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERA-
TIONS DATA:
Professional fee reve-
nues................... $5,308,576 $ 8,427,788 $11,324,602 $13,656,890 $27,480,424 $11,482,017 $21,337,690
Less reimbursed costs... (468,238) (1,031,325) (1,273,185) (1,422,963) (5,970,684) (2,088,441) (3,290,456)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Net revenues........... 4,840,338 7,396,463 10,051,417 12,233,927 21,509,740 9,393,576 18,047,234
Operating costs and ex-
penses:
Direct costs........... 3,725,828 4,947,683 6,277,195 8,260,925 14,951,791 6,452,725 13,032,130
Selling, general and
administrative........ 1,402,153 2,753,569 2,853,080 3,334,028 4,160,843 1,912,286 3,995,790
Depreciation and
amortization.......... 259,246 354,127 281,578 257,895 446,926 180,683 640,118
Stock repurchase and
other equity -- -- -- -- 643,599 -- 22,106
compensation.......... ---------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating costs
and expenses.......... 5,387,227 8,055,379 9,411,853 11,852,848 20,203,159 8,545,694 17,690,144
---------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. (546,889) (658,916) 639,564 381,079 1,306,581 847,882 357,090
Other income (expense), (1,989) (56,581) 37,115 (247,975) (126,068) (186,396) (166,734)
net.................... ---------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (548,878) (715,497) 676,679 133,104 1,180,513 661,486 190,356
Provision (benefit) for 104,654 (288,297) 230,197 -- 415,652 232,906 90,499
income taxes........... ---------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... (653,532) (427,200) 446,482 133,104 764,861 428,580 99,857
========== =========== =========== =========== =========== =========== ===========
Preferred stock divi-
dends (3).............. -- -- -- -- (403,791) -- (874,390)
Accretion on common
stock warrants and
Series A Preferred -- -- -- (714,606) (1,897,071) (1,665,999) (57,582)
Stock (4).............. ---------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) avail-
able to common stock- $ (653,532) $ (427,200) $ 446,482 $ (581,502) $(1,536,001) $(1,237,419) $ (832,115)
holders................ ========== =========== =========== =========== =========== =========== ===========
Pro forma net income
(loss) per common and $ (0.12) $ 0.04
equivalent share (5)... =========== ===========
Pro forma weighted
average shares
outstanding (5)........ 5,718,857 6,977,297
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------- AS OF JUNE 30,
1992 1993 1994 1995 1996 1997
----------- ---------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 153,181 $ 367,745 $ 1,231,652 $ 2,474,000 $ 15,117,801 $ 2,355,846
Working capital ........ (1,401,835) (1,837,519) (183,872) 1,835,448 10,796,977 1,648,621
Total assets............ 2,345,681 3,132,428 4,260,370 9,399,809 26,624,293 36,374,777
Seller notes payable.... -- -- -- -- -- 5,329,581
Long-term debt, includ-
ing current portion.... 415,289 166,921 811,251 2,499,856 2,547,284 4,563,872
Redeemable Series A
Preferred Stock and
common stock warrants.. -- -- 250,000 1,293,701 19,196,922 20,128,894
Stockholders' deficit... (775,041) (1,027,349) (490,929) (693,615) (7,446,586) (6,331,876)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
SUPPLEMENTARY FINANCIAL INFORMATION:(6)
Pro forma net income (loss) per share as
reported..................................... $(0.12) $0.04
Impact on pro forma net income (loss) per
share of:
Accretion on common stock warrants............ 0.33 0.00
Stock repurchase and other equity
compensation................................. 0.11 0.00
------ -----
Supplementary net income per share............ $ 0.32 $0.04
====== =====
</TABLE>
- --------
(1) Does not include the results of IMTCI, which was acquired by PRA
International on April 1, 1997 or the results of Crucible, which was
acquired by IMTCI on May 19, 1997.
(2) Includes the results of IMTCI from April 1, 1997, the date of acquisition
by PRA International and the results of Crucible, from May 19, 1997, the
date of its acquisition by IMTCI.
(3) Primarily represents accrued (non-cash) dividends on Series A Preferred
Stock which will be forfeited upon the effectiveness of the Offering (see
Notes 3 and 8 of Notes to the Consolidated Financial Statements).
(4) Represents a non-cash adjustment to record the difference between the
carrying amount of redeemable common stock warrants and Series A Preferred
Stock and their redemption amounts. The redemption features of the
redeemable common stock warrants were removed in October 1996. The
redemption feature of the Series A Preferred Stock will expire upon the
conversion of the Series A Preferred Stock into Common Stock upon the
effectiveness of the Offering (see Notes 3 and 8 of Notes to the
Consolidated Financial Statements).
(5) See Note 3 to the Consolidated Financial Statements for discussion of the
computation of pro forma income (loss) per share and pro forma weighted
average shares outstanding.
(6) Supplementary net income per share reflects what net income per share
would have been before non-cash accretion on redeemable common stock
warrants and non-cash stock repurchase and other equity compensation.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and related Notes contained elsewhere in this Prospectus,
as well as the matters discussed in "Risk Factors." Except for the historical
information contained herein, the discussion in this Prospectus contains
certain forward-looking statements that involve risks and uncertainties.
OVERVIEW
The Company provides a broad range of clinical research and development
services on a contract basis to companies in the pharmaceutical and
biotechnology industries. Revenues are derived from services provided by the
Company, including Phase I-IV clinical trial design, management and
implementation, clinical data management and biostatistical analysis, medical
writing and regulatory services.
The Company has broadened its range of services in the United States and in
Europe through acquisitions and internal growth. In the past year, the Company
opened or acquired trials management operations in New Jersey, California and
Kansas, investigational sites in eight locations and a data management center
in Swansea, Wales. In April 1997, the Company acquired the capital stock of
IMTCI, a CRO with a trials management center and clinical investigational
sites in the Kansas City area. Of the aggregate purchase price of
approximately $15.3 million paid to IMTCI's stockholders, $8.0 million was
paid in the form of cash, $5.3 million was paid in the form of notes and $2.0
million was paid in the form of shares of Common Stock. In May 1997, the
Company, through IMTCI, also acquired the capital stock of Crucible, a site
management organization with clinical investigational sites in Atlanta and
Savannah and an investigational affiliation in San Juan, Puerto Rico. In
October 1997, the Company, through IMTCI Limited, acquired the assets of
Clinical Research Limited, a site management organization with an
investigational affiliation in Surrey, England. The Company expects to
continue to expand operations through internal growth and acquisitions.
The Company has experienced significant growth through internal expansion.
Prior to the formation of the Company, which owns all of the shares of
Associates and IMTCI, the Company's business was conducted entirely through
Associates and its wholly-owned European subsidiary, PRA GmbH. Net revenues of
Associates and its subsidiary grew 75.8% from $12.2 million in 1995 to $21.5
million in 1996. The Company has subsequently supplemented internal growth
through acquisitions and may continue to do so in the future.
The Company's backlog consists of anticipated net revenues from the
uncompleted portion of work from signed contracts and letters of intent. At
September 30, 1997, backlog was approximately $ million, as compared to $
million at September 30, 1996, a % increase. Since the contracts with its
clients contain cancellation clauses and clients' needs and interests change,
the Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results and no assurances can be given that the
Company will be able to fully realize all of its backlog as net revenue. See
"Business--Backlog" and "Risk Factors--Loss or Delay of Contracts; Pricing
Under Contracts."
The Company's clinical research and development service contracts generally
have terms ranging from several months to several years. A portion of the
contractual fee generally is payable at the time the contract is entered into,
with the balance payable in installments over the contract's term. Revenues
from the contract are generally recognized on a percentage of completion basis
as work is performed. As is customary in the CRO industry, the Company
routinely subcontracts with third party investigators in connection with
clinical trials and with other third party service providers for laboratory
analysis and other specialized services. These costs and other reimbursable
costs are passed through to clients and are included in gross revenues in
accordance with industry practice, and are then deducted to arrive at net
revenues. Consistent with industry practice, the Company views growth in net
revenues as its primary measure of revenue growth.
20
<PAGE>
Direct costs consist of compensation and related-fringe benefits for
project-related employees and support personnel, unreimbursed project-related
costs and allocated indirect costs, including facilities, information systems
and other costs. Selling, general and administrative expenses consist of
compensation and related fringe benefits for administrative, sales and
marketing employees, professional services, relocation, recruitment and
advertising costs, as well as unallocated costs related to facilities,
information systems and other costs.
Contracts of PRA GmbH, a wholly-owned subsidiary, through which the Company
principally conducts its European operations, are generally denominated in
German marks. Because the majority of PRA GmbH's expenses are paid in such
currency, its earnings are not materially affected by fluctuations in exchange
rates. However, the Company's financial statements are denominated in dollars
and, accordingly, changes in the exchange rate between foreign currencies and
the United States dollar will affect the Company's financial results. The
Company's cumulative foreign currency translation adjustment as of June 30,
1997 and for the period commencing on January 1, 1997 was not material.
Since the Company conducts operations on a global basis, the Company's
effective tax rate has depended and will continue to depend on the geographic
distribution of its revenue among locations with varying tax rates. The
Company's results of operations will be affected by changes in the tax rates
of the various jurisdictions. In particular, as the geographic mix of the
Company's income before income taxes among various tax jurisdictions changes,
the Company's effective tax rate may vary from period to period.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net revenues. The trends illustrated in the following
table may not be indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
----------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues ........... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Direct costs.......... 62.5 67.5 69.5 68.7 72.2
Selling, general and
administrative....... 28.4 27.3 19.3 20.3 22.1
Depreciation and
amortization......... 2.8 2.1 2.1 1.9 3.6
Stock repurchase and
other equity
compensation......... -- -- 3.0 -- 0.1
Other income
(expense), net....... 0.4 (2.0) (0.6) (2.0) (0.9)
------- ------- ------- ------- -------
Income before income
taxes ................. 6.7 1.1 5.5 7.1 1.1
Provision for income
taxes.................. 2.3 -- 1.9 2.5 0.5
------- ------- ------- ------- -------
Net income ........... 4.4% 1.1% 3.6% 4.6% 0.6%
======= ======= ======= ======= =======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net revenues for the six-months ended June 30, 1997 were $18.0 million, an
increase of $8.7 million, or 92.1%, from $9.4 million for the six-month period
ended June 30, 1996; $5.3 million of this growth was from the Company's
existing operations. This represents revenue growth from historical operations
of 56.4% for the six-month period ended June 30, 1997. The increase in net
revenues is due to the continued growth and expansion of existing trials
management centers, the opening of two new trials management centers, enhanced
business development efforts and the broadening of the Company's service
offerings; $3.4 million of this growth was from the acquisitions of IMTCI and
Crucible.
Direct costs for the six-month period ended June 30, 1997 increased
approximately $6.6 million to $13.0 million from $6.5 million for the similar
period ended June 30, 1996. This increase in direct costs is predominately due
to the costs associated with the acquired businesses, the expansion of
facilities and increased associated headcount for the same periods. Staff
levels increased 135.1% from 215.9 to 507.7 full time equivalent employees
21
<PAGE>
for the six-month periods ended June 30, 1996 and June 30, 1997 respectively.
The large increase in staffing levels is due to the workforce required to
support the increase in net revenues from existing contracts, required
headcount additions needed to facilitate the growth in backlog, anticipated
contract scope additions and changes, and the previously mentioned
acquisitions. This increase also is due to the start-up of operations in San
Francisco, California and Lenexa, Kansas. Historical direct costs at IMTCI
totaled $3.4 million for the six-month period ended March 31, 1997. In
addition, the Company incurred a one-time charge of approximately $150,000 in
the six-month period ended June 30, 1997 for the conversion of the Company to
a more flexible benefits program for its staff.
For the six-months ended June 30, 1997, selling, general and administrative
("SG&A") expenses were $4.0 million, an increase of $2.1 million, from $1.9
million for the six months ended June 30, 1996. The increase in SG&A expenses
is a result of the Company's efforts to enhance its infrastructure, primarily
in the areas of business development, administrative staffing at the executive
and professional levels and increasing the number of employees in accounting,
human resources and other administrative areas, which reflects the growth and
commitment to the ongoing training and development of the Company's staff. The
Company's SG&A expenses also increased due to costs associated with the
businesses it acquired during the six-month period ended June 30, 1997. By way
of illustration of these businesses' costs before they were acquired by the
Company, one of the businesses, IMTCI, had SG&A expenses of $1.9 million for
the six-month period ended March 31, 1997.
Depreciation and amortization increased $459,000 or 254.3% to approximately
$640,000 for the six-month period ended June 30, 1997 from $181,000 for the
six months ended June 30, 1996. This increase also was due to the Company's
geographic expansion with the opening of new trials management centers and
approximately $4.8 million of fixed asset purchases during the twelve-month
period ended June 30, 1997. The majority of these expenditures are related to
the Company's continuing development of its integrated information systems. In
addition, a significant portion of the increase was attributable to the
amortization of goodwill associated with the acquisitions of IMTCI and
Crucible which totaled $92,000.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues for 1996 were $21.5 million, an increase of $9.3 million, or
75.8%, from $12.2 million in 1995. This increase resulted principally from an
increase in the size, number and scope of existing contracts under management.
Net revenue growth during this period was solely from internal operations. The
Company was able to achieve this rate of growth while at the same time
maintaining a diversified portfolio with no single sponsor representing more
than 13% of consolidated net revenues.
Direct costs increased by $6.7 million, or 81.0%, to $15.0 million in 1996
from $8.3 million in 1995. This increase as a percentage of net revenues from
67.5% in 1995 to 69.5% in 1996, reflects the Company's commitment to the
training and hiring of professional and technical staff in certain therapeutic
fields; and the requisite staffing levels associated with the volume of
workflow. The growth in direct expenses was also related to the start-up of
operations in Red Bank, New Jersey and Swansea, Wales.
SG&A expenses were $4.2 million in 1996, an increase of $827,000, or 24.8%,
from $3.3 million in 1995. SG&A expenses decreased as a percentage of net
revenues from 27.3% in 1995 to 19.3% in 1996, due principally to the Company's
ability to spread these expenses over a larger net revenue base as the
Company's volume of business increased.
Depreciation and amortization increased by 73.3%, increasing to $447,000 in
1996 from $258,000 in 1995. The increase was primarily attributable to
increased depreciation expense as a result of capital expenditures for the
Company's integrated information systems, office equipment, furniture and
leasehold improvements associated with the growth of the Company, including
the start-up of operations in Red Bank, New Jersey and Swansea, Wales.
Simultaneously with the Company's sale of the Series A Preferred Stock in
October of 1996 the Company repurchased 1,545,540 shares of outstanding common
stock from certain investors and employees for approximately $9.2 million.
Approximately $633,000 of this amount was expensed as one-time compensation
22
<PAGE>
as certain of the shares were repurchased immediately succeeding the exercise
of employee stock options. The Company also recorded compensation expense of
approximately $11,000 for options whose exercise price was less than the then
fair market value of the common stock as determined by an independent
appraisal. These two non-cash one-time items resulted in the stock repurchase
and other equity compensation expense in 1996 of $644,000. The Company also
recorded non-cash charges associated with the accretion of warrants for
Associates' common stock, totaling $1.9 million and with non-cash dividends on
the Company's Series A Preferred Stock totaling $344,000, which will be
forfeited at the closing of the Offering.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues in 1995 were $12.2 million, an increase of $2.2 million, or
21.7%, from $10.1 million in 1994. This growth was solely from internal
operations and the increase in net revenues was primarily due to increases in
the number and size of contracts under management, expanded focus of the
Company on clinical trials management business development and increased
international revenues from its operations in Mannheim, Germany.
Direct costs in 1995 were $8.3 million, an increase of $2.0 million, or
31.6%, from $6.3 million in 1994. The increase in direct costs was due to the
expansion of international capabilities and the growth of operational staff in
Germany. In addition, the Company experienced an increase in direct costs
because a significant potential contract, which the Company anticipated being
awarded, was not awarded by the sponsor due to adverse preclinical results.
SG&A expenses were $3.3 million in 1995, an increase of $481,000, or 16.9%,
from $2.9 million in l994. As a percentage of net revenues, SG&A expenses
declined from 28.4% in 1994 to 27.3% in 1995. This decrease in SG&A expenses
as a percentage of net revenues was due to the Company's ability to spread
these expenditures over a larger revenue base.
Depreciation and amortization declined by $24,000, falling to $258,000 in
1995 from $282,000 in 1994; due to the Company's large amount of capital
expenditures in previous years to support the growth of the business.
During 1995, the Company recorded a non-cash charge of $715,000 for the
accretion of put provisions associated with various venture capital
financings. Those put provisions are no longer in effect.
ACQUISITIONS
For the six-month period ended March 31, 1997, net revenues for IMTCI
increased $1.2 million, or 29.8%, to $5.2 million from $4.0 million for the
same six month period ended March 31, 1996. IMTCI's net revenues of $10.5
million for the fiscal year ended September 30, 1996 increased $1.6 million,
or 17.4%, from $8.9 million for the fiscal year ended September 30, 1995. Net
income at IMTCI declined $266,000 for the comparable periods ended March 31,
1997 versus March 31, 1996 due to its growth in infrastructure and staff
levels. Net income for the fiscal years ended September 30, 1996 versus
September 30, 1995 declined $206,000 with the expansion of infrastructure and
staff levels.
Net revenues at Crucible grew to $984,000 for the year ended December 31,
1996 from immaterial net revenues in the previous year ended December 31,
1995; as the entity did not begin operations until December of 1995. Crucible
experienced a net loss of $37,000 for the year ended December 31, 1996 as a
result of start-up expenses.
QUARTERLY RESULTS
The following table sets forth unaudited consolidated operating results for
each of the last ten fiscal quarters in the period ended June 30, 1997. In
management's opinion, this unaudited quarterly information has been prepared
on the same basis as the audited consolidated financial statements and
includes all normal recurring adjustments necessary for a fair presentation,
when read in conjunction with the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. Operating results for any
quarter are not necessarily indicative of results for any full fiscal year or
any future interim period.
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Professional fee
revenues ...... $2,974,703 $3,184,177 $3,409,565 $4,088,445 $4,861,473 $6,620,544 $6,653,011 $9,345,396 $8,386,492
Less reimbursed
costs ......... (254,790) (319,851) (340,064) (508,258) (666,482) (1,421,959) (1,108,310) (2,773,933) (1,607,047)
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Net revenues.... 2,719,913 2,864,326 3,069,501 3,580,187 4,194,991 5,198,585 5,544,701 6,571,463 6,779,445
Operating costs
and expenses:
Direct costs.... 1,919,921 2,038,646 2,054,167 2,248,191 2,894,010 3,558,715 3,923,872 4,575,194 4,755,322
Selling, general
and
administrative. 848,366 810,685 805,527 869,450 842,101 1,070,185 987,805 1,260,752 1,434,229
Depreciation and
amortization... 64,348 64,816 64,059 64,672 87,463 93,220 105,187 161,056 204,461
Stock repurchase
compensation... -- -- -- 643,599 --
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Total operating
costs and
expenses....... 2,832,635 2,914,147 2,923,753 3,182,313 3,823,574 4,722,120 5,016,864 6,640,601 6,394,012
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Income (loss)
from
operations..... (112,722) (49,821) 145,748 397,874 371,417 476,465 527,837 (69,138) 385,433
Interest
expense........ (35,134) (73,148) (89,126) (166,550) (113,435) (114,153) (116,885) (117,259) (123,794)
Interest income. 15,133 8,316 16,984 20,099 34,732 63,863 68,114 189,272 181,335
Other income
(expense) net.. 101,770 1,303 (25,100) (22,522) (32,208) (25,195) (132) 37,218 (33,135)
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Income (loss)
before income
taxes.......... (30,953) (113,350) 48,506 228,901 260,506 400,980 478,934 40,093 409,839
Provision for
(benefit from)
income taxes... -- -- -- -- 91,723 141,183 168,630 14,116 194,845
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Net income
(loss)......... $ (30,953) $ (113,350) $ 48,506 $ 228,901 $ 168,783 $ 259,797 $ 310,304 $ 25,977 $ 214,994
========== ========== ========== ========== ========== =========== =========== =========== ===========
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30,
1997
-----------
<S> <C>
STATEMENT OF
OPERATIONS
DATA:
Professional fee
revenues ...... $12,951,198
Less reimbursed
costs ......... (1,683,409)
-----------
Net revenues.... 11,267,789
Operating costs
and expenses:
Direct costs.... 8,276,808
Selling, general
and
administrative. 2,561,561
Depreciation and
amortization... 435,657
Stock repurchase
compensation... 22,106
-----------
Total operating
costs and
expenses....... 11,296,132
-----------
Income (loss)
from
operations..... (28,343)
Interest
expense........ (245,398)
Interest income. 63,534
Other income
(expense) net.. (9,276)
-----------
Income (loss)
before income
taxes.......... (219,483)
Provision for
(benefit from)
income taxes... (104,346)
-----------
Net income
(loss)......... $ (115,137)
===========
</TABLE>
The Company's unaudited quarterly results have been, and are expected to
continue to be, subject to fluctuations. Quarterly results can fluctuate as a
result of a number of factors, including the commencement, completion or
cancellation of large contracts and the progress of ongoing contracts. A
portion of the services provided by IMTCI relate to health issues that are
seasonal in nature, resulting in IMTCI's financial results being somewhat
seasonal as well. Since a large percentage of the Company's operating costs
are relatively fixed, variations in the timing and progress of large contracts
can materially affect quarterly results. To the extent the Company's
international business increases, exchange rate fluctuations also may
influence these results. The Company believes that comparisons of its
quarterly financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance. See "Risk Factors--
Variation in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operations and growth, including
acquisitions, with cash flow from operations, borrowings and sales of equity
securities. Other than in connection with the share exchange pursuant to which
the Company became the holding company of Associates and in connection with
the exercise of certain outstanding stock options and warrants, there were
only four issuances of equity securities over the last two years: (i) the
issuance in August 1995 of a warrant to purchase shares of Class C Common
Stock of Associates, constituting six percent of the fully diluted capital
stock of Associates, at that time to Sirrom Capital Corporation (whose
successor is Sirrom Investments, Inc.) in connection with a $2 million loan,
(ii) the issuance in December 1995 and January 1996 of $500,000 of Class F
Preferred Stock of Associates to predecessors in interest to Virginia Capital,
L.P. and Sirrom Investments, Inc. and four members of the Company's
management, Earle Martin, James C. Powers, Joachim Vollmar and W. Bain
MacLachlan, (iii) the issuances in October and November 1996 of an aggregate
of approximately $19.37 million of Series A Preferred Stock and related
warrant agreements to certain affiliates of The Carlyle Group and to Virginia
Capital, L.P. and (iv) the issuance in April 1997 of $2 million of Common
Stock as part of the purchase price paid by the Company in connection with its
acquisition of IMTCI. Of the proceeds from the Series A Preferred Stock
issuance, approximately $9.2 million was used by the Company to repurchase
certain shares of, or options for, Common Stock, including approximately $7.0
million for the repurchase of shares of Common Stock from the founder of
Associates and certain of his family members. See "Certain Transactions."
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Total capital expenditures were approximately $182,000, $506,000 and $2.5
million in 1994, 1995 and 1996, respectively, and have amounted to
approximately $2.8 million in the six months ended June 30, 1997. Computers,
software, office equipment, furniture and facilities improvements have
accounted for a significant portion of the capital expenditures.
The CRO industry is generally not capital intensive. The Company's principal
cash needs on both a short-term and long-term basis are for the payment of
salaries, office rent and the travel expenditures of its clinical research
associates. The Company plans to continue to expand its investigational site
management business. In addition, the Company is implementing a new
information technology platform requiring anticipated capital expenditures of
approximately $6.7 million of which approximately $3.8 million has already
been spent over the twelve-month period ended September 30, 1997. The Company
has historically financed these expenditures through operations and
borrowings.
The Company utilizes its working capital to finance operating expenses
pending receipt of its receivables. Contract payments by the Company's clients
vary according to the terms of each contract.
The Company recently established the Credit Facility, which is a $7.5
million secured revolving credit facility with First Union National Bank
maturing on June 30, 1999. The Company's obligations in respect of the Credit
Facility are guaranteed on a secured basis by each of Associates, IMTCI and
Crucible. The Company intends to repay any outstanding balances under the
Credit Facility with a portion of the net proceeds of the Offering. After the
completion of the Offering, the Company intends to replace the Credit Facility
with a new $17.5 million secured revolving credit facility for working
capital. PRA GmbH has a 1.0 million German mark line of credit facility with
Deutsche Bank AG, which is secured by an assignment of PRA GmbH's receivables.
The Company expects to continue expanding its operations through internal
growth and strategic acquisitions. The Company expects that such activities
will be funded from existing cash and cash equivalents, cash flow from
operations, the net proceeds of the Offering, borrowings under the Credit
Facility or other credit facilities and, possibly, the issuance of equity or
debt securities. The Company believes that its existing sources of cash will
be sufficient to fund the Company's current operations for the foreseeable
future. Although the Company has no present acquisition agreements or
arrangements, there may be acquisition or other growth opportunities that
require additional external financing, and the Company may from time to time
seek to obtain funds from public or private issuances of equity or debt
securities. There can be no assurances that such financings will be available
on terms acceptable to the Company.
CHANGE IN ACCOUNTANTS
Pursuant to a letter dated February 7, 1997 from Patrick K. Donnelly to
Ernst & Young LLP ("E&Y LLP"), the Company dismissed its accountants, E&Y LLP.
This decision was recommended by the audit committee of the Company's Board of
Directors and approved by the Company's Board of Directors.
E&Y LLP's report for the years ended December 31, 1993, 1994 and 1995 did
not contain an adverse opinion or disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope, or accounting principles.
Furthermore, during the entire period that the Company had engaged E&Y LLP and
up until the time of E&Y LLP's dismissal, there were no disagreements between
the Company and E&Y LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure that, if not
resolved to E&Y LLP's satisfaction, would have caused it to make reference to
the subject matter of such disagreements in connection with its report.
In January, 1997, the Company engaged Arthur Andersen LLP as the Company's
principal accountants. This engagement was recommended by the audit committee
of the Company's Board of Directors and approved by the Company's Board of
Directors. Prior to their engagement, the Company did not consult with Arthur
Andersen LLP with respect to any substantive matter, including the application
of accounting principles, audit opinions, any reporting issue, any
disagreement with the former accountant or any reportable event.
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BUSINESS
GENERAL
PRA International, Inc. (the "Company") is a leading contract research
organization ("CRO"), providing clinical research and development services on
an international basis to the pharmaceutical and biotechnology industries. The
Company believes that, based on net revenues, it is one of the 10 largest
full-service CROs in the world focused on managing human clinical trials. It
also believes that it is one of only several of these CROs capable of
providing a full range of clinical development services on an international
basis. Since January 1, 1996, the Company has conducted 288 programs for 68
sponsors, including 22 of the 25 largest international pharmaceutical
companies in the world as measured by revenues and 11 of the 25 largest
biotechnology companies in the United States as measured by market
capitalization. The Company currently has preferred provider relationships
with eight pharmaceutical and biotechnology companies and is one of the three
principal vendors of CRO services at another seven pharmaceutical and
biotechnology companies. The Company's pro forma net revenues for the six
months ended June 30, 1997, giving effect to the April 1, 1997 acquisition of
International Medical Technical Consultants, Inc. ("IMTCI") as if it had
occurred on January 1, 1997, were approximately $21.0 million and, on
September 30, 1997, it had approximately 614 employees.
The Company offers a full range of services on a global basis that comprise
the clinical development process, from preparation of Investigational New Drug
("IND") applications and first-administration-in-man (Phase I) studies,
through large-scale clinical trials (Phases II--III) studies, to product
marketing registration in the United States and Europe and post-marketing
(Phase IV) studies. Specific services performed by the Company include
clinical program development, study protocol design, project management,
investigational site selection, regulatory document management, study
compliance monitoring, medical monitoring, data collection and management,
biostatistical analysis, medical writing and regulatory document preparation
and submissions. In addition to these standard services, the Company offers
specialized services that it believes enables it to offer greater value to its
clients. These services include single site proof of concept studies, senior
level strategic advisory services, investigational site management services, a
centralized Investigational Review Board ("IRB"), and long term safety
assessment and reporting services.
The Company has provided clinical research and development services in North
America since 1982 and in Europe since 1992. The Company conducts its
operations through four trials management centers in the United States located
in Virginia, Kansas, New Jersey and California, one European trials management
center located in Mannheim, Germany, a 56-bed inpatient facility and a
dedicated outpatient clinic in the Kansas City area, seven investigational
sites located in the Kansas City area, Atlanta and Savannah as well as
investigational affiliations in Surrey, England and San Juan, Puerto Rico, and
a data management center in Swansea, Wales. In 1996, the Company derived 69%
of its net revenues from United States operations and 31% of its net revenues
from European operations and, for the six months ended June 30, 1997, it
derived 80% of its net revenues from United States operations, the increase
being largely due to two acquisitions in the United States, and 20% from
European operations.
The Company utilizes a decentralized operating model that empowers local
professionals at each of the Company's trials management centers to make key
operational decisions while supporting large-scale, global trials. By
strategically locating full service trials management centers near major
sponsors and permitting each center to be responsive to clients, the Company
believes it enhances service quality and client relationships. All of the
Company's trials management centers are integrated through shared business
practices, standard operating procedures and common information systems. As a
result, each trials management center can deliver services reflecting the
international expertise, support and resources of the entire Company.
The Company believes that its depth of clinical management is significantly
greater than other CROs of similar size and scope and that, drawing on these
resources, it has developed significant expertise in clinical development as
well as in a number of therapeutic areas. The Company's staff of 614 employees
includes an
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extensive roster of senior level scientific, regulatory and clinical experts
providing direction and oversight to clinical development projects and day-to-
day operations, including 16 who are M.D.s, 35 who have Ph.D.s, 3 who are
Pharm.D.s, and 74 others who have master's level degrees. In addition, the
Company has retained a number of distinguished industry advisors and
consultants who assist as needed in providing input into drug development and
regulatory approval strategies for clients and in developing recommendations
concerning potential improvements to the Company's clinical development
procedures. The Company believes that this depth of clinical management has
enabled it to establish significant expertise in a number of therapeutic areas,
namely oncology, central nervous system disorders, cardiovascular diseases and
allergy and respiratory conditions.
INDUSTRY OVERVIEW
The clinical testing and regulatory approval process for new drugs and
biological products is expensive and time-consuming. The CRO industry, which
has developed over the past twenty years, has enabled pharmaceutical companies
and other drug development sponsors to contract out portions of the clinical
development process to specialists with the resources and expertise to perform
studies and other services faster and at lower cost than most sponsors are able
to achieve internally. CROs also allow sponsors to shift the significant fixed
labor costs inherent in establishing this function in house to variable costs
through the outsourcing of these services. In addition, the largest CROs enable
resource constrained biotechnology companies to outsource all aspects of their
clinical development requirements. By performing drug studies faster, CROs
provide sponsors the economic advantages of early market entry as well as
extending the period during which their products benefit from patent
protection.
CROs derive substantially all of their revenues from the research and
development expenditures of sponsors. The CRO industry has evolved from its
early days in the 1970s, when it provided limited clinical services, into a
full-service industry that encompasses the entire clinical research and
development process, including preclinical services, clinical study planning
and design, regulatory consulting, clinical trials management, investigational
site management, data management, biostatistical analysis, and long term
product safety management. All of these services must be provided in accordance
with applicable international governmental regulations covering clinical trials
and the drug approval process in the jurisdictions in which the services are
provided. These services must be tailored to meet these regulations
simultaneously, including the regulations of the Food and Drug Administration
(the "FDA") in the United States and the European Medicines Evaluation Agency
("EMEA") in Europe.
In 1996, worldwide expenditures on research and development by
pharmaceutical, biotechnology and medical device companies are estimated to
have been $35.0 billion, of which the Company estimates $18.0 billion was spent
on drug development activities of the type offered by the CRO industry. The
Company believes that approximately $3.0 billion of such spending was
outsourced to CROs for traditional trials management services and an additional
$3.0 billion was spent on grants to investigational sites.
In general, the CRO industry is not capital intensive and the costs of entry
into the industry are relatively low, though there has been an increase in
those costs over the past few years due to industry consolidation and the
demand for expertise and global capacities for larger programs. Because of this
historic ease of entry, the industry is highly fragmented, with several hundred
small, limited service providers, several dozen medium-sized firms and several
full-service CROs with international capabilities. Although there are few
barriers to entry for small, limited-service providers, there are significant
barriers to becoming a full-service CRO with international full drug
development program capabilities. Substantial financial resources, a developed
infrastructure and operational experience are required to develop broad
therapeutic expertise, manage and conduct complex clinical trials, coordinate
trials at both domestic and international locations, prepare multi-national
regulatory submissions and conduct large clinical programs with the level of
control and quality currently required by sponsors. The barriers to becoming a
full-service CRO combined with the expansion of some larger CROs have led to an
increased rate of industry consolidation.
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INDUSTRY TRENDS
The Company believes that increased outsourcing of drug development
activities by sponsors has led to significant growth in the CRO industry.
Although there can be no assurance that this growth will continue or even
remain at existing levels, the Company believes that this growth should
continue for the following reasons:
Cost Containment Pressures
Cost containment pressures on pharmaceutical companies arising from market
acceptance of generic drugs, managed care and impending patent expirations
have led to increased scrutiny of product development expenditures. The
Company believes the pharmaceutical industry is responding by consolidating
and reducing jobs, centralizing the research and development process and
outsourcing to CROs creating variable costs, thereby reducing the fixed costs
associated with internal drug development. The CRO industry, by specializing
in clinical trials management, is often able to perform the needed services
with a higher level of expertise or specialization, more quickly and at a
lower cost than could the client if it were to perform these services
internally.
Globalization of Drug Development
Many sponsors are attempting to develop products and file for regulatory
approval simultaneously in the United States and Europe, rather than following
the past practice of sequential filings. The clinical studies to support such
development and registration efforts often include a combination of multi-
national European and United States trials. Sponsors may turn to CROs for
assistance in designing and implementing such trials as well as assistance in
obtaining global regulatory approvals. The Company believes CROs with
integrated global capabilities will benefit from this trend.
Increasingly Complex Trials
Regulations regarding the development and approval of drugs and biological
products have become increasingly stringent in both the United States and
Europe, resulting in a need for more complex and often larger clinical
studies. These trends have created an increased demand for high level
consulting services as well as enhanced capabilities in program management and
logistics, large-scale data collection and analysis, and the related need for
greater technological capabilities to track and control clinical studies,
manage clinical data and ensure its reliability, and expedite the review and
approval process. As a result, the pharmaceutical and biotechnology industries
are increasingly outsourcing to CROs to manage the added workloads created by
these regulatory requirements and to take advantage of their data management
expertise, technological capabilities and global presence.
Biotechnology Industry Growth
The United States biotechnology industry has grown rapidly over the last ten
years and has developed a significant number of new drug candidates that are
now entering the clinical phase of development. According to the
Pharmaceutical Research and Manufacturers of America, from 1989 to 1996, the
number of biotechnology products in clinical trials rose from 80 to over 280,
an annual compounded rate of growth of approximately 20%. Many biotechnology
companies do not have the necessary staff, expertise or financial resources to
conduct clinical trials in house and obtain regulatory approval on their own.
Accordingly, many biotechnology companies have chosen to use CROs rather than
spend significant time and resources to develop an internal clinical
development capability. The biotechnology industry is now also expanding into
and within Europe, providing growth opportunities for CROs with international
capabilities that have experience with biotechnology companies' requirements
and compounds. The Company believes it will benefit from this trend due to its
integrated European capabilities and significant experience working with
biotechnology companies.
Increased Use of Preferred CROs and Increase in Average Contract Size
As the CRO industry has matured and pharmaceutical and biotechnology
companies have gained increased confidence in CROs, certain sponsors have
begun to work primarily with a limited number of preferred provider
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CROs and contract size has increased. Whereas sponsors initially contracted
with CROs for selected portions of clinical studies, such as clinical
monitoring or data management, some sponsors are now outsourcing drug
development in its entirety including planning, design and implementation of
entire drug development programs. While these programs are typically awarded
in stages, they can involve total net revenue of $20 million or more. The
Company believes that these factors are further fueling the growth of larger
CROs capable of conducting international clinical development.
Increased Emphasis on Therapeutic Expertise and Value-Added Services
The Company believes there is an increasing need for therapeutic expertise
in order for a CRO to obtain contracts relating to a particular therapeutic
area. In addition, sponsors have increased their demand for value-added
services from CROs, such as consulting and advisory services and site
management organization ("SMO") services. The Company believes that CROs such
as itself that offer therapeutic expertise in targeted specialty areas and
advisory, SMO and other value-added services will likely be the greatest
beneficiaries from these trends.
COMPANY STRATEGY
The Company's goal is to maintain and enhance its position as an industry
leader in the delivery of reliable, high quality, cost-effective and timely
clinical development services enabling sponsors to bring new health care
products to market faster and more efficiently. Key elements of the Company's
strategy to achieve its goal are described below.
Offer Comprehensive Range of Clinical Development Services
The Company plans to retain its focus on clinical development services, from
preparation of INDs and first-administration-in-man through international
marketing registrations, and continue to enhance and expand its full range of
services in this market on an international basis. The Company believes that
CROs able to offer a full range of product development services are more
attractive to sponsors because using a single CRO can simplify the process for
the sponsor and increase the speed, integration and accuracy of clinical data
collection. The Company currently offers a full range of global services that
encompasses the clinical development process, including drug development and
regulatory approval strategies, protocol design, initiation and management of
Phase I--IV clinical trials, data management, analysis and reporting and
regulatory support services. By continuing to focus on clinical development
services, the Company believes it can maintain and expand its core business,
while providing high levels of quality and reliability.
Expand and Enhance Areas of Therapeutic Expertise
The Company believes its experience and expertise in certain therapeutic
areas as well as its ability to provide specialized value-added services
enhances its credibility with sponsors and improves overall quality. For
instance, the Company not only has significant expertise in allergy and
respiratory disease, but also owns and operates a therapeutic specialty center
in the allergy and respiratory disease areas with dedicated inpatient and
outpatient clinics. The Company also believes it has established significant
expertise in oncology, central nervous system disorders and cardiovascular
diseases. The Company plans to continue to enhance its ability to deliver high
quality global expertise in targeted therapeutic areas, including preparation
of full clinical development plans, design of study protocols, and efficient
conduct of early proof-of-concept studies, by developing or acquiring
additional therapeutic specialty centers.
Provide Specialized Services
In addition to establishing areas of therapeutic expertise, the Company
provides a number of value-added services that differentiate the Company from
other CROs of similar size and some that are larger. These include
comprehensive senior level advisory services related to drug development and
regulatory approval strategy,
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design and conduct of full drug development programs, investigational site
management services, safety management services, and supporting specialty
services such as centralized patient enrollment support and a centralized IRB.
Continue to Invest in Integrated Information Systems
The Company currently operates an international client-server network that
supports both centralized and distributed Oracle-based applications, advanced
PC-based professional office applications and high level end-user reporting
tools. The Company is expanding its existing integrated clinical operations
information system so as to enable users anywhere in the world to monitor or
manage all aspects of a drug development program conducted by the Company. The
system is designed to integrate a full suite of clinical development
applications including clinical study management, protocol design, patient
enrollment, investigational site administration, source document and case
report form ("CRF") data capture and management, safety monitoring and
reporting, data management, statistical analysis, reporting and regulatory
document submission.
Grow Internally and Through Selected Acquisitions
The Company intends to continue to grow internally and through acquisitions.
To this end, the Company may pursue selected acquisitions that enhance its
geographic presence, enlarge the scope of its therapeutic expertise, enhance
its access to investigational sites or enable it to provide value-added
specialty services.
SERVICES
The Company's services are comprehensive and are packaged to meet the unique
requirements of each program for each sponsor. Specific services are outlined
in more detail below and are viewed by the Company as falling into two general
categories. The first category includes the component services that form the
core of the Company's clinical trials management business. The second category
includes services that enable the Company to offer broader solutions and
higher value to its clients and, in some instances, go beyond traditional CRO
capabilities.
Core Clinical Trials Services
Study Protocol Design. The study protocol defines the medical issues to be
examined in evaluating the safety and efficacy of the drug under study, the
number of patients required to produce statistically valid results, the
clinical tests to be performed in the study, the time period over which the
study will be conducted, the frequency and dosage of drug administration and
the exact inclusion and exclusion criteria to be met for the patients enrolled
in the study. The success of a study depends not only on the ability of the
protocol to predict correctly the requirements of regulatory authorities, but
also on the ability of the protocol to fit coherently with the other aspects
of the development process and the ultimate marketing strategy for the drug.
Case Report Form Design. Once the study protocol has been finalized, CRFs
must be developed to record the information obtained from the clinical
studies. Various technical disciplines involved in the drug development
process must work closely together to assure that the CRF is the most
efficient for collection of clinical data and subsequent data entry,
management and reporting. Proper CRF design is critical to enable
investigators and field monitors to conduct their respective jobs quickly,
accurately and effectively.
Phase I and Phase II Single Site Studies. The Company offers Phase I
clinical testing services through its 56-bed inpatient facility located in
Lenexa, Kansas. The facility has conducted more than 250 dose escalation,
pharmacokinetic, pharmacodynamic and radio-labeled drug studies and is
equipped with state-of-the-art diagnostic, monitoring and testing equipment to
address a wide variety of study requirements. The Company also conducts early
Phase II proof-of-concept studies at its facilities in Lenexa, Kansas. At this
facility, the Company has the ability to conduct single site inpatient and
outpatient studies and handle a large number of patients in a short time
period.
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Clinical Trials Management. The Company conducts Phase II-IV clinical trials
through a dedicated project teams that consist of staff from clinical
monitoring, data management, medical affairs, statistical and regulatory
departments, keeping the makeup of the team stable throughout the life of the
project. A project team could be comprised of representatives from multiple
regional centers and from various international locations. A project manager
supervises all aspects of the clinical trial and is responsible for meeting
the project's schedule and budget as well as for managing and meeting customer
expectations. Each of the Company's project managers has a minimum of six
years of clinical study experience. The Company believes that its approach to
project management provides a high level of quality as well as a
responsiveness to customer needs.
Investigator Recruitment. During a clinical trial, administration of the
experimental drug to patients is supervised by physician investigators at
hospitals, clinics or other locations. The Company generally enters into an
independent contractor relationship with the investigators to perform this
work. The successful rapid identification and recruitment of investigators who
have the appropriate expertise and base of patients to satisfy the
requirements of the study protocol are critical to the timely initiation and
completion of the trial. In addition to using its own SMO sites, the Company
maintains and continually expands and refines a computerized database of
independent investigators to assist project managers in identifying
investigational sites for a particular study.
Study Monitoring. The Company provides study monitoring services, which
include: investigational site initiation, patient enrollment assistance, data
collection and auditing for regulatory compliance, adherence to Good Clinical
Practices ("GCP") and compliance with study protocols. The Company
distinguishes itself from many of its competitors by hiring only experienced
health care professionals as field monitors, both to maintain higher quality
and to perform field monitoring in a more timely manner than possible with
less experienced staff. The Company's study monitoring services enable it to
obtain patient data from the field efficiently, quickly and accurately to
speed subsequent data entry, management and analysis, and report writing. The
Company's key focus is upon ensuring the reliability of the data. This is
accomplished by maintaining high quality data collection procedures. With
reliable data, the Company is able to prevent delays in clinical trials that
would otherwise result from re-collection or reconfirmation of inaccurate
data. The Company acquires data via electronic means, through visits by its
field monitors to investigational sites, and by its coordinators on location
at the Company's own SMO sites.
Medical Monitoring. The Company retains medical doctors on its staff in
clinical trials management centers to assist the project teams, provide
training in therapeutic areas for clinical monitors, and monitor and report in
a timely manner any adverse events detected in any of its clinical trials.
Data Management and Biostatistical Services. The Company provides clients
with data management and biostatistical services in various areas such as:
study design, sample size determination, case report form design and
production, data analysis plans, patient randomization, fax-based data
collection and monitoring, database design and construction, regulatory
document preparation, biostatistical analysis and presentation of clinical
study results to the FDA. The Company also provides database integration
services in which it consolidates and harmonizes data collected from many
clinical studies into a single integrated database for further analysis and
regulatory submissions. Drug development time is reduced by performing data
management and biostatistical analysis activities in parallel with other drug
development activities where possible. For example, data management personnel
work with clinical project managers and field monitors to continuously enter
data, program statistical tables and validate the database so that there is a
rapid progression from data entry to database freeze, and then to statistical
analyses. Similarly, there is a close working relationship between medical
writing and regulatory services personnel.
Medical Writing and Regulatory Support. The Company provides medical,
statistical and integrated report writing services to assist sponsors in
presenting study findings, and regulatory services to assist in the
preparation and submission of regulatory filings. These services are fully
integrated into the Company's clinical study project plans and are generally
performed by Ph.D. level staff.
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Additional Value-Added Services
Strategic Advisory Services. The development of drug development programs
and regulatory approval strategies is a critical area for the Company as, more
and more frequently, sponsors request that the Company take responsibility for
the design and management of entire drug development programs. In response,
the Company established a business unit, PRA Strategic Advisory Services, to
supply the skills and competencies necessary for delivering its high level
consulting services. The PRA Strategic Advisory Services group consists of
full time senior members in major functional disciplines, a Scientific
Advisory Board, retained consultants that are nationally or internationally
recognized scientific and clinical experts, and its senior operations
management team. This group provides consultation on global regulatory
strategy plans, drug development program plans, clinical study project plans
and similar high level plans as part of its strategy to obtain and implement
large-scale contracts.
Investigational Site Management Services. The Company offers investigational
site management services both in conjunction with its other CRO services and
as a separate service sold directly to sponsors and others. The Company's site
management services are conducted through an independent subsidiary with
separate operations management from the Company's trials management business
at seven investigational sites in the Kansas City area, Atlanta and Savannah
as well as through investigational affiliations in Surrey, England and in San
Juan, Puerto Rico. This separation of operations permits clinical monitors to
be completely independent of the investigational sites that they monitor and
audit, as well as allowing the Company to market its SMO services to other
CROs. The Company's model for its SMO services is to enter into exclusive
contracts with the investigators at each site, under which they agree to
provide the Company with office space for its staff and to perform medical
evaluations and procedures on a fee-for-service basis in strict accordance
with study protocols. The Company staffs the sites with its own study
coordinators (generally registered nurses with experience in managing clinical
studies), trains the physicians in the fundamentals of clinical research and
in the specifics of each study placed at their site, manages study-related
regulatory issues, schedules and manages all subject screening and follow-up
visits, performs sales and marketing functions and provides all other business
support functions required to conduct clinical studies. Through this
relationship, the Company seeks to achieve a substantial degree of control
over the manner in which the clinical research is conducted while its
physician-investigators receive early access to important new therapies and an
additional stream of revenue from existing patients. The Company seeks to
enter into contracts with investigators that contain standard non-compete
clauses that prohibit them from working with other SMOs.
The Company believes that its SMO services are attractive to sponsors since
these services allow them to avoid the delays of up to several months in
initiating large clinical studies due to the need to negotiate contracts with
the many investigators involved and obtain IRB approvals from the institutions
with which these investigators are associated, as well as delays caused by
slow enrollment at certain sites where clinical studies may receive lower
priority than other clinical activities. Sponsors conducting studies in the
Company's areas of therapeutic expertise also will benefit from the Company's
access to investigational sites that specialize in these areas. In the future,
the Company intends to expand its number of SMO investigational sites to the
extent that demand for SMO services continues to exist and the provision of
these services continues to be consistent with the Company's overall business
strategy.
Safety Management Services. The Company provides management consulting on
drug safety issues, integration of clinical databases for analysis of short
and long term drug safety and tolerability, routine assessments of adverse
drug reactions, periodic reporting to regulatory agencies and single case
reports of adverse events associated with ongoing clinical studies through its
Safety Management Centers in Charlottesville, Virginia, Red Bank, New Jersey,
and Mannheim, Germany. Safety issues may lead to premature drug withdrawals
from the market and thereby limit the life cycle of a product, resulting in
financial losses. Drug safety activities are determined by national
legislation and involve personal liability of pharmaceutical manufacturers in
some countries. Timeframes for fulfilling reporting requirements are strict
and of critical importance to the pharmaceutical companies. Excellent routine
performance may protect sponsor organizations
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against safety issues or at least limit their impact on the individual
company. Some organizations, especially biotechnology, companies that sell
over the counter products, and certain foreign companies operating in Europe
and the United States, are not well prepared to fulfill the international
regulatory requirements because of the lack of a well established in house
drug surveillance system.
Centralized Investigational Review Board. The Company provides IRB services
to its own investigational sites and to others through a board of independent
outside participants. Centralized IRB services help expedite clinical trials
by reducing the amount of time needed to initiate investigational sites and to
approve changes to the study protocol, informed consent form and other
documents.
Patient Recruitment Services. The Company operates a centralized patient
recruitment center that prepares and places media advertising and operates
inbound and outbound telemarketing services to assist investigational sites in
identifying and enrolling subjects.
Data Management Center. The Company operates a high throughput data
management center in Swansea, Wales where CRF pages are scanned into
electronic image databases and prepared for analysis.
Therapeutic Specialty Center. The Company operates a therapeutic specialty
center in the areas of asthma, allergy and pulmonary disease, which has
dedicated inpatient and outpatient clinics and associated specialized
equipment and procedures. Access to additional therapeutic expertise is
available through the Company's affiliated sites.
CUSTOMERS AND MARKETING
The Company's marketing activities are conducted by the Company's senior
operations management and staff and by dedicated account executives who
identify prospective new business and coordinate the staff involved in a
typical sales cycle. New sales opportunities generally are identified through
industry contacts, routine marketing programs conducted by account executives,
operations staff relationships with sponsors and attendance at industry trade
shows and scientific meetings. In addition to account executives assigned to
each regional trials management center and site management center, the Company
expects each of its senior operations managers to actively solicit new
business from existing accounts and from their contacts within the industry.
The Company has worked with 22 of the top 25 largest international
pharmaceutical companies in the world as measured by revenues, and 11 of the
25 largest biotechnology companies in the United States as measured by market
capitalization, and has preferred provider relationships with several of these
companies. Since January 1, 1996, the Company has provided services to 68
sponsors in connection with 288 programs.
To be a "preferred provider" in the CRO business means to be among the pre-
qualified CRO service providers a pharmaceutical or biotechnology company
ordinarily utilizes for clinical trial services, pursuant to previously
established forms of agreements and documents. Preferred provider
relationships are not contractual and there is no obligation on the part of a
customer to use any particular preferred provider in connection with a
proposed clinical trial or, in fact, to use a preferred provider at all. There
is no preferential pricing associated with any of the Company's preferred
provider relationships. This preferential relationship, however, is highly
valued in the CRO industry in order to obtain access to a significant amount
of potential business with a sponsor and a steady stream of projects of
varying sizes that assist in maintaining a high level of staff utilization.
The Company believes that high staff utilization is a primary determinant of
profitability for CROs. Sponsors expect the Company to be responsive in its
preferred provider relationships, and sponsors benefit from the Company's
familiarity with their internal business practices and operating procedures.
The Company believes that concentration of business among certain large
clients is not uncommon in the CRO industry. It has taken certain steps to
mitigate this risk, including its regional operations strategy, which allows
for simultaneous development of a number of key accounts by senior operations
staff in each of its five trials management centers, and a general business
development strategy that focuses on the development of preferred provider
relationships with a wide array of sponsors. However, with the market shift
toward awarding
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larger and larger program responsibilities to CROs, the Company may, from time
to time, have a significant percentage of its resources attributable to
several sponsors with which large international trials are then in progress.
In 1995, two clients accounted for approximately 13% and 11% of the Company's
net revenues. During 1996, two different clients accounted for approximately
13%, and 11% of the Company's net revenues. For the six-month period ending
June 30, 1997, two different clients accounted for approximately 15%, and 10%
of the Company's net revenues.
INFORMATION TECHNOLOGY
The Company believes that effective use of information technology is
critical to its ability to implement its strategy and that corporate
applications, databases, and network services should act as a unifying
structure, which supports communications, integration of project teams and
collaboration among staff associated with any Company business located
anywhere in the world. It believes that its investment in information
technology has and will continue to result in systems that expedite the
clinical development process, provide information that permits timely
monitoring and control of both projects and overall business performance, and
generally provide opportunities for competitive differentiation. For the
twelve-month period ended September 30, 1997, the Company invested
approximately $3.8 million in systems and technology, and it expects to
continue to invest at this level for the foreseeable future. It has developed
a sophisticated information management infrastructure and established state-
of-the-art business practices for the management and implementation of
advanced information systems.
Technical Platform
The Company's goal is to maintain a flexible and adaptable technical
environment that facilitates the exchange of information among applications,
provides for ready access by business users to data for ad hoc analysis and
reporting, and simplifies integration of new applications into the existing
environment. Toward this end, the Company has implemented a standardized
technical architecture that supports traditional centralized applications,
distributed client/server applications and web-based applications, and
provides for loose integration between applications through a common ORACLE(R)
database. The Company supports standardized access by its clients and more
than 450 internal PC users through a worldwide wide area network, common and
centrally managed desktop configurations for all users and a consistent,
business-user-oriented graphical user interface.
Clinical Operations Applications
The Company's goal is to implement an integrated clinical operations
information system that enables users anywhere in the world to monitor or
manage all aspects of a program conducted by the Company through a
standardized desktop user interface, with a full suite of applications
including protocol design, investigational site administration, patient
enrollment, source document and CRF data capture and management, safety and
adverse event monitoring and reporting, study management, statistical
analysis, reporting and regulatory document submission. The Company believes
that its integrated clinical operations information system enables it to
conduct clinical development operations with greater quality and efficiency.
The Company currently operates a number of proprietary production
applications, including:
PRA Generic Data Entry--a flexible system for setting up clinical study
databases, entering CRF data, providing quality control including automated
data checking, query management and exporting completed databases to other
application software for analysis. The system also supports coding of
diagnoses, adverse events and similar medical information from multiple
standard or client-specific dictionaries and production of data listings,
summary tables and other reports for preliminary data analysis.
PRA CRF--Image--a system of high speed scanners and software that allows
CRFs collected at a Company regional center to be immediately scanned,
transferred to the Company's centralized data management center in Swansea,
Wales, entered into structured databases and made available over the
network to users anywhere in the world. The system allows users access to
both CRF images and the actual
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structured study database presented in a format similar to the original
CRF, thus facilitating resolution of data problems or discrepancies.
PRA Investigator Recruitment--a system that provides a database of
potential investigators, generates site initiation packages that are
shipped as part of the investigator recruitment process, tracks patient
enrollment in ongoing studies and all associated regulatory documents and
generates project status reports.
PRA Study Manager--this system is a combination of proprietary and
commercial software that allows the Company to track, at the level of an
investigational site, study budgets, patient enrollments and key study
events. The Company is in the process of migrating this system to its new
technology platform and implementing major enhancements that will better
support expansion of its site management operations.
PRA Trials Manager--a proprietary system used by clinical research
monitors to create and file site visit reports, track administrative site
data on their laptop PCs and electronically transmit information into the
PRA network for access by project managers.
In addition to the proprietary systems mentioned above, the Company
currently operates a number of commercial software packages including Domain
Clintrial(R), DataFAX(R), and DZS Clinplus(R)for various data management
functions, the SAS System(R) for data analysis and reporting, Clinarium
ARIS(R) for safety management and adverse event reporting and MS Project(R)
and Time Line(R) for project management reporting.
Business Management Applications
The Company operates a number of information systems in support of its
business operations. The most substantial applications in its business
management applications portfolio include the following:
Office Productivity. The Company supports a standardized suite of office
productivity applications on every desktop that enables efficient
communication among its staff worldwide through immediate sharing of
documents, schedules, presentations, business graphs, spreadsheets, databases
and other time-sensitive information. The Company believes that these are
important tools due to the information intensive nature of the product it
produces and is committed to the use of information technology to improve the
productivity of its professional staff. Additional productivity projects
planned or in pilot mode include desktop video conferencing, the ability to
send facsimiles from any PC on the network, and an active web page for public
access to Company information.
Management Controls. The Company operates a proprietary management
information system that allows it to track, on a weekly basis, staff
utilization, project completion and work-in-progress status and resources
applied to projects and to compare actual results against plan. The system is
based on a time card entry module used by all employees that allows the
Company to track project work at an activity level and use this information
for routine management reporting and to improve both work processes and bid
estimates on future projects. The system is currently being enhanced to
integrate information on project bids and contracts, employee skills, sales
forecasting and other business modules.
Financial Reporting. The Company currently operates separate accounting
systems among its operating units due to recent acquisitions. It is in the
process of consolidating these accounting systems into a single, high-end
commercial package that will enable better management of the issues it faces
as an international company, such as multi-business and multi-country
financial consolidations, value-added taxes, currency exchange rates, foreign
statutory reporting requirements and similar complex accounting issues.
COMPETITION
The CRO industry consists of several hundred small, limited service
providers, several dozen medium-sized firms and several full-service CROs with
international capabilities. The Company believes that the CRO industry is
consolidating and, in recent years, several large, full-service competitors
have emerged, some of which have substantially greater technical, financial
and other resources than the Company. This trend of industry
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consolidation will likely result in greater competition among the larger CROs
for clients and acquisition candidates.
The large, full-service competitors of the Company include Quintiles
Transnational Corporation, PAREXEL International Corporation, Covance, Inc.,
Pharmaceutical Product Development, Inc., ClinTrials Research Inc. and IBAH,
Inc. The Company also competes against certain medium-sized CROs, especially
in Europe, as well as smaller CROs. Additionally, the Company competes against
the in house research and development departments of sponsors as well as
clinical groups affiliated with universities and teaching hospitals.
The Company believes that many sponsors tend to develop preferred provider
relationships with full-service CROs, which could have the effect of excluding
other CROs from the bidding process. The Company may experience reduced access
to certain potential clients due to these arrangements. CROs compete on the
basis of several sponsor selection criteria, including reliability, past
performance, expertise and experience in specific therapeutic areas, scope of
service offerings, strengths in various geographic markets, technological
capabilities, ability to manage large-scale clinical trials both domestically
and internationally, and price.
CONTRACTUAL ARRANGEMENTS
Most of the Company's trials management and consulting contracts are based
on preliminary cost estimates made at the start of the program, which often
are adjusted through a change order process as the study progresses. Change
orders are common in the CRO industry due to the nature of clinical research,
where experiences early in a program or study may lead to alterations to the
number of sites, time schedule, analysis plans or other variables. Contracts
generally range in duration from a few months to several years. Generally, a
portion of the contract fee is paid at the time the study is initiated with
the balance payable in monthly installments or at milestones over the duration
of the study or, in the case of site management services, as agreed-upon units
of work are performed.
Most of the Company's contracts can be terminated by the customer upon 30 to
60 days' notice under certain circumstances, including the customer's
unilateral decision to terminate the development of the product or to end a
particular study. Contracts may be terminated for a variety of other reasons,
including the failure of a product to satisfy safety requirements, unexpected
or undesired results of the product, market considerations, the customer's
decision to forego a particular study or insufficient investigator recruitment
or patient enrollment. The loss of a large contract or the loss of multiple
contracts could adversely affect the Company.
BACKLOG
Backlog consists of anticipated net revenue from the uncompleted portion of
work from signed contracts and letters of intent. Net revenues are defined as
total professional fee income (gross revenues) less reimbursed costs,
consisting principally of investigator fees, central laboratory fees and
reimbursed travel expenses associated with field monitoring of investigational
sites. Once contracted work begins, net revenues are recognized over the life
of the contract and are booked on a percentage-of-completion basis. In certain
cases, the Company may begin work for a customer before a contract is signed.
Backlog does not include anticipated net revenues for which the Company has
begun work but for which the Company does not have a signed letter of intent
or contract, or fee-for-service contracts with no specified dollar amount.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results because backlog can be affected by a
number of factors, including variable size and duration of contracts, many of
which are performed over several years. Additionally, as noted above,
contracts generally are subject to early termination by the client or delay by
regulatory authorities for many reasons beyond the Company's control,
including unexpected test results. Moreover, the scope of a contract can
change, either positively or negatively, during the course of a study. There
can be no assurances that the Company will be able to fully realize all of its
backlog as net revenue. On September 30, 1997, the Company's backlog was
approximately $ million, as compared to $ million at September 30, 1996.
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POTENTIAL LIABILITY AND INSURANCE
The Company attempts to manage the risk of liability for personal injury or
death to patients attributable to, or alleged to be attributed to, the
administration of products under study through contractual indemnification
provisions with sponsors and through insurance maintained by sponsors,
investigators and the Company. The contractual indemnifications generally do
not protect the Company against certain of its own actions, such as negligence
and willful misconduct or failure to follow the approved study protocol. The
contractual arrangements are separately negotiated with clients and the terms
and scope of such indemnification vary from client to client and from study to
study. Although most of the Company's clients are large well-capitalized
companies, the financial performance of the sponsors under these indemnities
is not secured. Therefore, the Company bears the risk that the indemnifying
party may not have the financial ability to fulfill its indemnification
obligations. 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 the sponsor or where the indemnifying party
does not fulfill its indemnification obligations. The Company currently
maintains general business liability as well as errors and omissions insurance
with respect to these risks. See "Risk Factors --Potential Liability."
OVERVIEW OF THE DRUG DEVELOPMENT AND APPROVAL PROCESS IN THE UNITED STATES
An overview of the drug development and approval process in the United
States is contained in Appendix A.
GOVERNMENT REGULATION
In the United States, the Federal Food, Drug and Cosmetic Act ("FFDCA")
governs clinical trials and approval procedures, as well as the development,
manufacture, safety, labeling, storage, record keeping and marketing of
pharmaceutical products and medical services. Biological products are subject
to similar regulation under both the FFDCA and the Public Health Service Act.
The Company's business is both benefited by and subject to extensive
governmental regulation. Increased regulation leads to more complex clinical
trials and an increase in potential business for the Company. Conversely, a
relaxation in the scope of regulatory requirements, such as the introduction
of simplified marketing applications for pharmaceutical and biological
products, could decrease the business opportunities available to the Company.
The Company must be diligent in its performance of work within the
directives and guidelines of regulatory agencies. A failure to comply with
applicable regulations relating to the conduct of clinical trials or the
preparation of marketing applications could lead to a variety of sanctions.
For example, regulatory violations in the United States could result,
depending on the nature of the violation and the type of product involved, in
the issuance of a Warning Letter, termination of a clinical study, refusal of
the FDA or the EMEA to approve clinical trial or marketing applications or
withdrawal of such applications, injunction, seizure of investigational
products, civil penalties, criminal prosecutions, or debarment of the Company
from assisting in the submission of new drug applications.
The Company monitors its clinical trials to test for compliance with
government regulations. The Company has adopted standard operating procedures
that are designed to satisfy regulatory requirements and serve as a mechanism
for controlling and enhancing the quality of its clinical trials. The
Company's procedures are written in accordance with the regulations and
guidelines appropriate to the region where they will be used, thus ensuring
compliance with GCP guidelines. In North America, FDA regulations and
guidelines serve as a basis for the Company's procedures. Within Europe, all
work is carried out in accordance with the European Community Note for
Guidance, "Good Clinical Practice for Trials on Medicinal Products in the
European Community." In order to facilitate international clinical trials, the
Company has implemented common standard operating procedures across all of its
regions to assure consistency whenever it is feasible and appropriate to do
so.
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The industry standard for the conduct of clinical research and development
studies is embodied in the regulations for GCP. Although GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar
regulatory authorities in other countries, certain provisions of GCP have been
included in FDA regulations. As a matter of practice, the FDA and many other
regulatory authorities require that test results submitted to such authorities
be based on studies conducted in accordance with GCP. These regulations
include (i) complying with FDA regulations governing the selection of
qualified investigators; (ii) obtaining specific written commitments from the
investigators; (iii) verifying that patient informed consent is obtained; (iv)
monitoring the validity and accuracy of data; (v) verifying drug or device
accountability; and (vi) instructing investigators to maintain records and
reports. The Company also must maintain reports for each study for specified
periods for inspection by the study sponsor and the FDA during audits.
INTELLECTUAL PROPERTY
The Company has developed certain computer software, business models,
management methodologies and standard operating procedures that are intended
to maximize the quality and efficiency of its services. Although the Company
does not believe that its intellectual property rights are as important to its
operating results as are such factors as the technical expertise, knowledge,
ability and experience of its professional staff, the Company believes that
its technological capabilities can provide significant benefits to its clients
and often can provide a competitive advantage. Therefore, each employee, as a
condition of employment, signs a confidentiality agreement designed to help
protect the Company's intellectual property and senior management have signed
non-compete agreements.
EMPLOYEES
At September 30, 1997, the Company had approximately 614 employees,
approximately 54 of whom hold Ph.D., M.D. or Pharm.D. degrees and
approximately 74 of whom hold other masters or other post-graduate degrees.
None of the Company's employees is represented by a collective bargaining
agreement, nor has the Company experienced work stoppages. The Company
believes that its relations with its employees are good.
The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff at reasonable cost. The
level of competition among employers for such skilled personnel is high. The
Company believes that its salary scales, employee benefits plans and
employment policies enhance employee morale, professional commitment and work
productivity and provide an incentive for employees to remain with the
Company. A significant majority of its employees at the manager level and
higher have been awarded stock options as a long term incentive.
FACILITIES
The Company leases all of its facilities. It now has under lease
approximately 280,650 square feet at the following locations: Vienna and
Charlottesville, VA; Mannheim, Germany; Lenexa, Prairie Village and Overland
Park, KS; Swansea, Wales; Red Bank, NJ; San Francisco, CA; Atlanta, GA; and
Surrey, England.
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.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The current executive officers, directors and other key employees of the
Company are as set forth in the following table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Earle Martin (1), (2)................. 45 President, Chief Executive Officer and
Chairman
Joachim Vollmar (2)................... 53 Executive Vice President, European
Operations, Managing Director (PRA
GmbH) and Director
James C. Powers....................... 46 Executive Vice President, Worldwide
Business Development and Secretary
Patrick K. Donnelly (3)............... 39 Executive Vice President, Chief
Financial Officer and Director
Robert J. Dockhorn, M.D............... 63 Executive Vice President--IMTCI
Bruce A. Teplitzky.................... 41 Vice President/Regional Director
Jessie C. Goodpasture, Ph.D........... 45 Vice President/Regional Director
W. Bain MacLachlan.................... 57 Vice President/Regional Director
John S. Shillingford, Ph.D............ 48 Vice President/Regional Director
David W. Dockhorn, Ph.D............... 36 Vice President/Regional Director
Douglas R. Dockhorn................... 33 Vice President/Corporate Services
Harry H. Penner, Jr. (1), (4)......... 52 Director
Judith Ann Hemberger (1), (2), (4).... 50 Director
Daniel A. D'Aniello (2)............... 51 Director
David W. Dupree (1), (2), (3)......... 44 Director
Peter M. Manos (4).................... 31 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Executive Committee
(3) Member of Acquisition Committee
(4) Member of Audit Committee
The Vice Presidents identified above are key employees of the Company but
are not executive officers.
Earle Martin is President and Chief Executive Officer and the Chairman of
the Board of Directors of the Company. Mr. Martin joined Associates in June
1993 as Executive Vice President and Chief Financial Officer, assumed
worldwide operations responsibility as Chief Operating Officer in August of
1995, became President in October of 1995, and was named Chief Executive
Officer in August 1996. From 1988 to 1993, Mr. Martin was Director of
Marketing and Business Development for GE Consulting Services, a subsidiary of
the General Electric Company that provided information technology consulting
and software development services to Fortune 500 clients. From 1982 to 1988,
Mr. Martin was Marketing Director at two software products companies and
worked as an independent management consultant. Between 1979 and 1982 he was a
technical specialist and New England Regional Marketing Manager for the
Network Services Division of Automatic Data Processing, and from 1977 to 1979
he was Manager of Research Computing at the Hartford Insurance Group. Mr.
Martin began his career as a Research Assistant at the University of Virginia
School of Medicine where he developed software and provided statistical
support for clinical drug trials and other medical research. Mr. Martin has a
B.A. in Biology from the University of Virginia (1975).
Joachim Vollmar has served as Executive Vice President, European Operations
and a Director of the Company since October 1996 and has also served as
Managing Director of PRA GmbH since October 1992. He
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has 17 years of experience in the pharmaceutical industry in the development
of drugs and diagnostics. Mr. Vollmar has planned, analyzed or written reports
for more than 200 preclinical studies in conjunction with toxicology experts
and for more than 300 clinical trials in areas including diabetes-mellitus,
hyperlipidemia, diabetes, cardiovascular diseases, oncology, respiratory and
auto-immuno diseases. Prior to joining the Company in 1992, Mr. Vollmar was
Head of Department Risk Analysis Therapeutics at Boehringer Mannheim GmbH,
Germany. He received his diploma in mathematics at the University of Karlsruhe
and is currently the President of the German Region of the International
Biometrics Society and a member of the European Steering Committee of the Drug
Information Association.
James C. Powers is Executive Vice President of Worldwide Business
Development and Secretary of the Company. Mr. Powers joined the Company in
September 1988 as Vice President and General Manager, became President of
North American Operations in January 1992 and was named Executive Vice
President of Worldwide Business Development in January 1996. In his present
position, Mr. Powers is responsible for worldwide sales and marketing
activities of the Company. Prior to joining the Company, Mr. Powers was Vice
President at University Technology Corporation from 1985 to 1988, where he was
responsible for identifying and managing technology start-up businesses. While
at University Technology Corporation, he served as Vice President of EndoTox
Corporation, an endocrine and drug testing laboratory in Richmond, Virginia.
From 1973 to 1985, Mr. Powers held positions of increasing responsibility at
Clairol, Inc., a division of Bristol-Myers Company. Mr. Powers received a B.S.
in Administration and Management Science from Carnegie-Mellon University in
1973.
Patrick K. Donnelly is Executive Vice President, Chief Financial Officer and
a Director of the Company. Mr. Donnelly joined the Company in October 1996 and
has been a Director of the Company since 1994. From 1992 to 1994, he was Vice
President and, from December 1994 to January 1997, he was President of
Virginia Capital L.P. and Vedcorp, LLC, two affiliated venture capital firms
located in Richmond, Virginia. Mr. Donnelly received his B.S. degree from the
College of Business and Public Administration at the University of Missouri
and an MBA from The Smeal College of Business at The Pennsylvania State
University.
Robert J. Dockhorn, M.D. has served as a Director and Executive Vice
President of IMTCI since the Company's acquisition of IMTCI in April 1997.
From 1984 until the acquisition, Dr. Dockhorn was the Director and President
of IMTCI. In addition, although this organization became inactive in December
1994, Dr. Dockhorn has been the sole Director, President and Physician
Practitioner with Robert J. Dockhorn, M.D., P.A. (f/k/a Allergy & Asthma
Consultants, P.A.) since 1974 and was also a physician with Allergy Clinics of
America, Inc. (f/k/a Premier Allergy, Inc.) from October 1992 through December
1994. Dr. Dockhorn is the father of Dr. David W. Dockhorn and Douglas R.
Dockhorn, both officers of the Company.
Bruce A. Teplitzky has served as the Vice President/Regional Director of the
Company's Charlottesville, Virginia operations since August 1996. From 1993
until his employment by the Company, Mr. Teplitzky was employed by Corning
Besselaar as an Assistant Director, Clinical Research (1993-1994), an
Associate Director, Clinical Research (1994-1995), the Director, Clinical
Research (1995-February 1996) and the Director of Operations (February 1996-
August 1996).
Jessie C. Goodpasture, Ph.D. has served as the Vice President/Regional
Director of the Company's San Francisco, California operations since January
1997. Prior to joining the Company, Dr. Goodpasture was the Executive Director
of Biometric Research Institute, Inc. from January 1996 through January 1997
and from 1989 through 1995 she was employed by Syntex Development Research as
a Clinical Program Director (1989-1992), a Senior Clinical Program Director
(1993-1994) and the Director, Clinical Research (1994-1995).
W. Bain MacLachlan has served as the Vice President/Regional Director of the
Company's Red Bank, New Jersey office since September 1995. From February 1991
through June 1995, Mr. MacLachlan was the General Manager of VRG
International, a CRO located in Eatontown, New Jersey.
John S. Shillingford, Ph.D. is the Vice President/Regional Director of the
Company's Mannheim, Germany operations. Dr. Shillingford joined the Company in
1995. He received his BSc. (Hons) and Ph.D. (Biochemical
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Pharmacology) from the University of Surrey in England. He worked in major
pharmaceutical companies for 10 years in clinical research prior to entering
the CRO industry in 1984. Prior to joining the Company, Dr. Shillingford was
Head of International Clinical Operations of IFE GmbH, University of Witten-
Herdecke, Germany from 1994 through 1995 and from 1992 through 1994 he was the
Business Development Director of Health Care Research (UK) Ltd. Dr.
Shillingford has conducted research projects in all European countries and has
extensive CRO management experience.
David W. Dockhorn has served as the Vice President/Regional Director of the
Company's Kansas City area operations since the Company's acquisition of IMTCI
in April 1997. From 1990 until the acquisition, Dr. Dockhorn was employed by
IMTCI as Director of Multicenter Management, Data Management and Statistical
Services (1990-1992), Director of Inpatient Services (1991-1992), Vice
President of Clinical Research (1992-April 1997) as well as Director and
Assistant Secretary (1994-April 1997). David Dockhorn is the son of Dr. Robert
J. Dockhorn and the brother of Douglas R. Dockhorn.
Douglas R. Dockhorn has served as the Vice President/Corporate Services of
the Company since the Company's acquisition of IMTCI in April 1997. From 1986
until the acquisition, Mr. Dockhorn was employed by IMTCI as Business
Administrator (1986-1990), Vice President of Administration (1990-1995) and
Director, Senior Vice President, Secretary and Treasurer (1995-April 1997).
Douglas Dockhorn is the son of Dr. Robert J. Dockhorn and the brother of Dr.
David W. Dockhorn.
Harry H. Penner, Jr. has served as a Director of the Company since October
1997. Since December 1993, he has been the President, Chief Executive Officer
and a Director of Neurogen Corporation (Branford, Connecticut), a
pharmaceutical company engaged in the design and development of small molecule
neuropharmaceuticals. From 1981 to November 1993, Mr. Penner served both in
the United States and Europe in a variety of senior executive positions with
Novo Nordisk A/S, a Danish based pharmaceuticals and biochemicals company. Mr.
Penner holds an undergraduate degree from the University of Virginia and
graduate degrees from both Fordham University and New York University. He also
serves on the Board of Directors of Anergen, Inc. and T Cell Sciences, Inc.,
both of which are publicly traded biotechnology companies.
Judith Ann Hemberger has served as a Director of the Company since October
1997. From 1995 until July 1997, Dr. Hemberger was the Senior Vice President,
Global Drug Regulatory Affairs of Hoechst Marion Roussel, Inc. and, from 1989
through 1995 she was employed by Marion Merrell Dow Inc. as Vice President,
Regulatory Affairs and Scientific Communications (1989-1990), Vice President,
Global Regulatory Affairs and Scientific Communications (1990-1992), Vice
President, Global Regulatory and Medical Affairs (1992-1994) and Vice
President, Global Medical Affairs and Commercial Development (1994-1995). Dr.
Hemberger received a B.S. degree from Mount St. Scholastics College, a Ph.D.
in pharmacology from the University of Missouri--Kansas City and an MBA from
Rockhurst College. Since 1992, Dr. Hemberger has served on the Dean's Advisory
Board of the School of Pharmacy, University of Missouri--Kansas City and,
since May 1997, she has served on the Board of Directors and as the Chair of
the Audit Committee of NexStar Pharmaceutical.
Daniel A. D'Aniello has served as a member of the Board of Directors of the
Company since October 1996 and until October 15, 1997 served as the Chairman
of the Board. In 1987 Mr. D'Aniello became a founding Partner of The Carlyle
Group, a private equity investment firm and an affiliate of certain
stockholders of the Company, where he has served as Managing Director. Mr.
D'Aniello is a 1968 graduate of Syracuse University and a 1974 graduate of the
Harvard Business School. Mr. D'Aniello is Chairman of GTS Duratek, Inc. and
International Technology Corporation, and serves on the Board of Directors of
Baker & Taylor, Inc., CB Commercial Real Estate Group, Inc. and Elgar
Electronics Corporation.
David W. Dupree has served as a Director of the Company since October 1996
and served as a Vice President of the Company from October 1996 until his
resignation in September 1997. Prior to joining The Carlyle Group in 1992,
where he is a Managing Director, Mr. Dupree was a Principal in Corporate
Finance, Private Placements, with Montgomery Securities. Previously, he had
been Vice President-Corporate Finance and Co-Head of Equity Private Placements
at Alex. Brown & Sons, Incorporated. Mr. Dupree currently serves on
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the Board of Directors of Care Systems Corporation, Whole Foods Market, Inc.
and Insight Health Services Corp. Mr. Dupree is a graduate of the University
of North Carolina at Chapel Hill, and received his MBA from the Babcock
Graduate School of Management, Wake Forest University.
Peter M. Manos has served as a Director of the Company since October 1996
and served as a Vice President of the Company from October 1996 until his
resignation in September 1997. Mr. Manos is a Vice President of The Carlyle
Group. Mr. Manos worked as an investment banker for Donaldson, Lufkin &
Jenrette, from 1989 to 1992, and for Peers & Co., an investment banking
subsidiary of the Long Term Credit Bank of Japan, from 1992 to 1993. Mr. Manos
received a Bachelor of Arts from Stanford University and an MBA from the
Harvard Business School.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, a Compensation
Committee, an Executive Committee and an Acquisition Committee. The Audit
Committee reviews the Company's accounting practices, internal auditing
controls and financial results and oversees the engagement of the Company's
independent public auditors. The Compensation Committee reviews and recommends
to the Board of Directors the salaries, bonuses and other forms of
compensation for executive officers of the Company and administers various
compensation and benefit plans. The members of the Company's Audit Committee
are Messrs. Penner and Manos and Dr. Hemberger. The members of the Company's
Compensation Committee are Messrs. Martin, Penner and Dupree and Dr.
Hemberger. The Executive Committee, which has not met to date, performs such
duties as it may be directed to perform from time to time by the Board of
Directors. The members of the Company's Executive Committee are Messrs.
Martin, Vollmar and Dupree and Dr. Hemberger. The Acquisition Committee
considers possible acquisitions for the Company and makes recommendations to
the Board of Directors with regard to the terms and conditions on which
acquisitions favorable to the Company may be undertaken. The members of the
Company's Acquisition Committee are Messrs. Donnelly and Dupree. The Board of
Directors does not maintain a nominating committee or a committee performing
similar functions.
Officers of the Company are appointed by the Board of Directors on an annual
basis and serve until their successors have been duly elected and qualified,
although certain officers have Employment Agreements with the Company. See
"Management--Employment Agreements." There are no family relationships among
any of the executive officers or directors of the Company, except that Robert
J. Dockhorn, M.D. is the father of both Douglas R. Dockhorn and David W.
Dockhorn, all of whom are officers of the Company.
PRA STRATEGIC ADVISORY SERVICES GROUP
The PRA Strategic Advisory Services group consists of full time senior staff
with significant expertise in a variety of major functional disciplines and
includes, among others:
Barbara Loughman, Ph.D.--Director of International Regulatory Affairs and
full time Company employee, former Director of International Drug
Regulatory Affairs, Immuno-inflammatory Diseases Research, and other
positions at Marion Merrell Dow, with 25 years of drug development
experience.
Roger Flora, Ph.D.--Director of Biostatistics and full time Company
employee, former Director of Statistics and Data Services at A.H. Robbins
Company, with 25 years of drug development experience.
Monika Pietrek, M.D.--Director of Safety Management and full time Company
employee, former Manager of Central Epidemiology, Business Development and
Head of Pharmacovigilance at Hoffmann La Roche, with 15 years of medical
and drug development experience.
Carl Peck, M.D.--Chairman of the Company's Scientific Advisory Board and
retained consultant, former Assistant Surgeon General of the United States
Public Health Service and Director of the U.S. Food and Drug
Administration's Center for Drug Evaluation and Research, currently
Director of the Center for Drug Development Science at Georgetown
University.
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John Urquardt, M.D.--retained consultant in pharmacoepidemiology,
pharmacoeconomics and drug development strategy, currently President of
APREX Corporation and Professor of Pharmacoepidemiology at the University
of Limberg (The Netherlands).
Steven Gordon, M.D.--Director of Site Management Operations and full time
Company employee, formerly in private gynecology practice at Northside
Gynecological and Obstetric Professional Association (Atlanta), with 27
years of medical experience, the last four of which were focused on the
conduct of clinical research.
Robert Desjardins, M.D.--retained consultant in pre-clinical and clinical
drug development regulatory strategy, formerly Vice President Clinical
Research at Lederle Laboratories, currently full time clinical research
consultant.
Michael Cooper, M.D.--consultant in Phase I-II cancer trial design,
currently Associate Professor, University of Vermont.
DIRECTOR COMPENSATION
Directors who are employees of the Company or officers of investors in the
Company receive no compensation for serving on the Board of Directors.
Unaffiliated outside Directors are entitled to $2,000 for each Board meeting
attended in person, $500 for each Board meeting conducted by teleconference
and $500 for each Board Committee meeting attended. In addition, each
unaffiliated outside director receives options to acquire 5,000 shares of
Common Stock upon first becoming a Director and options to acquire an
additional 1,000 shares of Common Stock each full year that he or she serves
as a Director.
EXECUTIVE COMPENSATION
The following tables set forth information with respect to the annual
compensation of the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company for the fiscal
year ended December 31, 1996 (the "Named Executive Officers"):
43
<PAGE>
SUMMARY COMPENSATION TABLE
(1996 FISCAL YEAR)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-------------------------------
NAME AND PRINCIPAL ALL OTHER
POSITION SALARY BONUS OPTIONS(#) COMPENSATION(2)
------------------ ---------- --------- ---------- ---------------
<S> <C> <C> <C> <C>
Earle Martin
President, Chief Executive
Officer and Chairman......... $ 123,958 -- 109,827 $ 281(3)
Joachim Vollmar
Executive Vice President,
European Operations and
Director..................... DM 280.000 DM 67.500 109,827 DM 21.733(3)
James C. Powers
Executive Vice President,
Business Development......... $ 115,000 -- 109,827 $ 2,798(4)
Patrick K. Donnelly(5)
Executive Vice President,
Chief Financial Officer and
Director .................... $ 21,314 -- 228,027 --
Robert J. Dockhorn, M.D.(6)
Executive Vice President--
IMTCI........................ $ 257,692 $ 50,000 -- $ 13,050(7)
</TABLE>
- --------
(1) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of such individual's salary plus
annual bonus.
(2) No Named Executive Officer received any Long-Term Compensation.
(3) Represents Company payments of life and accident insurance premiums.
(4) Represents (i) $426 paid by the Company in respect of life insurance
premiums, (ii) $1,022 paid by the Company to its 401(k) plan on behalf of
Mr. Powers and (iii) $1,350 paid by the Company for reimbursement of club
memberships.
(5) Employment commenced effective October 16, 1996.
(6) Reflects compensation paid by IMTCI prior to its being acquired by the
Company.
(7) Represents (i) $4,357 paid by IMTCI to its profit sharing plan on behalf
of Dr. Dockhorn and (ii) $8,693 paid by the Company in respect of life
insurance premiums.
STOCK OPTION GRANTS
The following tables contain certain information concerning the grant of
stock options under the Company's Stock Option Plans during the year ended
December 31, 1996, and the number and value of options held at December 31,
1996 by each of the Named Executive Officers. Except as noted, these options
are currently or will become exercisable upon the completion of the Offering.
44
<PAGE>
OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
-------------------------------------------- ------------------------------
PERCENT OF
NUMBER TOTAL
OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED(2) YEAR PER SHARE DATE 5% ($) 10% ($) 0%($)(3)
---- ---------- ---------- ----------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earle Martin
President Chief
Executive Officer and
Chairman............... 109,827 13.0% $5.93 10/22/06 359,000 884,000 --
Joachim Vollmar
Executive Vice
President, European
Operations and
Director............... 109,827 13.0% $5.93 10/22/06 359,000 884,000 --
James C. Powers
Executive Vice
President, Business
Development............ 109,827 13.0% $5.93 10/22/06 359,000 884,000 --
Patrick K. Donnelly
Executive Vice
President,
Chief Financial Officer
and 118,200 14.0% $2.92 10/10/06 320,000 789,000 236,000
Director............... 109,827 13.0% $5.93 10/22/06 359,000 884,000 --
Robert J. Dockhorn, M.D.
Executive Vice
President - IMTCI...... -- -- -- -- -- -- --
</TABLE>
- --------
(1) The amounts shown as potential realizable value on options are based on
assumed amortized rates of appreciation in the price of the Common Stock
of 5% and 10% over the term of the options, as required by the rules of
the Securities and Exchange Commission. Actual gains, if any, on stock
option exercises are dependent on future performance of the Common Stock.
There can be no assurance that the potential realizable values reflected
in this table will be realized.
(2) Except for (i) the issuance of options to purchase 88,650 shares of Common
Stock at an exercise price of $2.92 per share to Mr. Donnelly in
connection with the commencement of his employment with the Company, which
options will vest in connection with the Offering, and (ii) options to
purchase 29,550 shares of Common Stock at an exercise price of $2.92 per
share awarded to Mr. Donnelly as a Director prior to employment, which
options were fully vested on the grant date, the Company believes that the
options were granted at prices equal to or in excess of the then-fair
market value of the Common Stock. With respect to the options to purchase
109,827 shares of Common Stock granted to each of Messrs. Martin, Powers,
Vollmar and Donnelly, options in respect of 27,457 shares vest 25% per
year on the anniversary of the date of grant, and options in respect to
82,370 shares will vest in connection with the Offering.
(3) Represents potential realizable value on the date of grant calculated
based on the difference between the exercise price and fair market value
on the date of grant.
45
<PAGE>
STOCK OPTIONS EXERCISED DURING FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1996 and outstanding stock options held at the
end of fiscal 1996 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN 1996 FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
NAME (#) ($)
---- -------------------------------- -------------------------
SHARES ACQUIRED
ON EXERCISE (#) VALUE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ----------------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Earle Martin
President, Chief
Executive Officer and
Chairman............... 177,300 793,350 0 109,827 0 293,238
Joachim Vollmar
Executive Vice
President, European
Operations and
Director............... -- -- 118,200 109,827 1,005,882 293,238
James C. Powers
Executive Vice
President, Business
Development............ -- -- 59,100 109,827 502,941 293,238
Patrick K. Donnelly
Executive Vice
President, Chief
Financial Officer and
Director............... -- -- 29,550 198,477 167,844 796,770
Robert J. Dockhorn, M.D.
Executive Vice
President--IMTCI....... -- -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
Earle Martin, James Powers and Patrick Donnelly each entered into an
employment agreement with Associates on October 11, 1996, October 11, 1996 and
October 16, 1996, respectively. These employment agreements, which expire on
November 1, 1998 but provide for automatic renewal for successive one-year
terms unless either party thereto elects not to renew at least 90 days before
the expiration of the current term, provide for an annual base salary of
$125,000 or, in the case of Mr. Powers, $115,000, subject to increases
approved by the Compensation Committee. In addition, the employment agreements
provide for cash bonuses and stock options as approved by the Compensation
Committee.
Joachim Vollmar entered into an employment agreement with Associates dated
April 14, 1992, as amended. This employment agreement, which expires on
November 1, 1998, but provides for automatic renewal for successive one-year
terms unless either party thereto elects not to renew at least six months
before the expiration of the current term, provides for an annual base salary
of DM 294.000, subject to increases approved by the Compensation Committee. In
addition, the employment agreement provides for cash bonuses and stock options
as approved by the Compensation Committee.
Each of the foregoing employment agreements also provides that (i) in the
event that employment is terminated by Associates other than for "good cause,"
the employee shall be entitled to a severance in an amount equal to the sum of
(a) 6-months' base salary plus (b) an additional 6-months' base salary less
the fair market value of vested options granted pursuant to such employment
agreement or shares of Common Stock held as a result of the exercise of such
vested options and, (ii) in the event that employment is terminated by such
employee as a result of a breach by Associates, employee shall be entitled to
a severance payment in an amount equal to 12-months' base salary.
46
<PAGE>
In April 1997, Robert J. Dockhorn, M.D. entered into an Employment Agreement
with IMTCI. This Employment Agreement has an initial three-year term but is
subject to renewal for successive one-year terms upon the delivery by either
party of a renewal request at least 90 days prior to the end of the current
term, so long as the request is not declined by the other party within such
90-day period. This Agreement also provides for an annual salary of $175,000,
subject to increases approved by the Compensation Committee, as well as cash
bonuses and stock options as may be approved by the Compensation Committee.
In October 1997, Dr. Judith Ann Hemberger entered into a Consulting
Agreement with Associates. Pursuant to the agreement, Dr. Hemberger is to
perform consulting services on an as needed basis at rates between $1,000 and
$2,000 per day, as determined on a case-by-case basis. The agreement is
terminable by either party upon thirty days' notice.
STOCK INCENTIVE PLANS
Prior to July 1997, the Company awarded stock options to certain directors,
employees and consultants under the terms of the Pharmaceutical Research
Associates, Inc. Stock Option Plan, which was adopted and assumed by the
Company in October 1996 in connection with its recapitalization and
reorganization and amended and restated in September 1997 (as so amended and
restated, the "1993 Plan"). As part of that recapitalization and
reorganization, existing 1993 Plan options to purchase shares of Class B
Common Stock of Associates were exchanged on a one-to-one basis for options to
purchase shares of Common Stock. Options to purchase an aggregate of 1,656,379
shares of Common Stock were outstanding as of October 15, 1997 under the 1993
Plan at exercise prices ranging from $0.09 to $13.96 per share. The Company
does not intend to make any additional option awards under the 1993 Plan.
In July 1997 the Board of Directors adopted the PRA International, Inc. 1997
Stock Option Plan and reserved for issuance thereunder an aggregate of 197,000
shares of Common Stock (as amended and restated in September 1997, the "1997
Plan" and, collectively with the 1993 Plan, the "Plans"). Options to purchase
an aggregate of 81,019 shares of Common Stock at exercise prices ranging from
$11.00 to $13.96 per share were outstanding as of October 15, 1997 under the
1997 Plan.
The purpose of the 1993 Plan was, and the purpose of the 1997 Plan is, to
provide directors, key employees and certain advisors with additional
incentives by increasing their proprietary interest in the Company.
The 1993 Plan provided and the 1997 Plan provides for the grant of incentive
stock options ("ISOs") as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), nonqualified stock options and restricted
stock (collectively "Awards"). The 1997 Plan will be administered by the full
Board of Directors of the Company or, at the discretion of the Board, the
Compensation Committee provided that it is comprised solely of two or more
nonemployee directors who are "disinterested" within the meaning of Rule 16b-3
(the full Board or the Compensation Committee, as applicable, the
"Committee"). Subject to the terms of the 1997 Plan, the Committee has the
sole authority to grant Awards under the 1997 Plan, to construe and interpret
the 1997 Plan and to make all other determinations and take any and all
actions necessary or advisable for the administration of the 1997 Plan.
Similarly, the Committee has the authority to administer, interpret and
construe and carry out the 1993 Plan.
All of the Company's employees and consultants and its subsidiaries are
eligible to receive Awards under the 1997 Plan, but only employees of the
Company are eligible to receive ISOs. In addition, the 1997 Plan provides for
automatic grants to unaffiliated outside Directors of options to purchase
5,000 shares of Common Stock upon initial election as a Director and options
to purchase 1,000 shares of Common Stock on each anniversary thereafter that
he or she continues to serve as a Director. Options will be exercisable during
the period specified in each stockholder's or option agreement and will
generally be exercisable in installments pursuant to a vesting schedule to be
determined by the Committee or the Board, as applicable. Notwithstanding the
provisions of any stockholder's or option agreement, options may, in the
discretion of the Committee, become immediately exercisable for any or no
reason, and in particular, but without in any way limiting the Committee's
47
<PAGE>
discretion, in the event of a "change of control" (as defined in the Plan) of
the Company and in the event of certain mergers and reorganizations of the
Company. In addition, the Company has the right, exercisable in its
discretion, to vest certain options in the event of an extraordinary event
relating to the Company, including, without limitation, a corporate
acquisition or merger, a sale of all or substantially all of the stock of the
Company or an asset or private stock sale. No option will remain exercisable
later than ten years after the date of grant (or five years from the date of
grant in the case of ISOs granted to holders of more than 10% of the Common
Stock).
The exercise price for ISOs granted under either of the Plans may be no less
than the fair market value of the Common Stock on the date of grant (or, in
the case of the 1993 Plan, 110% in the case of ISOs granted to employees
owning more than 10% of the Common Stock). The exercise price for nonqualified
options and all other Awards granted under the 1997 Plan will be in the
discretion of the Committee.
The Code provides special rules for the income tax treatment of ISOs. Except
as noted below, no taxable income results to a holder of options granted
pursuant to the 1993 Plan or the 1997 Plan (an "Optionholder") either upon the
grant of an ISO or upon the issuance of shares to the Optionholder upon
exercise of the option. Instead, on a disposition of the shares of Common
Stock acquired, provided such disposition is not a "disqualifying disposition"
as defined below, the difference between the amount realized on disposition
and the amount paid for the shares of Common Stock will be treated for tax
purposes as gain or loss from the disposition of a capital asset. In general,
a "disqualifying disposition" is a disposition within two years from the date
the option was granted or within one year after the transfer of the shares to
the Optionholder following exercise of the ISO. A disqualifying disposition
does not, however, include a transfer of the shares received upon exercise of
an ISO by an insolvent individual to a trustee or other fiduciary pursuant to
the requirements of, or as allowed by the United States bankruptcy code. In
the event of a disqualifying disposition, both ordinary income and capital
gain or loss may be recognized by the Optionholder. Specifically, on a
disqualifying disposition ordinary income must be recognized by the
Optionholder in an amount equal to (i) the lower of the fair market value of
the shares at the time of exercise and the price at which such shares were
sold, less (ii) the exercise price paid for the shares. In addition, on a
disqualifying disposition capital gain or loss may be recognized in the amount
of the difference between the amount realized and the basis of the shares
(which basis will first be increased by the amount of ordinary income
recognized on the disqualifying disposition). Although the exercise of an ISO
will not generally result in taxable income, any income an Optionholder would
have been required to recognize had the option been a nonqualified stock
option will be includable in the Optionholder's income for purposes of the
alternative minimum tax.
Because nonqualified stock options are considered to have no readily
ascertainable fair market value under applicable Treasury regulations, no
taxable income will be recognized by an Optionholder upon the grant of such an
option. The Optionholder will instead recognize ordinary income on the date of
exercise in an amount equal to the excess of the fair market value of the
shares on the date of exercise over the amount paid for the shares. The basis
of the shares for purposes of determining the amount of capital gain or loss
to be recognized on any subsequent taxable disposition of the shares will then
include both the amount paid for the shares and the amount of ordinary income
recognized in connection with the exercise of the option (i.e., the fair
market value of the shares on the date of exercise of the option).
The Company will be entitled to a deduction in connection with an ISO or a
nonqualified stock option only in the event and to the extent ordinary income
is recognized by the Optionholder. Any such deduction will be allowed to the
Company for its taxable year with which or in which ends the taxable year of
the Optionholder in which the Optionholder's recognition of ordinary income
occurs.
As of the closing of the Offering, the option holders will have outstanding
options to purchase up to 1,737,398 shares of Common Stock granted under the
Plans and the Company will have reserved 115,981 shares of Common Stock for
future issuance under its 1997 Plan. The Company intends to register the
shares issuable upon exercise of options granted under the Plans and, upon
such registration, the shares will be eligible for resale in the public
market. See "Shares Eligible for Future Sale."
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and all other forms of compensation for directors and officers of
the Company. The Compensation Committee also administers various incentive
compensation and benefit plans, including the Plans. The members of the
Compensation Committee of the Board of Directors are Messrs. Martin, Penner,
Dupree and Dr. Hemberger, with Mr. Martin being the only member who is an
employee of the Company and Dr. Hemberger being the only member who is a
consultant of the Company. See "--Committees of the Board of Directors," and
"--Employment Agreements."
49
<PAGE>
CERTAIN TRANSACTIONS
In November 1994, pursuant to a $1,000,000 venture capital financing with
Virginia Capital, L.P. ("Virginia Capital"), successor in interest to Vedcorp,
L.C., Associates issued (i) a 12.5% subordinated debenture originally due
December 31, 1998 in the original principal amount of $750,000, (ii) a warrant
to purchase shares of Class C Common Stock of Associates constituting 6.67% of
the common stock of Associates on a fully-diluted basis for an aggregate
exercise price of $500,000 and (iii) 53,512 shares of Class E Preferred Stock
of Associates. In August 1997, the debenture was repaid in full and the
warrant, as subsequently modified, was exercised in part for 249,921 shares of
Common Stock.
In August 1995, pursuant to a venture capital financing with Sirrom
Investments, Inc. ("Sirrom"), successor in interest to Sirrom Capital
Corporation, Associates issued (i) a secured promissory note in the original
principal amount of $2 million due August 10, 2000, which is secured by a
subordinated blanket lien on Associates' assets and (ii) a stock purchase
warrant exercisable for shares of Class C Common Stock of Associates
constituting 6% of the common stock of Associates on a fully-diluted basis for
an aggregate exercise price of $.01 per share, which, as subsequently
modified, was exercised in full in April, 1997. In connection with this
transaction, Virginia Capital's warrant was replaced by a warrant to purchase
shares of Class C Common Stock of Associates constituting 12.27% of the common
stock of Associates on a fully-diluted basis for an aggregate exercise price
of $500,000.
In 1996, Associates made a loan to Associates' founder, Raymond J. Rugloski,
in the amount of $500,000. This loan was financed from the proceeds of its
sale of 76,830 shares of Class F Preferred Stock of Associates, representing
4% of the common stock of Associates on a fully-diluted basis, to Virginia
Capital, Sirrom and Messrs. Earle Martin, James Powers, Joachim Vollmar and W.
Bain MacLachlan. Mr. Rugloski repaid this loan in full in October 1996.
In September 1996, as a result of anti-dilution protections afforded Raymond
Rugloski and his wife, Carolyn Rugloski, Sheridan Snyder, Virginia Capital,
Sirrom and the other Class F Preferred Stockholders of Associates, 44,925
shares of Class A Common Stock were issued to the Rugloskis, 4,992 additional
shares of Class B Common Stock were issued to Mr. Snyder, the amount of shares
of Class C Common Stock of Associates for which Virginia Capital's and
Sirrom's warrants were exercisable was increased by 9,479 and 3,792 shares,
respectively, and the Class F Preferred Stockholders of Associates received an
additional 5,482 shares of Class F Preferred Stock.
(All of the foregoing references to the share numbers of capital stock of
Associates are on an as-issued basis and do not reflect the effect of the
stock split on the shares of Common Stock received in respect thereof pursuant
to the agreement and plan of share exchange referred to below.)
In October 1996, the Company completed a recapitalization and
reorganization. First, the Company became the holding company of Associates,
pursuant to an agreement and plan of share exchange between the Company and
Associates. Under the agreement and plan of share exchange, all outstanding
shares and all options and warrants to purchase shares of each class of common
and preferred stock of Associates were acquired by the Company in exchange for
an identical number of outstanding shares and options and warrants to purchase
shares of Common Stock. The Company then sold, for an aggregate purchase price
of approximately $19.1 million, 1,631,548 shares of its Series A Preferred
Stock to certain affiliates of The Carlyle Group, along with a related warrant
agreement providing for the issuance of warrants to purchase an identical
number of shares of Common Stock upon the occurrence of certain circumstances.
A portion of this issuance was immediately transferred to an entity unrelated
to Carlyle. In November 1996, Virginia Capital purchased 26,534 shares of
Series A Preferred Stock and a related warrant agreement for an aggregate
purchase price of approximately $310,000. (Simultaneously with the closing of
the Offering, these shares of Series A Preferred Stock will convert into
shares of Common Stock at the same ratio as the Common Stock stock split being
effected prior to the closing of the Offering and the warrant agreements, as
well as certain other rights and interests, will terminate in their entirety.)
The Company used approximately $9.2 million of the proceeds from the sale of
the Series A Preferred Stock to purchase certain shares of, or options for,
Common Stock, including approximately $7.0 million to purchase shares from
Raymond Rugloski and certain of his family members. Daniel A. D'Aniello, David
W. Dupree and
50
<PAGE>
Peter M. Manos, each a Director of the Company, are a Managing Director, a
Managing Director and a Vice President, respectively, of The Carlyle Group.
In April 1997, the Company acquired the capital stock of IMTCI, a CRO with a
trials management and clinical research center in Lenexa, Kansas and three
investigational sites in Kansas, from the following selling stockholders: Dr.
Robert J. Dockhorn, an executive officer of IMTCI; Dr. Dockhorn's wife,
Beverly W. Dockhorn; Dr. Dockhorn's sons, each of whom is an officer of
Associates, Douglas R. Dockhorn and David W. Dockhorn, jointly with their
respective wives and, in the case of Douglas R. Dockhorn, individually; and
the Robert and Beverly Dockhorn Charitable Remainder Unitrust. Of the
aggregate purchase price of approximately $15.3 million paid to IMTCI's
stockholders, $8 million was paid in the form of cash, $5.3 million was paid
in the form of notes and $2 million was paid in the form of shares of Common
Stock. Following the acquisition of the IMTCI shares by the Company, IMTCI
transferred to Associates certain assets not essential to IMTCI's clinical
site activities.
In May 1997, the Company, through IMTCI, acquired the capital stock of
Crucible, a site management organization with a clinical research center and
investigational sites in Atlanta, another investigational site in Savannah,
Georgia and an investigational affiliation in San Juan, Puerto Rico. Stephen
F. Gordon, M.D. and Kathleen A. Oettinger, who continue to be officers and
directors of Crucible, owned 52% and 24%, respectively, of the outstanding
capital stock of Crucible, with the remainder of the capital stock being owned
by Ms. Oettinger's husband, Roy H. Autry, Ph.D. The aggregate purchase price
of approximately $300,000 was paid to the sellers in cash. At the time of the
closing of the Crucible acquisition, Dr. Gordon and Ms. Oettinger had received
loans from Crucible in the aggregate amount of approximately $247,000. In the
event that Crucible meets certain net revenue thresholds during 1997 and 1998,
these two individuals are entitled to receive bonuses, to be applied solely to
the repayment of such loans, up to an aggregate amount equal to the amount of
these loans. Any amounts outstanding after the 1998 bonus calculation are be
to repaid in five equal annual installments commencing on December 31, 1999
and the repayment of such loans is secured by all stock options granted to
such individuals from time to time and any Common Stock received by them in
connection with any exercise thereof.
In October, 1997, the Company, through IMTCI Limited, acquired the assets of
Clinical Research Limited ("CRL"), a site management organization with an
investigational affiliation in Surrey, England. The purchase price of
(Pounds) was paid in cash and, as part of the transaction, IMTCI Limited
guaranteed a (Pounds) overdraft facility established by Ray Ridler, the
Managing Director of CRL, and now an officer of IMTCI Limited, for CRL's
working capital purposes.
The Company leases its facilities in Lenexa, Kansas from Dockhorn
Properties, L.L.C., a Kansas limited liability company owned by Robert J.
Dockhorn, Trustee of the Robert J. Dockhorn Revocable Trust dated January 5,
1984, as amended, who individually is an officer of IMTCI, and Douglas R.
Dockhorn and David W. Dockhorn, who both are officers of the Associates. The
Company expects to make annualized payments of approximately $1,249,520 under
this lease. The Company's Prairie Village, Kansas facilities are leased from
Beverly W. Dockhorn, Trustee of the Beverly W. Dockhorn Revocable Trust dated
January 5, 1984, as amended, who individually is the wife of Robert J.
Dockhorn. The Company expects to make annualized payments of approximately
$128,012 under such lease. The Company has been advised by its real estate
advisor that both of these leases provide rents and other terms and conditions
that are commercially reasonable in the markets involved.
The Company believes that the terms of all of the above transactions are as
favorable to the Company as would have been obtained through arms-length
negotiations with unrelated parties.
RELATED-PARTY TRANSACTIONS POLICY
The Company has adopted a policy that all future transactions between the
Company and its officers, directors and affiliates must be on terms no less
favorable to the Company than those that could be obtained from unrelated
third parties, and must be approved by a majority of the disinterested members
of the Company's Board of Directors.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 15, 1997 and as adjusted
to reflect the sale of the Common Stock being offered in the Offering, by (i)
each person or group that is known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each director and Named Executive
Officer of the Company and (iii) all directors and executive officers of the
Company as a group. Except as otherwise indicated below, to the knowledge of
the Company, all persons listed below have sole voting and investment power
with respect to their shares of Common Stock, except to the extent authority
is shared by spouses under applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
---------------------
SHARES
BENEFICIALLY PRIOR TO AFTER
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS OWNED (1) OFFERING OFFERING (2)
- --------------------------------------- ------------ -------- ------------
<S> <C> <C> <C>
The Carlyle Group (3)....................... 3,214,147 50.4% 35.2%
Virginia Capital, L.P. (4).................. 691,582 10.8% 7.6%
Earle Martin (5)............................ 368,278 5.8% 4.0%
James C. Powers (6)......................... 366,901 5.8% 4.0%
Joachim Vollmar............................. 282,750 4.4% 3.1%
Patrick K. Donnelly......................... 207,435 3.2% 2.3%
Robert J. Dockhorn, M.D. (7)................ 75,116 1.2% *
Harry H. Penner, Jr. ....................... 5,000 * *
Judith Ann Hemberger........................ 5,000 * *
Daniel A. D'Aniello (8)..................... -- -- --
David W. Dupree (8)......................... -- -- --
Peter M. Manos (8).......................... -- -- --
All executive officers and directors as a
group (10 persons)......................... 1,310,480 20.5% 14.4%
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise indicated below, assumes that the persons and entities
named in the table have sole voting and sole investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable. Information in the table reflects options granted under the
1993 Plan and the 1997 Plan to the extent that such options are or become
exercisable on or before December 31, 1997. Accordingly, the totals for
the following executive officers and all executive officers and directors
as a group include the following shares represented by options: Mr.
Martin, 89,235 shares; Mr. Powers, 148,335 shares; Mr. Vollmar, 207,435
shares; Mr. Donnelly, 207,435 shares; Mr. Penner, 5,000 shares; and Dr.
Hemberger, 5,000 shares.
(2) Assumes no exercise of the over-allotment option.
(3) Represents 3,214,147 shares owned by certain investment partnerships, of
which affiliates of The Carlyle Group (collectively, the "Carlyle
Affiliates") are the general partner or, in the case of State Board
Administration of Florida, with respect to which a Carlyle Affiliate has
all rights other than the right to receive dividends and other
distributions and other purely financial rights. Includes 1,045,319 shares
held of record by Carlyle Partners II, L.P., 47,711 shares held of record
by Carlyle Partners III, L.P., 882,357 shares held of record by Carlyle
International Partners II, L.P., 47,542 shares held of record by Carlyle
International Partners III, L.P., 198,667 shares held of record by C/S
International Partners, 1,097 shares held of record by Carlyle Investment
Group, L.P., 437,507 shares held of record by Carlyle-PRA Partners, L.P.,
114,864 shares held of record by Carlyle-PRA International Partners, L.P.,
and 439,083 shares held of record by State Board Administration of
Florida. The Carlyle Affiliates disclaim beneficial ownership of the
shares owned by such record holders to the extent attributable to
partnership interests therein held by persons other than the Carlyle
Affiliates and their affiliates. Each of such investment partnerships
share voting and investment power with certain of its respective
affiliates. The address of The Carlyle Group is 1001 Pennsylvania Avenue,
N.W., Washington, D.C. 20004-2505.
52
<PAGE>
(4) Includes 236,136 shares issuable upon the exercise of an outstanding
warrant. Virginia Capital, L.P.'s address is 9 South 12th Street, Suite
400, Richmond, VA 23219.
(5) Mr. Martin's business address is PRA International, Inc., American Center,
8300 Boone Boulevard, Suite 310, Vienna, Virginia 22182.
(6) Mr. Powers' business address is Pharmaceutical Research Associates, Inc.,
2400 Old Ivy Road, Charlottesville, VA 22903
(7) Includes Dr. Robert J. Dockhorn's beneficial interest in 59,458 shares
held by the Robert J. Dockhorn Revocable Trust, 4,913 shares held by the
Beverly W. Dockhorn Revocable Trust and 10,745 shares held by the Robert
and Beverly Dockhorn Charitable Remainder Unitrust. While Dr. Dockhorn
does not currently hold voting or investment rights with respect to the
shares held by these last two trusts and disclaims beneficial interest in
such shares, he is the current income and principal beneficiary and
successor co-trustee of the Beverly W. Dockhorn Revocable Trust and is the
current income beneficiary during his lifetime of the Robert and Beverly
Dockhorn Charitable Remainder Unitrust.
(8) Each of Messrs. D'Aniello, Dupree and Manos is an officer of The Carlyle
Group.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective as of the closing of the Offering, the authorized capital stock of
the Company will consist of 25,000,000 shares of Common Stock, par value $.01
per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share.
COMMON STOCK
As of October 15, 1997, there were 1,736,632 shares of Common Stock and
1,658,082 shares of Series A Preferred Stock outstanding. Upon the completion
of the closing of the Offering, there will be 7,753,053 shares of Common Stock
outstanding (assuming no exercise of the Underwriters' over-allotment option),
after giving effect to the conversion of the outstanding shares of Series A
Preferred Stock into Common Stock and the sale of the shares of Common Stock
being offered in the Offering. The holders of shares of Common Stock are
entitled to one vote per share held on all matters submitted to a vote of
stockholders of the Company and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of the Common Stock entitled
to vote in any election of directors may elect all of the directors standing
for election, and, after the Offering, the current stockholders and directors
and officers of the Company will be able to elect all of the directors. In
addition, holders of the Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of the dissolution, liquidation or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities of the Company. Dividend and liquidation
rights attributable to the Common Stock would be subject to any preferential
rights associated with any outstanding Preferred Stock. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in the Offering will be, when issued, fully paid and
nonassessable.
WARRANTS
As of September 30, 1997, there is one outstanding warrant held by Virginia
Capital, L.P. and exercisable for up to 236,136 shares of Common Stock. This
warrant has an expiration date of November 14, 2001 and has an exercise price
of $1.06 per share. Virginia Capital is entitled to certain registration rights
in respect of the shares of Common Stock issuable upon exercise of its warrant.
See "Registration Rights."
PREFERRED STOCK
After giving effect to the conversion of the Series A Preferred Stock (which
will occur simultaneously with the closing of the Offering), there will be no
shares of Preferred Stock outstanding. The Board of Directors has the authority
to issue Preferred Stock in one or more series, and, to the fullest extent
permitted by law, to fix the rights, preferences, privileges and restrictions,
including dividend, conversion, voting, redemption (including sinking fund
provisions), and other rights, liquidation preferences and the number of shares
constituting any series and the designations of such series, without any
further vote or action by the stockholders of the Company. The rights and
preferences of the Preferred Stock may be senior to the rights and preferences
of the Common Stock. Because the terms of the Preferred Stock may be fixed by
the Board of Directors of the Company without stockholder action, the Preferred
Stock could be issued quickly, with terms calculated to defeat a proposed
takeover of the Company, or to make the removal of the management of the
Company more difficult. Under certain circumstances, this could have the effect
of decreasing the market price of the Common Stock.
REGISTRATION RIGHTS
Pursuant to the terms of the Stockholders' Agreement entered into by certain
of the Company's stockholders and the Company in connection with the Company's
sale of Series A Preferred Stock to certain affiliates of The Carlyle Group,
the Company granted to those affiliate purchasers the right on two occasions,
and memorialized the rights of each of Virginia Capital and Sirrom on one
occasion, to require, at any time after the closing of a
54
<PAGE>
registration for the Company's initial public offering, that the Company
register under the Securities Act shares of Common Stock held by them or to be
held by them upon the exercise of certain conversion rights or outstanding
warrants, provided that, in each such case, such offering must reasonably be
predicted to effect the registration of an aggregate gross amount of the
Company's Common Stock having a value of at least $25 million, including
shares of Common Stock requested to be registered pursuant to the following
paragraph.
These securityholders also have a "piggyback" right to have their shares of
Common Stock included in any registration by the Company initiated on its own
behalf or on behalf of its other stockholders other than a registration for
the Company's initial public offering. Messrs. Martin, Powers, Vollmar and
MacLachlan also have such a piggyback right as to an aggregate of 38,915
shares. Such piggyback registration rights are subject to the right of the
managing underwriters of an underwritten offering to limit the number of such
stockholders' shares to be included in such offering.
The Company will bear the expenses of all such registrations, other than the
legal fees of participating stockholders and the underwriters' fees, discounts
or commissions relating to their Common Stock being registered.
The former IMTCI stockholders also were granted piggyback registration
rights in any subsequent public offering by the Company with respect to the
143,272 shares of Common Stock received by them as partial payment by the
Company for the capital stock of IMTCI pursuant to the terms of the related
stock purchase agreement.
In October 1997, all of the foregoing registration rights were consolidated
into a single Registration Rights Agreement.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The Restated Certificate of Incorporation and Amended and Restated By-Laws
(the "By-Laws") provide that, effective upon the consummation of the Offering,
any action required or permitted to be taken by the stockholders of the
Company may be taken only at duly called annual or special meetings of the
stockholders, and that special meetings may be called only by the Chairman of
the Board of Directors, the President or a majority of the Board of Directors
of the Company. These provisions could have the effect of delaying until the
next annual stockholders' meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities of the Company,
including actions to remove directors. These provisions also may discourage
another person or entity from making a tender offer for the Common Stock,
because such person or entity, even if it acquired all or a majority of the
outstanding voting securities of the Company, would be able to take action as
a stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders meeting, and not by written consent.
The Company's Restated Certificate of Incorporation and By-Laws provide
that, effective upon the consummation of the Offering, for nominations for the
Board of Directors or for other business to be properly brought by a
stockholder before a meeting of stockholders, the stockholder must first have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a notice of nominations or other business to be brought before a
stockholders meeting must be delivered not less than 50 days prior to such
stockholders meeting, provided that in the event that less that 55 days'
notice or prior public disclosure of the date of the
55
<PAGE>
meeting is given or made to stockholders, a notice of nominations or other
business to be brought before such stockholders meeting must be delivered
within seven days following the day on which such notice of the date of the
stockholders meeting was given or such public disclosure was made. The notice
must contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting.
The Company's Restated Certificate of Incorporation and By-Laws provide for
the division of the Board of Directors into three classes, as nearly equal in
size as possible, with staggered three-year terms. See "Management--Executive
Officers, Key Employees and Directors." A director may be removed only for
cause and then only by the vote of the majority of the shares entitled to vote
for the election of directors.
The Company's Restated Certificate of Incorporation empowers the Board of
Directors, when considering a tender offer or merger or acquisition proposal,
to take into account factors in addition to potential short-term economic
benefit to stockholders. Such factors may include (i) comparison of the
proposed consideration to be received by stockholders in relation to the then
current market price of the Company's capital stock, the estimated current
value of the Company in a freely negotiated transaction and the estimated
future value of the Company as an independent entity, and (ii) the impact of
such a transaction on the employees, suppliers and customers of the Company
and its effect on the communities in which the Company operates.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless the corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Company's Restated Certificate of
Incorporation requires the affirmative vote of at least two-thirds of the
outstanding voting stock of the Company to amend or repeal any of the
foregoing provisions, the aforementioned provisions relating to the ability of
the Board of Directors to issue shares of Preferred Stock or to reduce the
number of authorized shares of Common Stock or Preferred Stock. A two-thirds
vote also is required to amend or repeal any of the foregoing By-Law
provisions. Such two-thirds stockholders vote would in either case be in
addition to any separate class vote that might, in the future, be required
pursuant to the terms of any Preferred Stock that might be outstanding at the
time any such amendments are submitted to stockholders. The By-Laws also may
be amended or repealed by a majority vote of the Board of Directors.
The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. The General Corporation Law of Delaware also
authorizes the Company to indemnify its directors and officers and the
Company's Restated Certificate of Incorporation does to the fullest extent
provided by law. The Company believes that these provisions will assist the
Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of 7,753,053
shares of Common Stock outstanding (8,165,553 shares if the Underwriters'
over-allotment options are exercised in full). Of these shares, the 2,750,000
shares of Common Stock offered hereby (3,162,500 shares if the Underwriters'
over-allotment options are exercised in full) will be freely tradable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined under the Securities Act. The
remaining 5,003,053 shares of Common Stock outstanding and the 1,414,084
shares of Common Stock issuable upon exercise of outstanding options and
warrants beginning 90 days after the Offering (collectively, the "Restricted
Shares") are or will be issued and sold by the Company in private transactions
in reliance upon one or more exemptions contained in the Securities Act.
Subject to their agreement with the Underwriters described below, the holders
of Restricted Shares may, in certain circumstances, be eligible to sell such
shares in the public market pursuant to Rule 144 or Rule 701 promulgated under
the Securities Act ("Rule 701").
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) that has beneficially owned Restricted Shares for
at least one year, including persons that may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 77,531 shares upon completion
of the Offering) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 also are subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person that is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding
a sale, and that has beneficially owned the shares proposed to be sold for at
least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above. In addition, at any time
after 90 days following the effective date of this Prospectus, shares issued
in compliance with Rule 701 and which are otherwise transferable in accordance
with the terms of any restrictive agreements with the Company relating thereto
may be sold without regard to the holding period referred to above, as
described below.
Subject to certain limitations on the aggregate offering price of securities
offered and sold in reliance on Rule 701 and certain other conditions, Rule
701 may be relied upon with respect to the resale of shares of Common Stock
originally purchased from the Company by its employees, directors, officers,
consultants and advisors between May 20, 1988 (the effective date of Rule 701)
and the date the Company becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act (including options granted before May 20,
1988 and exercises thereof after the date of this Prospectus). Shares of
Common Stock issued in reliance on Rule 701 are "Restricted Shares" and,
beginning 90 days after the date of this Prospectus, may be sold by
affiliates, subject to the provisions described above regarding manner of
sale, notice requirements, volume limitations and the availability of current
public information under Rule 144, but without compliance with its two-year
minimum holding period requirement, and by persons other than affiliates,
subject only to the provisions regarding manner of sale under Rule 144.
Under Rule 144 (and subject to the conditions thereof), approximately
4,446,345 Restricted Shares will become eligible for sale upon completion of
the Offering, of which 4,446,345 are subject to lockup restrictions as
described below, and under Rule 701 (and subject to the conditions thereof),
approximately 1,355,248 additional Restricted Shares will become eligible for
sale 90 days after the Offering, of which 1,345,248 shares are subject to
lockup restrictions as described below. The Company, its officers and
directors, and certain other stockholders of the Company (who in the aggregate
will hold 6,407,137 Restricted Shares upon completion of the Offering) have
agreed that they will not directly or indirectly, offer, sell, offer to sell,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, grant of any options to purchase or sale or
disposition) of any shares of Common Stock or other capital stock of the
Company, or any securities convertible
57
<PAGE>
into, or exercisable, or exchangeable for, any shares of Common Stock or other
capital stock of the Company without the prior written consent of the
Underwriters' Representatives, for a period of 180 days from the date of this
Prospectus, except, in some cases, certain transfers to affiliated parties are
permitted. In addition, certain holders of the Common Stock may require the
Company to register their shares of Common Stock under the Securities Act,
which would permit such holders to resell a certain amount of their shares
without complying with Rule 144. See "Description of Capital Stock--
Registration Rights." Registration and sale of such shares could have an
adverse effect on the trading price of the Common Stock.
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market or the perception that such sales
could occur could adversely affect the market price of Common Stock and could
impair the Company's future ability to raise capital through an offering of
its equity securities. See "Risk Factors--Effect of Outstanding Shares on
Market" and "Description of Capital Stock--Registration Rights."
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Smith Barney Inc.........................................
NationsBanc Montgomery Securities, Inc...................
Wessels, Arnold & Henderson, L.L.C.......................
-----
Total..................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., NationsBanc Montgomery
Securities, Inc. and Wessels, Arnold and Henderson, L.L.C. are acting as
representatives (the "Representatives"), propose to offer part of the shares
of Common Stock directly to the public at the public offering price set forth
on the cover page of this Prospectus and part of the shares to certain dealers
at a price which represents a concession not in excess of $ per share under
the public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to other Underwriters or
to certain other dealers. After the initial offering of the shares to the
public, the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm sales to accounts over
which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
412,500 additional shares of Common Stock at the price to the public set forth
on the cover page of this Prospectus, minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the sale of the shares
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares set forth
next to such Underwriter's name in the preceding table bears to the total
number of shares in such table.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the
purpose of reducing a snydicate short position created in connection with the
Offering. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby, if the Representatives purchase Common Stock in the open
market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost price
to the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and any such activities, if commenced, may be discontinued at
any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
59
<PAGE>
The Company, its officers and directors and certain other stockholders,
holding in the aggregate substantially all of the Company's currently
outstanding equity securities, have agreed that, for a period of 180 days
after the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, Common Stock except, in the case of the
Company, in certain limited circumstances and, in some cases, for certain
transfers to affiliated parties.
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
LEGAL MATTERS
Certain legal matters relating to the Company will be passed upon for the
Company by Bingham Dana LLP, Washington, D.C. Certain legal matters relating
to the Underwriters will be passed upon for the Underwriters by Gibson, Dunn &
Crutcher LLP, Washington, D.C.
EXPERTS
The audited consolidated financial statements and schedule of the Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. Reference is made to
said report, which includes an explanatory fourth paragraph with respect to
the change in the method of computing depreciation in 1996, as discussed in
Note 3 to the consolidated financial statements.
The consolidated financial statements of PRA International, Inc. at December
31, 1995, and for each of the two years in the period ended December 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The audited financial statements of IMTCI included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act of 1933 with respect to the Common Stock being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement on Form S-1, as amended, and the exhibits and
schedules thereto (collectively, the "Registration Statement"), certain items
of which may be omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other documents are not necessarily complete, and in
each instance reference is made to the copy of such documents filed as an
exhibit to the Registration Statement. For further information about the
Company and the securities offered hereby, reference is made to the
Registration Statement, which may be inspected without charge at the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part
thereof may be obtained from such office after payment of the fees prescribed
by the Commission. Copies of such materials may also be obtained from the web
site that the Commission maintains at http://www.sec.gov.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants............................... F-2
Consolidated Balance Sheets as of December 31, 1995, December 31, 1996
and June 30, 1997...................................................... F-4
Consolidated Statements of Income for the years ended December 31, 1994,
December 31, 1995, and December 31, 1996 and for the six months ended
June 30, 1996 and 1997................................................. F-6
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1994, December 31, 1995, and December 31, 1996 and for the
six months ended June 30, 1997......................................... F-7
Consolidated Statements of Cash Flows for the years ended December 31,
1994, December 31, 1995, and December 31, 1996 and for the six months
ended June 30, 1996 and 1997........................................... F-9
Notes to Consolidated Financial Statements.............................. F-10
IMTCI FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-27
Balance Sheets as of September 30, 1995, September 30, 1996 and March
31, 1997............................................................... F-28
Statements of Income for the years ended September 30, 1995 and 1996 and
for the six months ended March 31, 1996 and 1997....................... F-29
Statements of Stockholders' Equity for the years ended September 30,
1995 and 1996 and for the six months ended March 31, 1997.............. F-30
Statements of Cash Flows for the years ended September 30, 1995 and 1996
and for the six months ended March 31, 1996 and 1997................... F-31
Notes to Financial Statements........................................... F-32
PRO FORMA CONDENSED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Statements of Income................... F-37
Pro Forma Condensed Consolidated Statements of Income for the year ended
December 31, 1996...................................................... F-38
Pro Forma Condensed Consolidated Statements of Income for the six months
ended June 30, 1997.................................................... F-39
Notes to Pro Forma Condensed Consolidated Financial Statements.......... F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PRA International, Inc.:
We have audited the accompanying consolidated balance sheets of PRA
International, Inc. (a Delaware corporation), as of December 31, 1996, and
June 30, 1997, and the related consolidated statements of income,
stockholders' deficit, and cash flows for the year and the six-month period
then ended, respectively. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of PRA International, Inc., as of December 31, 1996, and June 30, 1997, and
the consolidated results of its operations and its cash flows for the year and
the six months then ended, respectively, in conformity with generally accepted
accounting principles.
As explained in Note 3 to the consolidated financial statements, effective
January 1, 1996, the Company changed its method of accounting for depreciation
of fixed assets for certain fixed assets acquired subsequent to January 1,
1996.
/s/ Arthur Andersen LLP
Washington, D.C.
September 8, 1997
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
PRA International, Inc.
We have audited the accompanying consolidated balance sheet of PRA
International, Inc. as of December 31, 1995 and the related consolidated
statements of income, stockholders' deficit and cash flows for the two years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of PRA International, Inc. as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the two years then ended
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 8, 1996
F-3
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
----------------------- JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $2,474,000 $15,117,801 $ 2,355,846
Accounts receivable and unbilled
services, less allowance of $27,515,
$132,098, and $77,232 as of December
31, 1995 and 1996, and June 30, 1997,
respectively.......................... 5,760,511 8,192,931 12,278,247
Income taxes receivable................ -- -- 85,539
Prepaid expenses and other current
assets................................ 167,700 205,427 383,205
---------- ----------- -----------
Total current assets................. 8,402,211 23,516,159 15,102,837
Fixed assets:
Furniture and fixtures................. 605,274 1,352,685 3,572,850
Computer hardware and software......... 1,789,673 3,264,126 6,103,015
Leasehold improvements................. 263,059 507,657 857,026
---------- ----------- -----------
2,658,006 5,124,468 10,532,891
Accumulated depreciation and
amortization.......................... (1,795,898) (2,228,739) (3,908,793)
---------- ----------- -----------
862,108 2,895,729 6,624,098
---------- ----------- -----------
Goodwill, net of accumulated amortization
of $91,947 as of June 30, 1997.......... -- -- 14,064,635
Other assets............................. 135,490 212,405 583,207
---------- ----------- -----------
Total assets......................... $9,399,809 $26,624,293 $36,374,777
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
AS OF
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------- JUNE 30, 1997
1995 1996 1997 (SEE NOTE 3)
---------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......... $ 562,376 $ 1,527,498 $ 3,013,436 $ 3,013,436
Accrued expenses.......... 868,933 2,052,359 3,164,547 3,164,547
Income taxes payable...... -- 192,878 -- --
Advance billings.......... 4,868,558 8,553,938 6,506,323 6,506,323
Current portion of
convertible seller notes. -- -- 747,734 --
Current portion of long-
term debt................ 266,896 392,509 22,176 22,176
---------- ----------- ----------- -----------
Total current
liabilities............ 6,566,763 12,719,182 13,454,216 12,706,482
---------- ----------- ----------- -----------
Convertible seller notes,
less current portion....... -- -- 4,581,847 --
Long-term debt, less current
portion.................... 2,232,960 2,154,775 4,541,696 518,194
---------- ----------- ----------- -----------
Total liabilities....... 8,799,723 14,873,957 22,577,759 13,224,676
---------- ----------- ----------- -----------
Commitments (Note 11)
Redeemable convertible
preferred stock (Note 8):
Class E preferred stock,
no par value, 197,000
shares authorized,
105,419 shares issued and
outstanding as of
December 31, 1995........ 250,000 -- -- --
Series A preferred stock,
$.01 par value, 3,800,000
shares authorized,
1,658,082 shares issued
and outstanding as of
December 31, 1996, and
June 30, 1997.
Liquidation preference of
$20,589,298 as of June
30, 1997................. -- 19,196,922 20,128,894 --
Redeemable common stock
warrants (Note 8).......... 1,043,701 -- -- --
---------- ----------- ----------- -----------
1,293,701 19,196,922 20,128,894 --
---------- ----------- ----------- -----------
Stockholders' deficit (Note
9):
Preferred stock........... 500,000 -- -- --
Common stock $.01 par
value, 25,000,000 shares
authorized 1,903,671;
2,671,686, and 3,046,036
shares issued as of
December 31, 1995, and
1996, and June 30, 1997,
respectively, and
6,753,437 on a pro forma
basis.................... 19,037 26,717 30,460 67,534
Additional paid-in
capital.................. 418,955 1,754,030 3,751,460 33,399,304
Accumulated deficit....... (826,508) (465,438) (1,297,553) (1,644,187)
Adjustment to record
excess of redemption
value over carrying value
of redeemable preferred
stock and common stock
warrants................. (714,606) -- -- --
Deferred compensation..... -- (165,799) (143,693) --
1,545,540 shares of common
stock in treasury, at
cost..................... -- (8,539,487) (8,539,487) (8,539,487)
Cumulative foreign
currency translation
adjustment............... (90,493) (56,609) (133,063) (133,063)
---------- ----------- ----------- -----------
Total stockholders'
(deficit) equity....... (693,615) (7,446,586) (6,331,876) 23,150,101
---------- ----------- ----------- -----------
Total liabilities and
stockholders' (deficit)
equity................. $9,399,809 $26,624,293 $36,374,777 $36,374,777
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Professional fee
revenues............... $11,324,602 $13,656,890 $27,480,424 $ 11,482,017 $ 21,337,690
Less reimbursed costs... (1,273,185) (1,422,963) (5,970,684) (2,088,441) (3,290,456)
----------- ----------- ----------- ------------ ------------
Net revenues........ 10,051,417 12,233,927 21,509,740 9,393,576 18,047,234
Operating costs and
expenses:
Direct costs.......... 6,277,195 8,260,925 14,951,791 6,452,725 13,032,130
Selling, general, and
administrative....... 2,853,080 3,334,028 4,160,843 1,912,286 3,995,790
Depreciation and
amortization......... 281,578 257,895 446,926 180,683 640,118
Stock repurchase and
other equity
compensation (Notes 9
and 10).............. -- -- 643,599 -- 22,106
----------- ----------- ----------- ------------ ------------
Income from operations.. 639,564 381,079 1,306,581 847,882 357,090
Interest expense........ (76,934) (363,958) (461,732) (227,588) (369,192)
Interest income......... 55,374 60,532 355,981 98,595 244,869
Other income (expense),
net.................... 58,675 55,451 (20,317) (57,403) (42,411)
----------- ----------- ----------- ------------ ------------
Income before income
taxes.................. 676,679 133,104 1,180,513 661,486 190,356
Provision for income
taxes.................. 230,197 -- 415,652 232,906 90,499
----------- ----------- ----------- ------------ ------------
Net income.......... 446,482 133,104 764,861 428,580 99,857
Accretion and dividends. -- (714,606) (2,300,862) (1,665,999) (931,972)
----------- ----------- ----------- ------------ ------------
Net income (loss)
available to common
stockholders........... $ 446,482 $ (581,502) $(1,536,001) $ (1,237,419) $ (832,115)
=========== =========== =========== ============ ============
Unaudited pro forma data
(Note 3):
Pro forma net income
(loss) available to
common stockholders.. $ (683,982) $ 263,790
=========== ============
Pro forma net income
(loss) per share..... $ (0.12) $ 0.04
=========== ============
Pro forma weighted
average shares
outstanding.......... 5,718,857 6,977,297
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PRA INTERN
CONSOLIDATED STATEMEN
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
---------------------------------------------------------------
REDEEMABLE
COMMON SERIES A CLASS E PREFERRED STOCK
STOCK ----------------------- ------------------ ------------------
WARRANTS SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1993............... $ -- -- $ -- -- $ -- -- $ --
Foreign currency
translation
adjustment............ -- -- -- -- -- -- --
Issuance of common and
preferred stock....... -- -- -- 105,419 250,000 16,739 50,000
Net income............. -- -- -- -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Balance as of December
31, 1994............... -- -- -- 105,419 250,000 16,739 50,000
Foreign currency
translation
adjustment............ -- -- -- -- -- -- --
Exercise of common
stock options......... -- -- -- -- -- -- --
Issuance of Series F
preferred stock....... -- -- -- -- -- 136,220 450,000
Issuance of common
stock warrants in
connection with long-
term debt............. 329,095 -- -- -- -- -- --
Accretion on redeemable
common stock warrants. 714,606 -- -- -- -- -- --
Net income............. -- -- -- -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Balance as of December
31, 1995............... 1,043,701 -- -- 105,419 250,000 152,959 500,000
Foreign currency
translation
adjustment............ -- -- -- -- -- -- --
Issuance of Series F
preferred stock....... -- -- -- -- -- 15,136 50,000
Exercise of common
stock options......... -- -- -- -- -- -- --
Dividends on preferred
stock................. -- -- -- -- -- -- --
Accretion on Class E
preferred stock....... -- -- -- -- 231,072 -- --
Accretion on redeemable
common stock warrants. 1,665,999 -- -- -- -- -- --
Expiration of puts on
Class E preferred
stock and redeemable
common stock warrants. (2,709,700) -- -- (105,419) (481,072) 105,419 250,000
Issuance of common and
preferred stock
pursuant to
antidilution
protection............ -- -- -- -- -- 10,800 --
Conversion of
convertible preferred
stock in Associates
for common stock in
PRA International..... -- -- -- -- -- (284,314) (800,000)
Compensation recorded
for stock option
grants................ -- -- -- -- -- -- --
Amortization of
deferred stock option
compensation.......... -- -- -- -- -- -- --
Repurchase of common
stock................. -- -- -- -- -- -- --
Issuance of Series A
preferred stock....... -- 1,658,082 18,853,014 -- -- -- --
Accrued dividends on
Series A preferred
stock................. -- -- 343,908 -- -- -- --
Net income............. -- -- -- -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Balance as of December
31, 1996............... -- 1,658,082 19,196,922 -- -- -- --
Foreign currency
translation
adjustment............ -- -- -- -- -- -- --
Exercise of redeemable
common stock warrants. -- -- -- -- -- -- --
Issuance of common
stock in conjunction
with acquisition...... -- -- -- -- -- -- --
Amortization of
deferred stock option
compensation.......... -- -- -- -- -- -- --
Accretion and accrued
dividends on Series A
preferred stock....... -- -- 931,972 -- -- -- --
Net income............. -- -- -- -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Balance as of June 30,
1997................... -- 1,658,082 20,128,894 -- -- -- --
Pro forma adjustments
(unaudited) (Note 3).. -- (1,658,082) (20,128,894) -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Pro forma balance as of
June 30, 1997
(unaudited)............ $ -- -- $ -- -- $ -- -- $ --
========== ========== =========== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ATIONAL, INC.
TS OF STOCKHOLDERS' DEFICIT
STOCKHOLDERS'
DEFICIT
- ------------------------------
<TABLE>
<CAPTION>
TREASURY STOCK
REDEMPTION --------------------- CUMULATIVE
COMMON STOCK ADDITIONAL VALUE OVER FOREIGN
- ------------------ PAID-IN ACCUMULATED CARRYING DEFERRED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT VALUE COMPENSATION SHARES AMOUNT ADJUSTMENT TOTAL
- --------- ------- ----------- ----------- ---------- ------------ --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,843,093 $18,430 $ 266,322 $(1,406,094) $ -- $ -- -- $ -- $ 93,993 $ (1,027,349)
-- -- -- -- -- -- -- -- (110,062) (110,062)
54,668 547 149,453 -- -- -- -- -- -- 200,000
-- -- -- 446,482 -- -- -- -- -- 446,482
- --------- ------- ----------- ----------- ---------- -------- --------- ----------- --------- ------------
1,897,761 18,977 415,775 (959,612) -- -- -- -- (16,069) (490,929)
-- -- -- -- -- -- -- -- (74,424) (74,424)
5,910 60 3,180 -- -- -- -- -- -- 3,240
-- -- -- -- -- -- -- -- -- 450,000
-- -- -- -- -- -- -- -- -- --
-- -- -- -- (714,606) -- -- -- -- (714,606)
-- -- -- 133,104 -- -- -- -- -- 133,104
- --------- ------- ----------- ----------- ---------- -------- --------- ----------- --------- ------------
1,903,671 19,037 418,955 (826,508) (714,606) -- -- -- (90,493) (693,615)
-- -- -- -- -- -- -- -- 33,884 33,884
-- -- -- -- -- -- -- -- -- 50,000
287,518 2,875 33,935 -- -- -- -- -- -- 36,810
-- -- -- (59,883) -- -- -- -- -- (59,883)
-- -- -- -- (231,072) -- -- -- -- (231,072)
-- -- -- -- (1,665,999) -- -- -- -- (1,665,999)
-- -- 329,095 -- 2,611,677 -- -- -- -- 3,190,772
196,183 1,962 (1,962) -- -- -- -- -- -- --
284,314 2,843 797,157 -- -- -- -- -- -- --
-- -- 176,850 -- -- (176,850) -- -- -- --
-- -- -- -- -- 11,051 -- -- -- 11,051
-- -- -- -- -- -- 1,545,540 (8,539,487) -- (8,539,487)
-- -- -- -- -- -- -- -- -- --
-- -- -- (343,908) -- -- -- -- -- (343,908)
-- -- -- 764,861 -- -- -- -- -- 764,861
- --------- ------- ----------- ----------- ---------- -------- --------- ----------- --------- ------------
2,671,686 26,717 1,754,030 (465,438) -- (165,799) 1,545,540 (8,539,487) (56,609) (7,446,586)
-- -- -- -- -- -- -- -- (76,454) (76,454)
231,078 2,311 (1,138) -- -- -- -- -- -- 1,173
143,272 1,432 1,998,568 -- -- -- -- -- -- 2,000,000
-- -- -- -- -- 22,106 -- -- -- 22,106
-- -- -- (931,972) -- -- -- -- -- (931,972)
-- -- -- 99,857 -- -- -- -- -- 99,857
- --------- ------- ----------- ----------- ---------- -------- --------- ----------- --------- ------------
3,046,036 30,460 3,751,460 (1,297,553) -- (143,693) 1,545,540 (8,539,487) (133,063) (6,331,876)
3,707,401 37,074 29,647,844 (346,634) -- 143,693 -- -- -- 29,481,977
- --------- ------- ----------- ----------- ---------- -------- --------- ----------- --------- ------------
6,753,437 $67,534 $33,399,304 $(1,644,187) $ -- $ -- 1,545,540 $(8,539,487) $(133,063) $ 23,150,101
========= ======= =========== =========== ========== ======== ========= =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............ $ 446,482 $ 133,104 $ 764,861 $ 428,580 $ 99,857
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating
activities--
Depreciation and
amortization......... 281,578 257,895 446,926 180,683 640,118
Amortization of debt
discount............. -- 27,425 65,819 32,910 35,900
Stock repurchase
compensation......... -- -- 632,548 -- --
Noncash stock option
compensation......... -- -- 11,051 -- 22,106
Deferred income
taxes................ 168,035 -- -- -- (107,209)
Changes in operating
assets and
liabilities:
Accounts receivable
and unbilled
services............. (730,006) (3,546,437) (2,505,691) 681,739 (1,759,674)
Income taxes
receivable........... 173,593 -- -- -- 80,316
Prepaid expenses and
other assets......... 24,669 (125,143) (114,988) (652,157) (11,397)
Accounts payable and
accrued expenses..... 53,982 49,888 2,193,765 428,073 1,405,310
Income taxes payable.. 62,170 -- 192,878 252,181 (192,878)
Advance billings...... (268,960) 2,619,179 3,778,102 2,072,147 (2,466,519)
---------- ----------- ----------- --------- ------------
Net cash provided by
(used in) operating
activities......... 211,543 (584,089) 5,465,271 3,424,156 (2,254,070)
Investing activities:
Purchase of fixed
assets............... (181,904) (506,238) (2,509,127) (517,105) (2,857,394)
Cash paid for
acquisitions, net of
cash acquired........ -- -- -- -- (7,521,999)
Proceeds from disposal
of fixed assets...... -- 4,760 13,215 -- --
---------- ----------- ----------- --------- ------------
Net cash used in
investing
activities......... (181,904) (501,478) (2,495,912) (517,105) (10,379,393)
Financing activities:
Proceeds from issuance
of long-term debt.... 750,000 2,000,000 -- -- --
Repayments of long-
term debt............ (105,670) (43,509) (16,557) (8,412) (51,648)
Proceeds from issuance
of preferred stock... 300,000 450,000 18,903,014 50,000 --
Proceeds from issuance
of common stock...... -- -- -- -- 1,173
Proceeds from stock
option exercises..... -- 3,240 36,810 -- --
Cash paid for stock
repurchase........... -- -- (9,172,035) -- --
Dividends paid........ -- -- (59,883) -- --
---------- ----------- ----------- --------- ------------
Net cash provided by
(used in) financing
activities......... 944,330 2,409,731 9,691,349 41,588 (50,475)
Effect of exchange rate
on cash and cash
equivalents........... (110,062) (81,816) (16,907) 38,936 (78,017)
---------- ----------- ----------- --------- ------------
Increase (decrease) in
cash and cash
equivalents........... 863,907 1,242,348 12,643,801 2,987,575 (12,761,955)
Cash and cash
equivalents at
beginning of period... 367,745 1,231,652 2,474,000 2,474,000 15,117,801
---------- ----------- ----------- --------- ------------
Cash and cash
equivalents at end of
period................ $1,231,652 $ 2,474,000 $15,117,801 5,461,575 $ 2,355,846
========== =========== =========== ========= ============
Supplemental
information:
Cash paid for taxes... $ 99,000 $ -- $ 88,000 $ 88,000 $ 372,000
========== =========== =========== ========= ============
Cash paid for
interest............. $ 76,000 $ 280,000 $ 462,000 $ 129,000 $ 369,000
========== =========== =========== ========= ============
Supplemental disclosure
of noncash financing
and investing
activities:
Assets acquired under
capital lease........ $ -- $ -- $ 7,525 $ -- $ 500,506
========== =========== =========== ========= ============
Issuance of seller
notes and common
stock in conjunction
with acquisition..... $ -- $ -- $ -- $ -- $ 7,329,581
========== =========== =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1996, AND JUNE 30, 1997 (INFORMATION FOR THE SIX
MONTHS ENDED JUNE 30, 1996, IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS:
ORGANIZATION AND RECAPITALIZATION
PRA International, Inc. ("PRA International"), a holding company for
Pharmaceutical Research Associates, Inc. ("Associates"), was incorporated
under the state laws of Delaware in August 1996. Associates was incorporated
under the state laws of Virginia in April 1982. In 1996, pursuant to the
Agreement and Plan of Share Exchange (or "Recapitalization"), PRA
International, Associates, and all stockholders agreed to exchange all of the
outstanding common and preferred stock of Associates for an equal amount of a
single class of $0.01 par value common stock of PRA International. Prior to
the exchange of shares, all of the preferred stock of Associates was
convertible into voting common stock of Associates, at the option of the
holder. The proportionate interest of the stockholders was unaffected by the
Recapitalization. The consolidated financial statements included herein for
all periods prior to the Recapitalization are those of Associates.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
PRA International and its wholly owned subsidiaries, Associates, Pharm.
Research Associates (UK) Limited ("PRA Limited"), Pharmaceutical Research
Associates GmbH ("PRA GmbH"), International Medical Technical Consultants,
Inc. ("IMTCI"), and the Crucible Group, Inc. ("Crucible") collectively
hereafter referred to as the "Company." All significant intercompany accounts
and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company is a full-service international contract research organization
providing a broad range of product development services for pharmaceutical and
biotechnology companies. The Company's integrated services include data
management, statistical analysis, clinical trials management, clinical study
and protocol design, and regulatory and drug development consulting. The
Company provides these services throughout the United States, Canada, and
Europe.
RISKS AND OTHER FACTORS
The Company's revenues are highly dependent on research and development
expenditures of the pharmaceutical and biotechnology industries. The Company
has and will likely continue to derive a substantial portion of its revenues
from a relatively limited number of major programs or clients (see Note 3).
The reduction in research and development expenditures by the pharmaceutical
or biotechnology industries or the loss of any one or more significant clients
could have a material adverse effect on the Company and its results of
operations.
Clients of the Company may generally terminate contracts without cause, upon
30 to 60 days' notice. While the Company generally negotiates payments and
early termination fees up front, such terminations could significantly impact
the level of staff utilization and have a material adverse effect on the
Company and its results of operations.
As discussed in Note 2, the Company acquired IMTCI, a site management
organization ("SMO"), in April 1997. IMTCI derives revenues from
investigational site management operations. Revenues from SMO-related
operations result primarily from pharmaceutical and biotechnology clients and
competing CROs. Some other CROs may be reluctant to utilize the Company's SMO
operations, which could have a material adverse impact on the Company's SMO-
related operations. Furthermore, the integration of a newly acquired business
involves numerous risks, including costs incurred in effecting the
acquisition, difficulty in assimilating operations and products, and the
potential loss of key employees. There can be no assurance that this or any
future acquisition
F-10
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
will be successfully integrated into the Company's operations. Accordingly,
there can be no assurances that the Company's management will be able to
sustain, on a combined basis, the current operating performance of the stand-
alone entities.
2. ACQUISITIONS:
In April 1997, the Company acquired the outstanding stock of IMTCI, a
clinical research and site management organization, for $8,000,000 in cash,
143,272 shares of the Company's common stock valued at $2,000,000 and
approximately $5,330,000 in convertible notes payable (the "Seller Notes").
The Seller Notes accrue interest at a rate of 8.33 percent per annum. The
acquisition was accounted for as a purchase, with the excess of the
acquisition cost over the fair value of IMTCI's net assets being assigned to
goodwill. The Company is amortizing the goodwill over a 40-year period.
Results of operations of IMTCI are included in the consolidated financial
statements subsequent to March 31, 1997.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Cash.......................................................... $ 1,120,000
Accounts receivable........................................... 2,223,000
Fixed assets and other assets................................. 1,382,000
Goodwill...................................................... 13,570,000
Liabilities assumed and direct acquisition costs.............. (2,965,000)
-----------
$15,330,000
===========
</TABLE>
The unaudited pro forma operating results of the Company presented below
reflect the acquisition of IMTCI as if it had occurred as of January 1, 1996.
These results are not necessarily indicative of future operating results or
what would have occurred had the acquisition been consummated at that date.
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
Net revenues............................. $31,983,642 $20,981,110
Net income (loss)........................ 474,430 (198,264)
Accretion and dividends.................. (2,300,862) (931,972)
Net loss available to common
stockholders............................ (1,826,433) (1,130,236)
Net loss per share....................... (0.17) --
</TABLE>
Net loss available to common stockholders and net loss per share include
those pro forma adjustments discussed in Note 3 and as presented in the
accompanying consolidated statements of income, adjusted for the pro forma
effects of the IMTCI acquisition.
In May 1997, the Company acquired Crucible, a clinical research and site
management organization, for $300,000 in cash. The acquisition was accounted
for as a purchase, with the excess of the acquisition cost over the fair value
of Crucible's net assets of approximately $587,000 being assigned to goodwill
and amortized over 15 years. Results of operations of Crucible are included in
the consolidated financial statements subsequent to the date of acquisition.
Pro forma results are not presented as they are not material to the
consolidated financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The unaudited consolidated statements of operations and cash flows for the
six months ended June 30, 1996, have been prepared by the Company and, in the
opinion of management, include all adjustments (consisting of
F-11
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
normal recurring adjustments) necessary to present fairly the Company's
results of operations and cash flows. The operating results for the six months
ended June 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997, or for any future, interim
period.
UNAUDITED PRO FORMA BALANCE SHEET AND PRO FORMA NET INCOME OR LOSS PER SHARE
If the offering contemplated by this prospectus is consummated, all of the
Series A redeemable convertible preferred stock ("Series A Preferred Stock")
outstanding as of the closing date will automatically be converted into shares
of common stock. The pro forma balance sheet as of June 30, 1997, reflects the
conversion of the outstanding shares of Series A Preferred Stock into
3,266,422 shares of common stock. The pro forma balance sheet also gives
effect to: (i) the anticipated repayment of approximately $9.4 million of
long-term debt with the proceeds from the offering (and the issuance of a
sufficient number of additional shares necessary to repay the debt using the
midpoint of the proposed offering range); (ii) the recognition of an
extraordinary loss on the early extinguishment of long-term debt that the
Company expects to repay with proceeds from the offering; and (iii) the
acceleration of deferred stock option compensation expense related to stock
options which vest upon the effective date of a public offering.
Pro forma net income or loss per share gives effect to: (i) the forfeiture
of accrued dividends on the Series A Preferred Stock upon automatic conversion
into common stock; (ii) the expiration of the redemption rights on the Series
A Preferred Stock; and (iii) the elimination of interest expense associated
with long-term debt the Company expects to repay.
As discussed in Note 8 to these consolidated financial statements, the
Series A Preferred Stock will automatically convert provided that the offering
price per share yields a minimum rate of return to the Series A Preferred
stockholders and the net offering proceeds are at least $25 million. The
Series A Preferred stockholders, have waived these requirements for an
offering which closes prior to January 31, 1998.
Pro forma weighted-average shares used in computing pro forma net income per
share are based on the weighted-average number of shares outstanding during
the periods presented. Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletin No. 83, all shares, options, and warrants issued
during the 12 months immediately preceding the initial public offering were
treated as if they had been outstanding for all periods presented, using the
treasury stock method and at a per share price of $11.00, the midpoint of the
proposed offering range. Pro forma weighted average shares outstanding has
been adjusted for the estimated number of shares that the Company would need
to issue to repay the long-term debt discussed above, using the midpoint of
the proposed offering range.
Historical earnings per share data have been omitted because the automatic
conversion of the Series A Preferred Stock into common stock materially
changes the Company's capitalization. Primary income or loss per share is not
presented as it would not materially differ from the amounts presented.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS
No. 128 is effective for financial statements issued after December 15, 1997.
SFAS No. 128 requires dual presentation of basic and diluted earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing net income or loss available to common stockholders by the weighted-
average number of common shares outstanding for the period. The Company's
basic net (loss) income per share, respectively, for the year ended December
31, 1996, and the six months ended June 30, 1997, was $(0.12) and $0.04 on a
pro forma basis.
INCREASE IN AUTHORIZED SHARES AND STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND
In October 1997 the Company amended and restated its certificate of
incorporation to increase the number of authorized shares of common stock to
25 million shares, with a par value of $0.01 per share. In addition, the
F-12
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company effected a 1.97-for-one stock split of the common stock in the form of
a stock dividend. Accordingly, all share and per share amounts have been
retroactively adjusted to give effect to these events.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
UNBILLED SERVICES
Unbilled services represent amounts earned for services that have been
rendered but for which clients have not been billed. Unbilled services are
generally billable upon achievement of contract milestones, contract
completion, or submission of appropriate billing information.
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated over the following
estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................... 7 years
Computer equipment and purchased software... 3-5 years
Leasehold improvements...................... The shorter of 10 years or the
lease term
</TABLE>
For furniture, fixtures, and computer equipment of Associates purchased prior
to January 1, 1996, depreciation is computed using an accelerated method.
Assets of these classes purchased after December 31, 1995, are depreciated
using the straight-line method. The effect of this change was to increase net
income by approximately $376,000 during 1996 and decrease pro forma loss per
share by approximately $0.07 per share. Leasehold improvements and property
held under capital leases are depreciated over the shorter of the life of the
lease or the estimated useful life of the asset.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including goodwill resulting from
business acquisitions, and property and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. To determine recoverability of its long-
lived assets, the Company evaluates the probability that future undiscounted
net cash flows, without interest charges, will be less than the carrying amount
of the assets. The Company has determined that as of June 30, 1997, there has
been no impairment in the carrying value of long-lived assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of current assets and current liabilities in the
accompanying financial statements approximate fair value due to the short
maturity of these instruments.
As of June 30, 1997, the fair value of the senior subordinated note payable
approximated $2,000,000. As of June 30, 1997, the fair value of the junior
subordinated debentures, convertible Seller Notes payable, note payable to a
bank, equipment loan and the line of credit, approximated their carrying
values. The fair value of the Company's long-term debt was estimated using
discounted cash flow analyses using interest rates offered on loans with
similar terms to borrowers of similar credit quality.
F-13
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ADVANCE BILLINGS
Advance billings represent amounts associated with services that have been
prebilled, but have not yet been rendered.
REVENUE RECOGNITION
The majority of the Company's revenues are generated under fixed-price
contracts. Revenues from fixed-price contracts are recorded using the
percentage-of-completion method based on the relationship of costs incurred to
total estimated costs. Contract costs consist primarily of direct labor and
other related labor costs. Revenues related to contract modifications are
recognized when realization is assured and the amounts are reasonably
determinable. A majority of the Company's contracts undergo scope modification
over the contract period. Pass-through expenses generally include investigator
fees, travel, and certain other contract costs that are reimbursed by the
customer. Accordingly, such costs are deducted in determining net revenues.
If it is determined that a loss will result from performance under a
contract, the entire amount of the loss is charged against income in the
period in which the determination is made. Clients generally may terminate a
study at any time, which may cause periods of excess capacity and may
significantly reduce revenues and earnings. To offset the effects of any
terminations, the Company typically negotiates the payment of early
termination fees.
SIGNIFICANT CUSTOMERS
Net revenues from individual customers greater than 10 percent of
consolidated net revenues in the respective periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A................................. --% --% 13% 11% --%
Customer B................................. -- -- 11 12 --
Customer C................................. -- 11 -- -- --
Customer D................................. -- 13 -- -- --
Customer E................................. -- -- -- -- 10
Customer F................................. -- -- -- -- 15
Customer G................................. 11 -- -- -- --
Customer H................................. 11 -- -- -- --
</TABLE>
Due to the nature of the Company's business and the relative size of certain
contracts, it is not unusual for a significant customer in one year to be
insignificant in the next. However, the loss of any single significant
customer could have a material adverse effect on the Company's results from
operations.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable and cash and cash equivalents. Accounts
receivable include amounts due from pharmaceutical and biotechnology
companies. Accounts receivable from individual customers that are greater than
10 percent of consolidated accounts receivable in the respective periods were
as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------- AS OF
1995 1996 JUNE 30, 1997
------ ------ -------------
<S> <C> <C> <C>
Customer A................................. --% 17% --%
Customer B................................. -- 13 --
Customer C................................. 15 -- --
Customer E................................. -- 19 10
Customer F................................. 33 -- --
Customer I................................. 10 -- --
Customer J................................. -- -- 12
</TABLE>
F-14
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company provides reserves for potential credit losses. In management's
opinion, there is no additional credit risk beyond amounts provided for such
losses.
As of June 30, 1997, the Company had invested approximately $1,956,000 in
overnight repurchase agreements. The underlying collateral consists of U.S.
government securities and U.S. government agency securities. Generally, the
maturity date of the Company's repurchase agreements is the next business day.
Due to the short-term nature of the agreements, the Company does not take
possession of the securities, which are instead held at the Company's bank from
which it purchases the securities. The carrying value of the agreements
approximates fair value because of the short maturity of the investments. As a
result, the Company believes that it is not exposed to any significant risk
under its overnight repurchase agreements.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect as of the end of the
period. Revenue and expense accounts and cash flows of these operations are
translated at average exchange rates prevailing during the period the
transactions occurred. Translation gains and losses are included as an
adjustment to the cumulative foreign currency translation adjustment account in
stockholders' deficit. Transaction gains and losses are included in other
income (expense), net, in the accompanying consolidated statements of income.
RECLASSIFICATIONS
The Company has reclassified the December 31, 1995, redemption value of the
Class E redeemable preferred stock and redeemable common stock warrants of
$250,000 and $1,043,701, respectively, from stockholders' deficit to a
liability in order to conform with presentation requirements of the Securities
and Exchange Commission. In addition, certain other prior year amounts have
been reclassified to conform to the current period's presentation.
RECENT AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is the total of
net income and all other nonowner changes in equity.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 is effective for financial for periods beginning after December 15, 1997.
SFAS No. 131 requires an enterprise to report certain additional financial and
descriptive information about its reportable operating segments.
Management does not expect that the implementation of either SFAS No. 130 or
No. 131 will have a material impact on the Company's consolidated financial
position or results of future operations.
4. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------- AS OF
1995 1996 JUNE 30, 1997
---------- ---------- -------------
<S> <C> <C> <C>
Accounts receivable..... $4,574,869 $6,037,312 $ 7,963,763
Unbilled services....... 1,213,157 2,287,717 4,391,716
Less--Allowance for
doubtful accounts...... (27,515) (132,098) (77,232)
---------- ---------- -----------
$5,760,511 $8,192,931 $12,278,247
========== ========== ===========
</TABLE>
F-15
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------- AS OF
1995 1996 JUNE 30, 1997
-------- ---------- -------------
<S> <C> <C> <C>
Accrued payroll and related expenses...... $723,518 $1,447,930 $2,356,228
Accrued VAT taxes payable................. 59,866 122,694 64,294
Accrued interest on convertible seller
notes payable............................ -- -- 103,500
Other accrued expenses.................... 85,549 481,735 640,525
-------- ---------- ----------
$868,933 $2,052,359 $3,164,547
======== ========== ==========
</TABLE>
6. LONG-TERM DEBT AND CONVERTIBLE SELLER NOTES PAYABLE:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------- AS OF
1995 1996 JUNE 30, 1997
---------- ---------- -------------
<S> <C> <C> <C>
Junior subordinated debentures........ $ 750,000 $ 750,000 $ 750,000
Senior subordinated note payable, net
of discount.......................... 1,698,330 1,764,149 1,797,059
Note payable to a bank................ -- -- 731,719
Line of credit........................ -- -- 500,000
Equipment loan........................ -- -- 244,724
Obligations under capital leases...... 51,526 33,135 540,370
---------- ---------- ----------
2,499,856 2,547,284 4,563,872
Less--Current portion................. (266,896) (392,509) (22,176)
---------- ---------- ----------
$2,232,960 $2,154,775 $4,541,696
========== ========== ==========
</TABLE>
On November 14, 1994, the Company entered into an agreement with an investor
whereby the Company received $1,000,000 in cash in exchange for junior
subordinated debentures, preferred stock, and a warrant (see Note 8). The
debentures were due in equal annual installments of $375,000 on December 31,
1997 and 1998. Interest was payable in monthly installments on the unpaid
balance of the debt at an annual rate of 12.5 percent. The debentures were
secured by all of the assets of the Company and were subordinated to the
$2,000,000 senior subordinated note payable, as discussed below, and up to
$5,000,000 of senior notes and other financing. In August 1997, the Company
repaid the $750,000 junior subordinated debenture with proceeds from the
Revolver discussed below.
On August 11, 1995, the Company entered into a borrowing agreement with a
different investor whereby the Company received $2,000,000 in exchange for a
senior subordinated note payable and a warrant (see Note 8). The Company
originally allocated $329,095 of the proceeds to the warrant and debt discount.
The discount is being amortized to interest expense using the effective
interest method over the period the related debt is expected to be outstanding.
The total amount of the principal ($2,000,000), plus any unpaid interest, is
due on August 10, 2000. Interest is payable in monthly installments at an
annual rate of 13.5 percent. The agreement is secured by all of the assets of
the Company, but is subordinated to up to $10,000,000 of other senior
financing.
In conjunction with the Crucible acquisition discussed in Note 2, the Company
assumed a note payable, which it immediately repaid with the proceeds from a
note payable to a bank. The note accrued interest at a rate of LIBOR plus 2
percent per annum and was unsecured. In August 1997, the Company repaid the
note with proceeds from the Revolver discussed below.
F-16
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
IMTCI had a line of credit with a bank, which provided for maximum
borrowings up to $750,000. Interest accrued at a rate of 8.25 percent per
annum on the outstanding borrowings. Outstanding borrowings under the line of
credit were $500,000 as of June 30, 1997. The line of credit was
collateralized by substantially all of IMTCI's assets. In August 1997, the
line of credit was repaid with proceeds from the Revolver discussed below.
In conjunction with the IMTCI acquisition, the Company assumed an equipment
loan. The loan accrued interest at a rate of 8.75 percent per annum and was
secured by certain equipment of IMTCI. In August 1997, the Company repaid the
loan with proceeds from the Revolver discussed below.
The Company leases certain equipment having an original cost basis of
approximately $18,000, $25,000, and $526,000 as of December 31, 1995 and 1996,
and June 30, 1997, respectively. Accumulated depreciation of approximately
$9,000, $10,000, and $16,000 has been recorded as of December 31, 1995 and
1996, and June 30, 1997, respectively. Interest on the leases is imputed at
rates ranging from 6 to 18 percent as of June 30, 1997. The leases expire in
various years through 2001 and, as of June 30, 1997, have remaining aggregate
annual payments of approximately $110,000, $154,000, $151,000, $146,000, and
$60,000 during 1997 through 2001, including interest of approximately $80,000.
During August 1997, the Company obtained a revolving line of credit (the
"Revolver") with a bank, with maximum borrowings of up to $7,500,000.
Borrowings are limited to 85 percent of eligible billed domestic accounts
receivable and 60 percent of eligible unbilled domestic accounts receivable
and are collateralized by substantially all of the Company's assets.
Outstanding borrowings accrue interest at LIBOR (approximately 5.7 percent as
of August 30, 1997) plus 2 percent. The Company utilized proceeds from the
Revolver to retire $2,200,000 in long-term debt. The Revolver carries certain
financial covenants, including minimum tangible net worth, minimum working
capital, minimum debt service ratios, limitations on capital expenditures and
restrictions on the payment of dividends, among others. The Revolver matures
in June 1999.
During August 1997, PRA GmbH secured a line of credit facility providing for
aggregate borrowings up to DM 1,000,000 (approximately $542,000). The facility
accrues interest at a rate of 7.75 percent per annum on all outstanding
borrowings and is secured by the accounts receivable of PRA GmbH. The line of
credit facility has no expiration date.
Aggregate principal payments of long-term debt as of June 30, 1997, after
giving effect to the August 1997 refinancing under the Revolver, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING LONG-TERM
DECEMBER 31, DEBT
------------ ----------
<S> <C>
1997.......................................................... $ 82,287
1998.......................................................... 164,054
1999.......................................................... 2,364,765
2000.......................................................... 2,155,545
2001.......................................................... 62,684
----------
4,829,335
Less--Unamortized debt discount.............................. (202,941)
Less--Interest on obligations under capital leases........... (62,522)
----------
Total...................................................... $4,563,872
==========
</TABLE>
CONVERTIBLE SELLER NOTES PAYABLE
In conjunction with the IMTCI acquisition (see Note 2), the Company issued
notes payable (the "Seller Notes") in the amounts of approximately $4,300,000
and $1,000,000 to the former owners of IMTCI. The
F-17
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$4,300,000 note matures in April 2001 and is payable in quarterly installments
beginning on October 1, 1997. The $1,000,000 note matures in April 2000 and is
payable in 3 annual installments of $333,333. The Seller Notes are subordinated
to the Company's long-term debt, the line of credit, and the Revolver. Interest
accrues monthly and is payable quarterly, at 8.33 percent per annum. In the
event of an initial public offering, the Seller Notes are convertible, at the
option of the holders, into common stock of the Company, using the initial
public offering price. The holders of the Seller Notes have given notice to the
Company that they elected not to convert the Seller Notes into common stock of
the Company.
7. INCOME TAXES:
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the determination of deferred tax assets
and liabilities based on the difference between the financial statement and
income tax bases of assets and liabilities, using enacted tax rates in effect
for the year in which the differences are expected to reverse. The measurement
of a deferred tax asset is adjusted by a valuation allowance, if necessary, to
recognize tax benefits only to the extent that, based on available evidence, it
is more likely than not that they will be realized.
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ 52,770 $ 62,108 $353,169 $ 226,869
State......................... 9,400 (1,203) 62,483 32,569
Foreign....................... -- -- -- --
-------- -------- -------- ---------
62,170 60,905 415,652 259,438
Deferred:
Federal....................... 143,027 (62,108) 27,111 (64,512)
State......................... 25,000 1,203 3,189 (9,127)
Foreign....................... -- -- 258,300 (95,300)
Valuation allowance........... -- -- (288,600) --
-------- -------- -------- ---------
168,027 (60,905) -- (168,939)
-------- -------- -------- ---------
$230,197 $ -- $415,652 $ 90,499
======== ======== ======== =========
</TABLE>
The foreign subsidiaries, PRA GmbH and PRA Limited, are taxed separately in
their respective jurisdictions. As of December 31, 1996, the Company had
cumulative foreign net operating loss carryforwards of approximately $71,000,
which will be available to be carried forward through 2002.
The provision for income taxes results in effective tax rates that differ
from the Federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
------- -------- ------- ----------------
<S> <C> <C> <C> <C>
Statutory Federal income tax
rate......................... 34.0% 34.0% 34.0% 34.0%
State income taxes............ 4.0 4.0 4.0 5.0
Amortization of goodwill...... -- -- -- 5.5
Other permanent differences... 2.0 10.0 2.0 3.0
Change in valuation allowance. (6.0) (48.0) (5.0) --
------- -------- ------- ----
Effective income tax rate..... 34.0% -- % 35.0% 47.5%
======= ======== ======= ====
</TABLE>
F-18
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and tax
reporting purposes. Significant components of the Company's deferred taxes
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 JUNE 30, 1997
--------- --------- -------------
<S> <C> <C> <C>
Operating loss carryforwards............ $ 282,700 $ 24,400 $ 119,700
Cash to accrual adjustment.............. 139,600 73,600 (43,000)
Accruals and reserves................... 120,800 207,000 310,500
Depreciation............................ (24,300) (68,200) (106,900)
Other................................... (76,800) (83,400) (126,900)
Valuation allowance for deferred tax
assets................................. (442,000) (153,400) (153,400)
--------- --------- ---------
Net deferred taxes...................... $ -- $ -- $ --
========= ========= =========
</TABLE>
During 1996, the valuation allowance for deferred tax assets decreased by
approximately $289,000. This was the result of the utilization of previously
unrecognized deferred tax assets. The remaining valuation allowance relates to
deferred tax assets as to which the Company is unable to make a judgement
about the likelihood of realization.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS:
SERIES A, REDEEMABLE, CONVERTIBLE, PREFERRED STOCK
In October and November 1996, the Company issued 1,658,082 shares of Series
A Preferred Stock for approximately $19,371,000. The issuance of the Series A
Preferred Stock was recorded net of approximately $518,000 in stock issuance
costs.
The Series A Preferred Stock may be automatically or electively converted or
mandatorily redeemed upon the occurrence of an Extraordinary Event, Liquidity
Event, or the passage of time.
An Extraordinary Event occurs upon (1) a merger or consolidation with
another entity, (2) a reorganization or recapitalization, (3) an initial
public offering, or (4) disposition of substantially all of the Company's
assets.
If an Extraordinary Event results or is expected to result in a cumulative
internal rate of return to the Series A Preferred stockholders of at least 33
percent, that Extraordinary Event shall be deemed a Liquidity Event. The
Company may pay some or all of the accrued Series A Preferred Stock dividends
to the holders to achieve a Liquidity Event. For an initial public offering to
qualify as a Liquidity Event, net proceeds from the offering must equal or
exceed $25 million. The Series A Preferred stockholders' have waived the
minimum investment return and minimum net proceeds requirements necessary for
an initial public offering to qualify as a Liquidity Event provided that an
initial public offering closes prior to January 31, 1998.
Upon the occurrence of an Extraordinary Event that is not a Liquidity Event,
the Company shall issue to the Series A Preferred stockholders additional
warrants with the right to purchase common stock of the Company for a price of
$.01 per warrant. The number of warrants to be issued in such instances shall
be sufficient based on the fair value of the Company's common stock at such
time, and when added to the original purchase price of the Series A Preferred
Stock, to result in an internal rate of return to the Series A Preferred
stockholders of not less than 33 percent, including all accrued dividends paid
in cash or additional shares of stock. In no case, however, shall the number
of shares of common stock issuable pursuant to such warrant exceed 642,831.
F-19
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Automatic Conversion
Upon the closing of an initial public offering, the merger, or the of sale
of the Company prior to November 1, 1998, that qualifies as a Liquidity Event,
all outstanding shares of Series A Preferred Stock shall automatically convert
into common stock. Each share of Series A Preferred Stock shall be converted
to common stock of the Company based on a ratio defined in the stock purchase
agreement. The number of shares originally issued is subject to future
adjustment to prevent dilution of the Series A Preferred stockholders'
proportionate interests. The conversion ratio as of June 30, 1997, was 1.97-
for-one.
If a Liquidity Event occurs, all accrued dividends on the Series A Preferred
Stock shall be forfeited.
Optional Conversion
Each share of Series A Preferred Stock is convertible, at the option of the
holder, into common stock of the Company determined in proportion to the ratio
of $11.68, the issuance price, to the Conversion Price per share, as defined.
Additionally, upon conversion, the Company shall issue an additional number of
shares of common stock to the holder of the converted Series A Preferred Stock
equal to the amount of accrued and unpaid dividends divided by the Conversion
Price then in effect, but only if the holders have not achieved the prescribed
33 percent internal rate of return.
Redemption Features
The Series A Preferred Stock is redeemable, at the option of the holders,
upon the occurrence of an Extraordinary Event that is not a Liquidity Event.
In the event of such an occurrence, the Series A Preferred Stock can be
redeemed at a per share price equal to the Conversion Price, as defined,
including all accrued and unpaid dividends. The Conversion Price as of June
30, 1997, excluding accrued dividends, was $11.68, which was equal to the
issuance price.
Upon the occurrence of a Liquidity Event after November 1, 1998, the Series
A Preferred Stock can be redeemed at a price equal to the Conversion Price as
of the date of the Liquidity Event, plus any accrued and unpaid dividends.
To the extent that any Series A Preferred Stock remains outstanding as of
October 11, 2001, the holders of the Series A Preferred Stock may redeem their
shares in three equal annual installments beginning on that date, at a price
equal to the Conversion Price, plus all accrued and unpaid dividends. The
difference between the carrying value of the Series A Preferred Stock and its
redemption value is being accreted over the period to the earliest date upon
which the Series A Preferred Stock may be redeemed, not withstanding the
occurrence of an Extraordinary Event, using the effective interest method.
DIVIDENDS
The Series A Stock carries a cumulative dividend, which accrues quarterly,
at a rate of 9 percent per annum. Accrued dividends of approximately $344,000
and $1,218,000 have been included in the carrying value of the Preferred Stock
as of December 31, 1996, and June 30, 1997, respectively. If the offering
contemplated by this prospectus is consummated and closes prior to January 31,
1998, all of the accrued dividends on the Series A Preferred Stock will be
forfeited.
For any preferred stock not redeemed as of October 11, 2001, dividends shall
be paid at two thirds and one-third of the original amounts for the years
ended October 10, 2002 and 2003, respectively. No further dividends will
accrue on the preferred stock after October 10, 2003.
F-20
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Voting Rights
Each share of preferred stock shall entitle the holder to the number of
votes equal to that which would exist if the preferred stock were converted
into common stock as of the date of any voting action.
Liquidation Preference
In the event of liquidation, dissolution, or winding up of the Company, the
holders of each share of preferred stock are entitled to redeem their shares
at an amount equal to the Conversion Price and all accrued and unpaid
dividends.
REDEEMABLE COMMON STOCK WARRANTS
In November 1994, the Company entered into an agreement with an outside
investor whereby the Company received $1,000,000 in cash in exchange for
junior subordinated debentures, preferred stock, and a warrant. The Company
issued 105,419 shares of Class E convertible preferred stock at $2.37 per
share, or $250,000. The Class E preferred stock was convertible into common
stock. The Company also issued the investor a warrant (the "1994 Warrant") for
the purchase of 472,272 shares of common stock at a purchase price of $1.06
per share. The Class E preferred stock was converted into common stock in
1996.
The original agreement stipulated certain put and call provisions whereby
the investor had the option to require the Company to purchase, and the
Company had the option to require the investors to sell to the Company, the
preferred stock and the common stock underlying the warrant. The purchase
price, or put value, was the fair value of the common stock at the time of
redemption. The estimated redemption value of the preferred stock and the 1994
Warrant was accreted until October 1996, at which time the preferred stock was
converted to common stock and the 1994 Warrant was amended to remove the put
and call provisions.
The 1994 Warrant can be exercised at any time until its termination date of
November 2001. The warrant agreement originally contained certain antidilution
rights whereby the 1994 Warrant might be adjusted to ensure that the outside
investor maintained a certain percentage of the Company on a fully diluted
basis. In October 1996, these antidilution rights were amended and removed. In
August 1997, approximately 236,136 shares of common stock were issued pursuant
to the 1994 Warrant.
In August 1995, the Company entered into an agreement with a different
outside investor whereby the Company received $2,000,000 in cash in exchange
for a senior subordinated note payable and a warrant (the "1995 Warrant") to
purchase 231,077 shares of common stock. The 1995 Warrant had an exercise
price of $.005 per share. The Company originally allocated $329,095 of the
senior subordinated note payable proceeds to the 1995 Warrant. The 1995
Warrant could be exercised at any time until its termination date of September
30, 2000. The warrant agreement stipulated certain put provisions whereby the
investor had the option to require the Company to purchase the common stock
underlying the 1995 Warrant. The estimated redemption value of the 1995
Warrant was accreted until October 1996, at which time the 1995 Warrant was
amended to remove the put provision. In April 1997, the 1995 Warrant was
exercised in full and the Company issued 231,077 shares of common stock to its
holder.
F-21
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' DEFICIT:
Preferred stock consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996 JUNE 30, 1997
-------- ----- -------------
<S> <C> <C> <C>
Preferred stock:
Class D, $2.98 stated value, 197,000 shares
authorized; 16,739 shares issued and
outstanding at December 31, 1995........... $ 50,000 $ -- $ --
Class F, $3.30 stated value, 197,000 shares
authorized; 136,220 shares issued and
outstanding at December 31, 1995........... 450,000 -- --
-------- ----- -----
$500,000 $ -- $ --
======== ===== =====
</TABLE>
In 1996, the holders of Class D and Class F preferred stock converted their
shares into shares of common stock in conjunction with the Recapitalization
discussed in Note 1.
STOCK REPURCHASE
During October 1996, the Company repurchased 1,545,540 shares of outstanding
common stock from certain investors and employees for approximately
$9,172,000. Approximately $633,000 of this amount was expensed as compensation
as certain of the shares were repurchased immediately succeeding the exercise
of employee stock options. The repurchased shares have been recorded, net of
compensation expense discussed above, as treasury stock in the accompanying
consolidated financial statements.
STOCK DISTRIBUTION
In 1996, the Company issued 206,986 shares of common and preferred stock to
certain common and preferred stockholders pursuant to anti-dilution protection
afforded those stockholders in their original stock purchase agreements.
STOCKHOLDERS' AGREEMENT
Certain stockholders of the Company are party to a Stockholders' Agreement
which affords the Series A Preferred stockholders anti-dilution protection and
provides the Company and the Series A Preferred stockholders an option to
purchase any outstanding shares offered for sale by other stockholders in the
event of certain occurrences. The purchase price is the then fair market value
of the common stock. These purchase provisions will be terminated in
connection with the initial public offering.
SHORT-FORM STOCKHOLDERS' AGREEMENT
The Company and certain optionholders are party to an agreement that
requires the Company to repurchase, in the event of death of the holder, any
stock options or common shares then outstanding at the then fair market value
of the Company's common stock. The agreement also provides the Company with
the option to repurchase any stock options or shares held at the then fair
market value in the event of certain other occurrences. There were no shares
of common stock outstanding as of December 31, 1996, or June 30, 1997, which
were subject to the repurchase provisions. The repurchase provisions will be
terminated in connection with the initial public offering.
F-22
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCK OPTIONS:
Options generally vest over a four-year period and are exercisable over a
ten-year period from the date of grant. As of June 30, 1997, 1,001,253 shares
were available for the issuance of stock options. As of June 30, 1997, 623,361
options to purchase shares of common stock were exercisable, with a weighted
average exercise price of $0.63.
The Company generally grants stock options with exercise prices at least
equal to the then fair market value of the Company's common stock, as
determined by the Board of Directors or an independent appraisal. Any
difference between the fair value of the stock and the exercise price is
recorded as compensation expense over the vesting period of the option. During
1996 and the six months ended June 30, 1997, the Company recorded compensation
expense of approximately $11,000 and $22,000, respectively, for options whose
exercise price was less than the then fair market value of the common stock at
the date of grant, as determined by an independent appraisal.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARES
--------- ----------------
<S> <C> <C>
Shares under option, December 31, 1993........... 902,260 $ 0.23
Options granted................................ 147,750 0.54
Options exercised.............................. -- --
Options expired................................ (118,200) 1.13
---------
Shares under option, December 31, 1994........... 931,810 0.17
Options granted................................ 39,400 2.92
Options exercised.............................. (5,910) 0.55
Options expired................................ (9,850) 0.55
---------
Shares under option, December 31, 1995........... 955,450 0.27
Options granted................................ 847,175 5.34
Options exercised.............................. (289,518) 0.13
Options expired................................ (44,325) 0.55
---------
Shares under option, December 31, 1996........... 1,465,782 3.20
Options granted................................ 196,508 13.58
Options exercised.............................. -- --
Options expired................................ (1,970) 11.17
---------
Shares under option, June 30, 1997............... 1,660,320 4.42
=========
</TABLE>
Exercise prices for options outstanding as of June 30, 1997, are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OUTSTANDING REMAINING CONTRACTUAL WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AS OF JUNE 30, 1997 LIFE IN YEARS EXERCISE PRICE
------------------------ ------------------- --------------------- ----------------
<S> <C> <C> <C>
$ 0.09-$ 0.55 584,207 6.35 $0.15
2.92- 5.93 881,575 9.24 5.23
11.17- 13.96 194,538 9.75 6.52
------------- ---------
$ 0.09-$13.96 1,660,320 8.29 4.42
============= =========
</TABLE>
The Company accounts for employee stock options using the method of
accounting prescribed by Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees." Under
F-23
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APB No. 25, compensation expense is recorded for the difference, if any,
between the fair market value of the common stock at the date of the stock
option grant and the exercise price of the stock option. Effective January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," by making the required footnote disclosures discussed below. Had
compensation cost been determined based on the stock's fair market value at the
grant dates for awards under the Company's stock option plan in accordance with
SFAS No. 123, pro form net income (loss) available to common stockholders and
pro forma net income (loss) available per share would have been reduced to the
amounts for the years indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ------------------
1995 1996 1996 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net income, as reported.............. $133,104 $764,861 $428,580 $ 99,857
======== ======== ======== =========
SFAS No. 123 pro forma net income
(loss).............................. 131,843 714,483 425,137 (116,396)
======== ======== ======== =========
Net income (loss) per share, as re-
ported.............................. $ (0.12) $ 0.04
======== =========
SFAS No. 123 pro forma net income
(loss) per share.................... $ (0.13) $ 0.01
======== =========
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants for the years ended December 31, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997: no dividend yield, no expected volatility, risk-
free interest rate of approximately 6.0 percent, and expected lives of four
years.
11. COMMITMENTS:
OPERATING LEASES
The Company leases office space under operating lease agreements expiring in
various years through 2007. The Company also leases certain office equipment
under operating leases expiring in various years through 2001.
Rent expense under operating leases for the years ended December 31, 1994,
1995, and 1996, and for the six months ended June 30, 1996 and 1997, was
approximately $567,000, $685,000, $888,000, $379,000, and $1,151,000,
respectively.
IMTCI leases operating facilities from a related party. The leases, which
have a 90-month renewal option, began on April 1, 1997, and expire on September
30, 2004. The leases feature fixed annual rent increases of approximately 2.7
percent. Rental expense under these leases was approximately $376,000 during
the six months ended June 30, 1997.
Future minimum lease commitments on noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, RELATED PARTY OTHER TOTAL
------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
1997................................. $ 1,033,140 $ 1,860,034 $ 2,893,174
1998................................. 1,405,022 2,264,541 3,669,563
1999................................. 1,442,375 2,096,124 3,538,499
2000................................. 1,480,742 2,059,617 3,540,359
2001................................. 1,520,130 1,880,058 3,400,188
Thereafter........................... 4,393,479 5,704,279 10,097,758
----------- ----------- -----------
$11,274,888 $15,864,653 $27,139,541
=========== =========== ===========
</TABLE>
F-24
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMPLOYMENT CONTRACTS
On or after October 11, 1996, the Company entered into employment contracts
with certain officers and key employees with annual remuneration ranging from
$115,000 to $175,000. The employment contracts expire in various years through
2000. As of June 30, 1997, remaining aggregate annual payments under such
agreements approximated $433,000, $796,000, $350,000, and $102,000 during 1997
through 2000. In the event of disability, the covered employees will be
entitled to severance payments up to one year's salary. The contracts also
contain certain repurchase provisions in the event of death or termination
without cause covering future incentive stock option grants and shares acquired
pursuant to future incentive stock option grants. As of December 31, 1996, and
June 30, 1997, no shares had been issued pursuant to such option grants. The
repurchase price is the then fair market value of the common stock. The
repurchase provisions will be terminated in connection with the initial public
offering.
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.
12. EMPLOYEE BENEFIT PLAN:
The Company maintains a 401(k) Plan (the "Plan") in the United States, which
covers substantially all employees of its U.S. subsidiary. Eligible employees
may contribute up to 15 percent of their pretax salary, and the Company will
match a maximum of 30 percent of employee contributions up to 6 percent of base
salary. The Company made contributions to the Plan of approximately $28,000,
$31,000, and $47,000 during 1994, 1995, and 1996, respectively. Additionally,
the Company made contributions of approximately $18,000 and $44,000 during the
six months ended June 30, 1996 and 1997, respectively.
13. RELATED-PARTY TRANSACTIONS:
In 1996, the Company made a $500,000 loan to a stockholder of the Company.
Interest was payable monthly at a 6 percent annual interest rate. This loan was
repaid during 1996.
As of December 31, 1995, approximately $61,000 of loans plus accrued interest
was due from officers and directors and is included as prepaid expenses and
other current assets in the consolidated balance sheets. These notes bear
interest at 4 percent and were repaid during 1996.
As described in Note 6, in conjunction with the acquisition of IMTCI, the
Company issued two notes payable to IMTCI's former stockholders who are now
employees of the Company.
As described in Note 11, IMTCI leases certain operating facilities from a
related party.
F-25
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. OPERATIONS BY GEOGRAPHIC AREA:
The Company operates in one business segment. The following table presents
information about the Company's operations by geographic area (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
North America................. $ 7,791 $ 8,738 $14,735 $ 6,386 $14,446
Europe........................ 2,260 3,496 6,775 3,008 3,601
------- ------- ------- ------- -------
$10,051 $12,234 $21,510 $ 9,394 $18,047
======= ======= ======= ======= =======
Operating income:
North America................. $ 621 $ 158 $ 1,292 $ 487 $ 611
Stock repurchase and other
equity compensation.......... -- -- (644) -- (22)
Europe........................ 19 223 659 361 (232)
------- ------- ------- ------- -------
$ 640 $ 381 $ 1,307 $ 848 $ 357
======= ======= ======= ======= =======
Identifiable assets:
North America................. $ 3,529 $ 7,933 $23,717 $10,318 $32,965
Europe........................ 731 1,467 2,907 2,376 3,410
------- ------- ------- ------- -------
$ 4,260 $ 9,400 $26,624 $12,694 $36,375
======= ======= ======= ======= =======
</TABLE>
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Medical Technical Consultants, Inc.:
We have audited the accompanying balance sheets of International Medical
Technical Consultants, Inc. (a Kansas corporation), as of September 30, 1995
and 1996, and the related statements of income, stockholders' equity and cash
flows for each of the two years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 International Medical
Technical Consultants, Inc., as of September 30, 1995 and 1996, and the
results of its operations and its cash flows for each of the two years in the
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
Washington, D.C.
March 7, 1997, except for the matters
discussed in Notes 1, 3, 5 and 6, as to which
the date is April 1, 1997
F-27
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............. $ 406,987 $ 545,183 $ 1,119,819
Accounts receivable and unbilled
services.............................. 2,614,135 3,031,752 2,222,777
Income taxes receivable................ -- -- 161,545
Prepaid and other expenses............. 99,068 24,091 9,023
---------- ----------- -----------
Total current assets................. 3,120,190 3,601,026 3,513,164
Property and equipment, at cost:
Leasehold improvements................. 57,744 68,036 68,036
Furniture and equipment................ 1,028,809 1,247,913 1,811,491
Computer software...................... 192,000 192,000 192,000
Auto vehicles.......................... 40,396 31,511 23,962
---------- ----------- -----------
1,318,949 1,539,460 2,095,489
Less--Accumulated depreciation and amor-
tization................................ (826,455) (1,054,999) (1,159,528)
---------- ----------- -----------
492,494 484,461 935,961
---------- ----------- -----------
Total assets......................... $3,612,684 $ 4,085,487 $ 4,449,125
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit......................... $ -- $ 200,764 $ 503,541
Accounts payable....................... 178,229 337,988 987,773
Accrued expenses....................... 280,032 305,419 240,546
Income taxes payable................... 418,082 38,960 --
Advance billings....................... 359,000 647,000 530,976
Current portion of long-term debt...... 158,197 147,252 148,712
Deferred income taxes.................. 146,679 101,163 101,163
---------- ----------- -----------
Total current liabilities............ 1,540,219 1,778,546 2,512,711
---------- ----------- -----------
Long-term debt, net of current portion... 162,010 213,831 144,119
Deferred income taxes, net of current
portion................................. 258,218 118,225 18,127
---------- ----------- -----------
Total liabilities.................... 1,960,447 2,110,602 2,674,957
---------- ----------- -----------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value,
10,000,000 shares authorized, 26,700
shares issued and outstanding......... 267 267 267
Additional paid-in capital............. 3,349 3,349 3,349
Notes receivable from stockholders..... (95,741) (232,199) (270,731)
Retained earnings...................... 1,786,578 2,245,684 2,083,499
Less 6,700 shares of common stock in
treasury, at cost..................... (42,216) (42,216) (42,216)
---------- ----------- -----------
Total stockholders' equity........... 1,652,237 1,974,885 1,774,168
---------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $3,612,684 $ 4,085,487 $ 4,449,125
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Professional fee revenues.. $10,181,241 $14,638,985 $ 5,363,197 $ 8,286,474
Less reimbursed costs...... (1,260,215) (4,165,083) (1,320,983) (3,040,579)
----------- ----------- ----------- -----------
Net revenues........... 8,921,026 10,473,902 4,042,214 5,245,895
Operating costs and ex-
penses:
Direct costs............. 4,733,115 5,960,253 2,577,515 3,419,104
Selling, general and ad-
ministrative expenses... 2,833,710 3,435,167 1,172,276 1,961,966
Depreciation and amorti-
zation.................. 218,726 252,736 99,093 104,511
----------- ----------- ----------- -----------
Income (loss) from opera-
tions..................... 1,135,475 825,746 193,330 (239,686)
Interest expense........... (31,571) (66,982) (35,496) (26,261)
Other income, net.......... 9,136 42,719 23,257 15,659
----------- ----------- ----------- -----------
Income (loss) before provi-
sion for income taxes..... 1,113,040 801,483 181,091 (250,288)
Provision (benefit) for in-
come taxes................ 448,039 342,377 77,394 (88,103)
----------- ----------- ----------- -----------
Net income (loss).......... $ 665,001 $ 459,106 $ 103,697 $ (162,185)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES TREASURY STOCK
------------ ADDITIONAL RECEIVABLE ----------------
PAR PAID-IN FROM RETAINED
SHARES VALUE CAPITAL STOCKHOLDERS EARNINGS SHARES VALUE TOTAL
------ ----- ---------- ------------ ----------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1994................... 26,700 $267 $3,349 $ (55,817) $ 1,121,577 (6,700) $(42,216) $1,027,160
Increase in loans to
stockholders.......... -- -- -- (39,924) -- -- -- (39,924)
Net income............. -- -- -- -- 665,001 -- -- 665,001
------ ---- ------ --------- ----------- ------ -------- ----------
Balance, September 30,
1995................... 26,700 267 3,349 (95,741) 1,786,578 (6,700) (42,216) 1,652,237
Increase in loans to
stockholders.......... -- -- -- (136,458) -- -- -- (136,458)
Net income............. -- -- -- -- 459,106 -- -- 459,106
------ ---- ------ --------- ----------- ------ -------- ----------
Balance, September 30,
1996................... 26,700 267 3,349 (232,199) 2,245,684 (6,700) (42,216) 1,974,885
Increase in loans to
stockholders
(unaudited)........... -- -- -- (38,532) -- -- -- (38,532)
Net loss (unaudited)... -- -- -- -- (162,185) -- -- (162,185)
------ ---- ------ --------- ----------- ------ -------- ----------
Balance, March 31, 1997
(unaudited)............ 26,700 $267 $3,349 $(270,731) $(2,083,499) (6,700) $(42,216) $1,774,168
====== ==== ====== ========= =========== ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- ---------------------
1995 1996 1996 1997
--------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............ $ 665,001 $ 459,106 $ 103,697 $ (162,185)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and
amortization............... 218,726 252,736 99,093 104,511
Loss on disposition of
property and equipment..... 1,864 19,596 -- 7,567
Change in assets and
liabilities:
Accounts receivable and
unbilled service........... (233,264) (417,617) 732,710 808,975
Income taxes receivable..... -- -- (175,059) (161,545)
Prepaid and other expenses.. (74,626) 74,977 1,763 15,068
Accounts payable and accrued
expenses................... 167,226 185,146 132,549 584,912
Income taxes payable........ 418,082 (379,122) (418,082) (38,960)
Advance billings............ (612,425) 288,000 54,692 (116,024)
Deferred income taxes....... (42,063) (185,509) (101,474) (100,098)
--------- --------- --------- ----------
Net cash provided by
operating activities..... 508,521 297,313 429,889 942,221
--------- --------- --------- ----------
Cash flows from investing
activities:
Purchases of property and
equipment................... (150,273) (264,299) (160,437) (563,578)
--------- --------- --------- ----------
Cash flows from financing
activities:
Borrowings under line of
credit...................... -- 200,764 425,764 302,777
Proceeds from long-term debt. -- 167,061 167,061 --
Repayment of long-term debt.. (145,312) (126,185) (70,107) (68,252)
Loans to stockholders........ (39,924) (136,458) (487,891) (38,532)
--------- --------- --------- ----------
Net cash (used in)
provided by financing
activities............... (185,236) 105,182 34,827 195,993
--------- --------- --------- ----------
Net increase in cash and cash
equivalents.................. 173,012 138,196 304,279 574,636
Cash and cash equivalents,
beginning of period.......... 233,975 406,987 406,987 545,183
--------- --------- --------- ----------
Cash and cash equivalents, end
of period.................... $ 406,987 $ 545,183 $ 711,266 $1,119,819
========= ========= ========= ==========
Supplemental cash flow
disclosures:
Cash paid--
Interest.................... $ 31,571 $ 35,715 $ 4,229 $ 26,262
========= ========= ========= ==========
Income taxes................ $ 72,000 $ 907,000 $ 772,000 $ 212,500
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997, AND FOR THE
SIX MONTHS ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
International Medical Technical Consultants, Inc., a Kansas corporation (the
"Company"), is a contract research and management organization providing a
broad range of product development services for the pharmaceutical industry
primarily in the United States. The Company's integrated services include
information management, statistical analysis, clinical trials management,
clinical study design and regulatory consulting.
On April 1, 1997, PRA International, Inc. purchased all of the outstanding
common stock of the Company. The purchase price consisted of $8 million in
cash, approximately $5.3 million in notes payable, and $2 million of stock in
PRA International, Inc.
FISCAL YEAR AND INTERIM FINANCIAL INFORMATION
Prior to its acquisition by PRA International, Inc., the Company operated on
a fiscal year ending on September 30. The financial statements presented are as
of and for the years ended September 30, 1995 and 1996, referred to herein as
1995 and 1996, respectively. The unaudited financial statements as of March 31,
1996 and 1997, include, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
Company's financial position, results of operations, and cash flows. Operating
results for the six months ended March 31, 1997, are not necessarily indicative
of the results that may be expected for the year ending September 30, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Substantially all the Company's revenues are generated under fixed price
arrangements. The Company records revenues from fixed price contracts on a
percentage of completion basis. Revenues from time-and-materials contracts are
recognized using billable rates multiplied by hours delivered. Revenues related
to contract modifications are recognized when realization is assured and the
amounts are reasonably determinable. Reimbursed costs generally include
subcontractor costs which consist of investigator fees, travel and certain
other contract costs that are reimbursed by the sponsor. Accordingly, such
subcontractor costs are deducted in determining net revenues. In the period in
which it is determined that a loss will result from the performance of a
contract, the entire amount of the estimated loss is charged against income.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
As of September 30, 1995 and 1996 and March 31, 1997, cash and cash
equivalents consisted of money market investments and overnight investments in
U.S. government securities.
UNBILLED SERVICES
Unbilled services represent amounts earned for services that have been
rendered but for which clients have not been billed. Unbilled services
represent work-in-process that are billable upon achievement of contract
milestones, contract completion or submission of appropriate billing
information.
F-32
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Furniture and equipment and
vehicles are depreciated using the straight line method over the estimated
useful lives of the related assets, generally 5-7 years. Computer software is
amortized over 5 years. Leasehold improvements are amortized over the shorter
of the respective lives of the leases or the useful lives of the improvements.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
ADVANCE BILLINGS
Advance billings represent amounts billed and cash received for services not
yet rendered.
SIGNIFICANT CUSTOMERS
During the year ended September 30, 1995, three customers represented 10, 28,
and 16 percent of net revenues. During the year ended September 30, 1996, two
customers represented 22 and 18 percent of net revenues. For the six months
ended March 31, 1997, one customer represented 33 percent 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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable from pharmaceutical companies. Three customers,
two customers and two customers accounted for 46, 44, and 42 percent of
accounts receivable as of September 30, 1995 and 1996, and March 31, 1997,
respectively.
The Company provides reserves for potential credit losses. In management's
opinion, there is no additional credit risk beyond amounts provided for such
losses.
2. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Billed..................................... $ 361,531 $1,139,046 $ 498,953
Unbilled................................... 2,252,604 1,892,706 1,723,824
---------- ---------- ----------
$2,614,135 $3,031,752 $2,222,777
========== ========== ==========
</TABLE>
Unbilled services include amounts currently billable under contract terms of
approximately $1,678,000, $1,022,000 and $873,000 as of September 30, 1995 and
1996, and March 31, 1997, respectively.
3. LINE OF CREDIT:
The Company has a line of credit with a bank which provides for maximum
borrowings up to $750,000. Interest on outstanding borrowing accrues at a fixed
interest rate of 8.25 percent per annum. Outstanding
F-33
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
borrowings under the line of credit were approximately $504,000 as of March
31, 1997 and $201,000 as of September 30, 1996. There were no amounts
outstanding as of September 30, 1995. The line of credit is collateralized by
substantially all of the Company's assets. The line of credit expired in March
1997. Subsequent to the acquisition by PRA International, Inc., the line of
credit was paid in full.
4. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued salaries, wages and related costs..... $120,037 $108,000 $178,487
Accrued profit sharing contributions.......... 81,075 99,575 --
Other......................................... 78,920 97,844 62,059
-------- -------- --------
$280,032 $305,419 $240,546
======== ======== ========
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank....................... $ 308,105 $ 342,673 $ 277,129
Auto loan.................................. 12,102 18,410 15,702
--------- --------- ---------
320,207 361,083 292,831
Less--Current portion...................... (158,197) (147,252) (148,712)
--------- --------- ---------
Notes payable--net of current portion...... $ 162,010 $ 213,831 $ 144,119
========= ========= =========
</TABLE>
In 1995, the Company entered into a note payable (the "Note") with a bank in
the amount of $448,000. Interest accrued at a rate of 8.75 percent per annum.
Monthly payments of principal and interest of $14,221 were due through 1997.
In 1996, the Note was refinanced (the "New Note"). The New Note in the
original principal amount of $402,000 accrued interest at a rate of 8.75
percent per annum. Payments of principal and interest of $12,805 were due
monthly through March 1999. The New Note, which was issued by the same bank
that provided the Company's line of credit, was collateralized by
substantially all of the Company's assets. Subsequent to the acquisition by
PRA International, Inc., the New Note was repaid in full.
The auto loan outstanding as of September 30, 1995, was repaid in 1996 upon
the trade-in of a Company vehicle. A new auto loan was obtained pursuant to
the purchase of another Company vehicle. Payments of principal and interest of
$571 are due monthly through October 1999.
6. COMMITMENTS:
OPERATING LEASES
The Company leases operating facilities from a related party. As of
September 30, 1996, the leases had expired and continued to operate on a month
to month basis. On April 1, 1997, the leases were renewed for one ninety-month
period, expiring on September 30, 2004 with one additional ninety-month
renewal option. The leases feature fixed annual rent increases of
approximately 2.7 percent. Rental expense for these operating leases was
approximately $484,000 and $547,000 for the years ended September 30, 1995 and
1996, respectively, and $223,000 and $262,000 for the six months ended March
31, 1996 and 1997, respectively.
F-34
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company is also obligated under noncancelable operating leases for
certain equipment. These leases expire on various dates through 2001. Future
minimum lease payments under related party and other noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER TOTAL
------------- ------- -----------
<S> <C> <C> <C>
Year ending September 30,
1997.................................... $ 688,760 $25,520 $ 714,280
1998.................................... 1,395,841 26,030 1,421,871
1999.................................... 1,432,970 14,456 1,447,426
2000.................................... 1,471,087 1,533 1,472,620
2001.................................... 1,510,218 1,533 1,511,751
Thereafter.............................. 4,775,989 1,022 4,777,011
----------- ------- -----------
$11,274,865 $70,094 $11,344,959
=========== ======= ===========
</TABLE>
7. INCOME TAXES:
The components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
------------------- ------------------
1995 1996 1996 1997
-------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
State income taxes:
Current.......................... $ 83,861 $ 89,596 $ 22,797 $ 3,002
Deferred......................... (5,010) (22,099) (13,128) (19,031)
Federal income taxes:
Current.......................... 406,221 438,282 159,817 21,042
Deferred......................... (37,033) (163,402) (92,092) (93,116)
-------- --------- -------- --------
Provision (benefit) for income tax-
es................................ $448,039 $ 342,377 $ 77,394 $(88,103)
======== ========= ======== ========
</TABLE>
The provision (benefit) for income taxes results in effective tax rates that
differ from the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
-------------- -----------------
1995 1996 1996 1997
------ ------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory Federal income tax rate........ 34.0% 34.0% 34.0% (34.0)%
State income taxes....................... 4.9 4.9 4.9 (4.9)
Permanent items.......................... 1.4 3.8 3.8 3.7
------ ------ ------- --------
Effective income tax rate................ 40.3% 42.7% 42.7% (35.2)%
====== ====== ======= ========
</TABLE>
Components of the net current deferred tax liability were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash to accrual adjustment.................... $118,224 $118,224 $118,224
Other......................................... 28,455 (17,061) (17,061)
-------- -------- --------
Net current deferred tax liability............ $146,679 $101,163 $101,163
======== ======== ========
</TABLE>
F-35
<PAGE>
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Components of the net long-term deferred tax liability were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- MARCH 31,
1995 1996 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash to accrual adjustment.................. $236,449 $118,225 $ --
Other....................................... 21,769 -- 18,127
-------- -------- -------
Net long-term deferred tax liability........ $258,218 $118,225 $18,127
======== ======== =======
</TABLE>
8. EMPLOYEE BENEFIT PLAN:
The Company maintains a 401(k) Profit Sharing Plan (the "Plan"), which covers
substantially all employees after one year of service. Eligible employees may
contribute up to 10 percent of their pretax salary, and the Company will match
a discretionary percentage of employee contributions. The Company made
contributions to the Plan of approximately $81,000 and $100,000 during 1995 and
1996, respectively. The Company made no contributions to the Plan during the
six months ended March 31, 1996 or 1997.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of the Company's current financial assets and liabilities
approximates fair value due to the short-term maturity of such instruments.
The fair value of the Company's long-term notes payable was estimated using
current rates offered to the Company for debt with similar terms. The fair
value of the Company's long-term notes payable approximates carrying value.
10. RELATED PARTY TRANSACTIONS:
At September 30, 1995, 1996 and March 31, 1997, the Company had notes
receivable from stockholders totaling approximately $96,000, $232,000, and
$271,000, respectively. The notes are noninterest bearing and are payable upon
demand.
The Company leases certain operating facilities from related parties (see
Note 6).
F-36
<PAGE>
PRA INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
In April, 1997 PRA International, Inc. ("PRA International") acquired the
outstanding stock of International Medical Technical Consultants, Inc.
("IMTCI") for $8.0 million in cash, 143,272 shares of previously unissued PRA
Common Stock valued at $2.0 million and $5.3 million in seller notes payable.
In addition, PRA International incurred certain acquisition expenses totaling
approximately $294,000. The acquisition is being accounted for in accordance
with the purchase method of accounting and the results of IMTCI are
consolidated with PRA International from the date of acquisition.
The following unaudited Pro Forma Condensed Consolidated Statements of
Income give effect to the acquisition of IMTCI by PRA International as if the
acquisition had occurred on January 1, 1996. These pro forma statements of
income give effect, for the period presented to the following pro forma
adjustments: (a) the increase in amortization associated with goodwill
resulting from the acquisition; (b) the increase in interest expense
associated with the issuance of the convertible seller notes payable; (c) the
reduction of interest income earned by PRA for the period from PRA
International's 1996 Preferred Stock issuance to its acquisition of IMTCI; and
(d) the change in weighted average common shares outstanding resulting from
the issuance of 151,635 shares of common stock in connection with the
acquisition .
The following unaudited Pro Forma Condensed Consolidated Statements of
Income should be read in conjunction with the notes thereto included herewith,
with PRA International's audited consolidated financial statements and notes
thereto for the periods presented and with IMTCI's audited and unaudited
financial statements and notes thereto for the periods presented. The
unaudited Pro Forma Condensed Consolidated Statements of Income are not
necessarily indicative of future operating results or of what would have
occurred had the acquisition been consummated at the time specified. The pro
forma adjustments are based on available information and certain adjustments
that management believes to be reasonable. In the opinion of management, all
material adjustments have been made that are necessary to present fairly the
pro forma information.
F-37
<PAGE>
PRA INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
PRO FORMA PRO FORMA
PRA IMTCI (1) ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues............. $21,509,740 $10,473,902 $ -- $31,983,642
Direct costs............. 14,951,791 5,960,253 -- 20,912,044
Selling, general and
administrative.......... 4,160,843 3,435,167 -- 7,596,010
Depreciation and
amortization............ 446,926 252,736 339,459 (A) 1,039,121
Stock repurchase and
other equity
compensation............ 643,599 -- -- 643,599
----------- ----------- --------- -----------
Income from operations... 1,306,581 825,746 (339,459) 1,792,868
Interest expense......... (461,732) (66,982) (443,954)(B) (972,668)
Interest income.......... 355,981 -- (186,936)(C) 169,045
Other income (expense)... (20,317) 42,719 -- 22,402
----------- ----------- --------- -----------
Income before income
taxes................... 1,180,513 801,483 (970,349) 1,011,647
Provision for income
taxes................... 415,652 342,377 (220,812) 537,217
----------- ----------- --------- -----------
Net income............. 764,861 459,106 (749,537) 474,430
----------- ----------- --------- -----------
Accretion and dividends
(2)..................... (2,300,862) -- (2,300,862)
Net income (loss)
available to common
stockholders............ $(1,536,001) $ 459,106 $(749,537) $(1,826,432)
=========== =========== ========= ===========
Pro forma net loss per
share (3)............... $ (0.12) $ (0.17)
=========== ===========
Pro forma weighted
average shares
outstanding (3)......... 5,718,857 143,272 (D) 5,862,129
</TABLE>
F-38
<PAGE>
PRA INTERNATIONAL, INC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------
PRO FORMA PRO FORMA
PRA(4) IMTCI(5) ADJUSTMENTS CONSOLIDATED
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues............ $ 18,047,234 $2,924,449 $ -- $ 20,971,683
Direct costs............ 13,032,130 1,791,378 -- 14,823,508
Selling, general and
administrative......... 3,995,790 1,029,297 -- 5,025,087
Depreciation and
amortization........... 640,118 75,367 84,856 (A) 800,341
Stock repurchase and
other equity
compensation........... 22,106 -- -- 22,106
------------ ---------- ---------- ------------
Income from operations.. 357,090 28,407 (84,856) 300,641
Interest expense........ (369,192) (8,873) (110,989)(B) (489,054)
Interest income......... 244,869 -- (224,217)(C) 20,652
Other income (expense).. (42,411) (11,607) -- (54,018)
------------ ---------- ---------- ------------
Income before income
taxes.................. 190,356 7,927 (420,062) (221,779)
Provision (benefit) for
income taxes........... 90,499 3,308 (117,322) (23,515)
------------ ---------- ---------- ------------
Net income (loss)..... 99,857 4,619 (302,740) (198,264)
------------ ---------- ---------- ------------
Accretion and
dividends(2)........... (931,972) -- -- (931,972)
Net income (loss)
available to common
stockholders........... $ (832,115) $ 4,619 $ (302,740) $ (1,130,236)
============ ========== ========== ============
Pro forma net income per
share(3)............... $ 0.04 $ --
============ ============
Pro forma weighted
average shares
outstanding(3)......... 6,977,297 107,552 (D) 7,084,849
</TABLE>
F-39
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(1) Reflects the results of IMTCI on a stand alone basis for the period from
November 1, 1995 through September 30, 1996.
(2) Represents adjustments to record the difference between the carrying
amount of the redeemable common stock warrants and the Series A Preferred
Stock and their respective redemption amounts. Also included are dividends
paid and accrued on preferred stock. The redemption feature of the redeemable
common stock warrants was removed in October 1996. The redemption feature of
the Series A Preferred Stock will expire and accrued dividends will be
forfeited upon the effectiveness of a qualified initial public offering (see
Notes 3 and 8 to the Consolidated Financial Statements).
(3) See Note 3 to the Consolidated Financial Statements for a description of
the calculation of pro forma net loss per share and pro forma weighted average
shares outstanding.
(4) Reflects the consolidated results of PRA International, including IMTCI
for the period from the acquisition of IMTCI on April 1, 1997 through June 30,
1997.
(5) Reflects the results of IMTCI on a stand alone basis for the period from
January 1, 1997 through March 31, 1997.
(A) Reflects increase in amortization expense associated with goodwill on
the IMTCI acquisition.
(B) Reflects increase in interest expense associated with the issuance of
the convertible seller notes payable.
(C) Reflects the reduction on interest income earned by PRA International
for the period from PRA International's 1996 Preferred Stock issuance to its
acquisition of IMTCI.
(D) Reflects the issuance of 143,272 shares of PRA International Common
Stock issued to the shareholders of IMTCI as if the transaction had been
consummated as of the beginning of the period.
F-40
<PAGE>
APPENDIX A
THE DRUG DEVELOPMENT AND APPROVAL PROCESS IN THE UNITED STATES -- AN OVERVIEW
Before a new drug is marketed, the drug must undergo extensive testing and
regulatory review in order to determine that it is safe and effective. The
development process consists of two stages: pre-clinical and clinical. The
first stage is the pre-clinical research, in which the new drug is tested in
vitro (test tube) and in animals, generally over a one to three-year period,
in order to determine the basic biological activity and safety of the drug. If
the drug is perceived to be safe for human testing, the drug then undergoes a
series of clinical tests in humans. During the clinical stage, one of the most
time-consuming and expensive parts of the drug development process, the drug
undergoes a series of tests in humans, including healthy volunteers and
patients with the targeted disease or condition.
Prior to commencing human clinical trials in the United States, the sponsor
must file an Investigational New Drug ("IND") application with the FDA. In
order to receive IND status, the sponsor of the new drug must provide
available manufacturing data, pre-clinical data, information about any use of
the drug in humans in other countries or in the United States for other
purposes, and a detailed plan for the conduct of the proposed clinical trials.
The sound design of these trials, also referred to as the study protocols, is
essential to the success of the drug development effort because the protocols
must correctly anticipate the nature of the data to be generated and results
that the FDA will require before approving the drug. In the absence of any FDA
comments within 30 days after the IND filing, human clinical trials may begin.
Although there is no statutory specification of the structure or design of
clinical trials, human trials usually start on a small scale to assess safety
and then expand to larger trials to test efficacy. These trials are usually
grouped into the following three phases, with multiple trials generally
conducted within each phase:
Phase I. Phase I trials involve testing the drug on a limited number of
healthy individuals, typically 20 to 80 persons, to determine the drug's
basic safety data relating to tolerance, absorption, metabolization and
excretion as well as other pharmacological indications and actions. This
phase lasts an average of six months to one year.
Phase II. Phase II trials involve testing a small number of volunteer
patients, typically 100 to 200 persons who suffer from the targeted disease
or condition, to determine the drug's effectiveness and dose response
relationship. This phase lasts an average of one to two years.
Phase III. Phase III trials involve testing large numbers of patients,
typically several hundred to several thousand persons, to verify efficacy
on a large scale as well as long-term safety. These trials involve numerous
sites and generally last two to three years.
After the successful completion of all three clinical phases, the sponsor of
a new drug in the United States submits a New Drug Application ("NDA") to the
FDA requesting that the product be approved for marketing. The NDA is a
comprehensive, multi-volume filing that includes, among other things, the
results of all pre-clinical and clinical studies, information about the drug's
composition and the sponsor's plans for producing, packaging and labeling the
drug. In addition, while the FDA does not use price as a criterion for
approving a new drug, advisory panels of scientists that help the FDA evaluate
new types of therapies have begun to take cost into consideration. The FDA's
review of an NDA can last from a few months, for drugs relating to life
threatening circumstances, to many years, with the average review lasting two
years. Drugs that successfully complete this review may be marketed in the
United States, subject to any conditions imposed by the FDA.
As a condition to its approval of a drug, the FDA may require that a sponsor
conduct additional clinical trials following receipt of NDA approval to
monitor long-term risks and benefits, study different dosage levels, or
evaluate different safety and efficacy parameters in target patient
populations. In recent years the FDA has increased its reliance on these
trials, known as Phase IV trials, which allow new drugs that show early
promise to reach patients without the delay associated with the conventional
review process. Phase IV trials usually involve thousands of patients.
A-1
<PAGE>
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 and GCP.
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 the FDA. Biological products
are regulated primarily under the Public Health Service Act, but are also
subject to regulation under the Federal Food, Drug and Cosmetic Act ("FFDCA").
While some biological products may be approved for marketing via an 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 the 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.
DEVICE DEVELOPMENT AND APPROVAL IN THE UNITED STATES
The FFDCA and regulations thereunder require that, prior to marketing in the
United States unless exempted by regulation, all products meeting the
statutory definition of "device" receive either (depending upon the nature of
the device) FDA clearance pursuant to a premarket notification (510(k))
submission or FDA approval pursuant to a premarket approval ("PMA")
application. Generally, devices are distinguished from drugs through the
characteristics of acting or achieving their effect through means other than
pharmacological action.
Human clinical trials always are 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 investigational review board ("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 IRBs 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 IRBs, but not the FDA. Such investigations nevertheless, are
subject to informed consent requirements, monitoring by the sponsor, and
record keeping requirements.
A-2
<PAGE>
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 an investigational device sponsor, the Company
must comply with these requirements.
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.
A-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PRA International Inc:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of PRA International, Inc. (a Delaware
corporation) included in this registration statement and have issued our
report thereon dated September 8, 1997. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
Schedule II--Valuation and Qualifying Accounts is the responsibility of the
Company's management and 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 as of December 31, 1996 and June 30, 1997
has been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in 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.
/s/ Arthur Andersen LLP
Washington, D.C.
September 8, 1997
S-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
PRA International, Inc.
We have audited the consolidated financial statements of PRA International,
Inc. as of December 31, 1995 and for each of the two years in the period ended
December 31, 1995, and have issued our report thereon dated March 8, 1996
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Vienna, Virginia
March 8, 1996
S-2
<PAGE>
SCHEDULE II
PRA INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE SIX MONTHS ENDED
JUNE 30, 1997
<TABLE>
<CAPTION>
CHARGED
BEGINNING TO ENDING
BALANCE DEDUCTIONS (1) EXPENSE BALANCE
--------- -------------- -------- --------
<S> <C> <C> <C> <C>
December 31, 1994
Allowance for accounts receiv-
able............................. $ -- $ -- $ 12,000 $ 12,000
December 31, 1995
Allowance for accounts receiv-
able............................. 12,000 4,500 20,015 27,515
December 31, 1996
Allowance for accounts receiv-
able............................. 27,515 27,515 132,098 132,098
June 30, 1997
Allowance for accounts receiv-
able............................. 132,098 102,098 47,232 77,232
</TABLE>
- --------
(1) Represents trade receivables written off and credits applied.
S-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 7
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 26
Management................................................................ 39
Certain Transactions...................................................... 50
Principal Stockholders.................................................... 52
Description of Capital Stock.............................................. 54
Shares Eligible For Future Sale........................................... 57
Underwriting.............................................................. 59
Legal Matters............................................................. 60
Experts................................................................... 60
Additional Information.................................................... 60
Appendix A................................................................ A-1
Index to Consolidated Financial Statements................................ F-1
Report of Independent Public Accountants.................................. S-1
Report of Ernst & Young LLP, Independent Auditors......................... S-2
Schedule II Valuation and Qualifying Accounts............................. S-3
</TABLE>
-----------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,750,000 SHARES
PRA INTERNATIONAL, INC.
COMMON STOCK
-----------
PROSPECTUS
, 1997
-----------
SMITH BARNEY INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
WESSELS, ARNOLD & HENDERSON
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Fees) of the fees and expenses, all of which are payable by the
Registrant, other than underwriting discounts and commissions, in connection
with the registration and sale of the Common Stock being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $11,500
NASD Fees......................................................... 4,295
Nasdaq National Market Fees....................................... *
Fees of Registrar and Transfer Agent.............................. *
Printing and Engraving............................................ *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.
The Restated Certificate of Incorporation and the By-Laws of the Registrant,
copies of which are filed herein as Exhibits 3.1 and 3.2, respectively,
provide for advancement of expenses and indemnification of officers and
directors of the Registrant and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under
certain stated conditions to the fullest extent permitted by law.
The Registrant intends to maintain insurance for the benefit of its
directors and officers insuring such persons against certain liabilities,
including liabilities under the securities laws.
Section 7 of the Underwriting Agreement between the Registrant and the
Underwriters, a copy of which is filed herein as Exhibit 1.1, provides for
indemnification by the Registrant of the Underwriters and each person, if any,
that controls any Underwriter, against certain liabilities and expenses as
stated herein, which may include liabilities under the Securities Act of 1933.
The Underwriting Agreement also provides that the Underwriters shall similarly
indemnify the Registrant, its directors, officers and controlling persons, as
set forth therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1994, pursuant to a $1,000,000 venture capital financing with
Virginia Capital, L.P. ("Virginia Capital"), successor in interest to Vedcorp,
L.C., Associates issued (i) a 12.5% subordinated debenture originally due
December 31, 1998 in the original principal amount of $750,000, (ii) a warrant
to purchase shares of Class C Common Stock of Pharmaceutical Research
Associates, Inc., a Virginia corporation ("Associates") constituting 6.67% of
the common stock of Associates on a fully-diluted basis, for an aggregate
exercise price of $500,000 and (iii) 53,512 shares of Class E Preferred Stock
of Associates. In August 1997, the debenture was repaid in full and the
warrant, as subsequently modified, was exercised in part for 249,921 shares of
Common Stock.
In August 1995, pursuant to a venture capital financing with Sirrom
Investments, Inc. ("Sirrom"), successor in interest to Sirrom Capital
Corporation, Associates issued (i) a secured promissory note in the original
principal amount of $2 million due August 10, 2000, which is secured by a
subordinated blanket lien on Associates' assets and (ii) a stock purchase
warrant exercisable for shares of Class C Common Stock of Associates
II-1
<PAGE>
constituting 6% of the common stock of Associates on a fully-diluted basis,
for an aggregate exercise price of $.01 per share, which, as subsequently
modified, was exercised in full in April, 1997. In connection with this
transaction, Virginia Capital's warrant was replaced by a warrant to purchase
shares of Class C Common Stock of Associates constituting 12.27% of the common
stock of Associates on a fully-diluted basis, for an aggregate exercise price
of $500,000.
In 1996, Associates made a loan to Associates' founder, Raymond J. Rugloski,
in the amount of $500,000. This loan was financed from the proceeds of its
sale of 76,830 shares of Class F Preferred Stock of Associates, representing
4% of the common stock of Associates on a fully-diluted basis, to Virginia
Capital, Sirrom and Messrs. Earle Martin, James Powers, Joachim Vollmar and W.
Bain MacLachlan.
In September 1996, as a result of anti-dilution protections afforded Raymond
Rugloski and his wife, Carolyn Rugloski, Sheridan Snyder, Virginia Capital,
Sirrom and the other Class F Preferred Stockholders of Associates, 44,925
shares of Class A Common Stock were issued to the Rugloskis, 4,992 additional
shares of Class B Common Stock were issued to Mr. Snyder, the amount of shares
of Class C Common Stock of Associates for which Virginia Capital's and
Sirrom's warrants were exercisable was increased by 9,479 and 3,792 shares,
respectively, and the Class F Preferred Stockholders of Associates received an
additional 5,482 shares of Class F Preferred Stock.
(All of the foregoing references to the share numbers of capital stock of
Associates are on an as-issued basis and do not reflect the effect of the
stock split on the shares of Common Stock received in respect thereof pursuant
to the agreement and plan of share exchange referred to below.)
In October 1996, the Company completed a recapitalization and
reorganization. First, the Company became the holding company of Associates,
pursuant to an agreement and plan of share exchange between the Company and
Associates. Under that agreement and plan, all outstanding shares and all
options and warrants to purchase shares of each class of common and preferred
stock of Associates were acquired by the Company in exchange for an identical
number of outstanding shares and options and warrants to purchase shares of
Common Stock. The Company then sold, for an aggregate purchase price of
approximately $19.1 million (or approximately $5.93 per share after giving
effect to their conversion to Common Stock upon the closing of the Offering),
1,631,548 shares of its Series A Preferred Stock to certain affiliates of The
Carlyle Group, along with a related warrant agreement providing for the
issuance of warrants to purchase an identical number of shares of Common Stock
upon the occurrence of certain circumstances. In November 1996, Virginia
Capital purchased 26,534 shares of Series A Preferred Stock and a related
warrant agreement for an aggregate purchase price of approximately $310,000
(or approximately $5.93 per share). These issuances of securities were exempt
from registration under the Securities Act by virtue of Section 4(2) thereof.
In April 1997, the Company acquired the capital stock of International
Medical Technical Consultants, Inc., a Kansas corporation ("IMTCI") from its
stockholders. Of the aggregate purchase price of approximately $15.3 million
paid to IMTCI's stockholders, $2 million was paid in the form of 143,272
shares of Common Stock at a price of $13.96 per share after giving effect to
the Company's recent stock split. This issuance of securities by the Company
was exempt from registration under the Securities Act by virtue of Section
4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement
3.1 Form of Restated Certificate of Incorporation of the Registrant (to be
filed with the State of Delaware upon the closing of the Offering)
3.2 Amended and Restated By-Laws of the Registrant
*5.1 Opinion of Bingham Dana LLP, counsel to the Registrant, regarding the
legality of the shares of the Common Stock offered by the Prospectus
contained in this registration statement
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.1 Registration Rights Agreement
10.2 Revolving Credit Agreement dated August 25, 1997 between the
Registrant and First Union National Bank
10.3 Revolving Promissory Note dated August 25, 1997 made by the Registrant
in favor of First Union National Bank in the principal amount of
$7,500,000
10.4 Subordinated Promissory Note dated as of April 1, 1997 made by IMTCI
in favor of First Robert J. Dockhorn, M.D., as designee, in the
principal amount of $1,000,000 (subject to adjustment)
10.5 Subordinated Promissory Note dated as of April 1, 1997 made by IMTCI
in favor of First Robert J. Dockhorn, M.D., as designee, in the
principal amount of $5,000,000 (subject to adjustment)
10.6 Lease Agreement dated as of April 1, 1997 between Dockhorn Properties,
L.L.C. and IMTCI
10.7 Lease Agreement dated as of April 1, 1997 between Beverly W. Dockhorn
Revocable Trust dated January 5, 1984 and IMTCI
*10.8 Employment and Non-Competition Agreement dated as of October 11, 1996
between Associates and Earle Martin, as amended by Amendment No. 1
dated October , 1997
*10.9 Employment and Non-Competition Agreement dated as of October 11, 1996
between Associates and James C. Powers, as amended by Amendment No. 1
dated October , 1997
*10.10 Employment Agreement dated April 14, 1992 between Associates and
Joachim Vollmar, as amended by Amendment No. 1 dated October 28, 1992,
Amendment No. 2 dated November 17, 1992, Amendment No. 3 dated October
11, 1996, Memo No. 4 dated February 14, 1997, Amendment No. 5 dated
March 14, 1997 and Amendment No. 6 dated October , 1997
*10.11 Employment and Non-Competition Agreement dated as of October 16, 1996
between Associates and Patrick K. Donnelly, as amended by Amendment
No. 1 dated October , 1997
*10.12 Employment and Non-Competition Agreement dated as of April 1, 1997
between IMTCI and Robert J. Dockhorn, M.D., as amended by Amendment
No. 1 dated October , 1997
*10.13 Consulting Agreement dated October , 1997 between Associates and
Dr. Judith Ann Hemberger
*10.14 Amended and Restated Option Agreement dated as of October , 1997
between the Registrant and Earle Martin
*10.15 Amended and Restated Option Agreement dated as of October , 1997
between the Registrant and James C. Powers
*10.16 Amended and Restated Option Agreement dated as of October , 1997
between the Registrant and Joachim Vollmar
*10.17 Amended and Restated Option Agreement dated as of October , 1997
between the Registrant and Patrick K. Donnelly
*10.18 Amended and Restated Option Agreement dated as of October , 1997
between the Registrant and Robert J. Dockhorn, M.D.
*10.19 Restated Option Agreement dated as of October , 1997 among the
Registrant, James C. Powers, Joachim Vollmar, W. Bain MacLachlan,
Roger Flora, Michael N. Boyd, William M. Walsh and Patrick K. Donnelly
10.20 PRA International, Inc. Amended and Restated 1993 Stock Option Plan
10.21 PRA International, Inc. Amended and Restated 1997 Stock Option Plan
11.1 Statement re Computation of Earnings (Losses) Per Share
16.1 Letter re Change in Certifying Auditors
21.1 Subsidiaries of the Registrant
23.10 Consent of Arthur Andersen LLP
23.11 Consent of Ernst & Young LLP, Independent Auditors
*23.2 Consent of Bingham Dana LLP counsel to the Registrant (included in
Exhibit 5.1)
24.1 Power of Attorney (included in signature page to Registration
Statement)
27.1 Financial Data Schedule
</TABLE>
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
- --------
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of competent jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424 (b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the District of Columbia,
Washington, D.C., on the 22nd day of October 1997.
PRA INTERNATIONAL, INC.
By /s/ Earle Martin
-----------------------------------
Earle Martin
President
POWER OF ATTORNEY AND SIGNATURES
Each person whose signature appears below constitutes and appoints Earle
Martin and Patrick K. Donnelly and each of them singly, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them, for him and his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement on Form S-1 of PRA
International, Inc., and to file with the Securities and Exchange Commission
the same, with all exhibits thereto and other documents in connection
therewith, and any other registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing necessary or desirable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them or
any of their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Earle Martin President, Chief Executive October 22, 1997
- ------------------------------------- Officer (principal executive
Earle Martin officer) and Chairman of the
Board of Directors
/s/ Joachim Vollmar Executive Vice President, October 22, 1997
- ------------------------------------- Managing Director, European
Joachim Vollmar Operations and Director
/s/ Patrick K. Donnelly Executive Vice President, October 22, 1997
- ------------------------------------- Chief Financial Officer
Patrick K. Donnelly (principal accounting
officer), Director and
Assistant Secretary
/s/ Harry H. Penner, Jr. Director October 22, 1997
- -------------------------------------
Harry H. Penner, Jr.
/s/ Judith A. Hemberger Director October 22, 1997
- -------------------------------------
Judith A. Hemberger
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Daniel A. D'Aniello Director October 22, 1997
____________________________________
Daniel A. D'Aniello
/s/ David W. Dupree Director October 22, 1997
____________________________________
David W. Dupree
/s/ Peter M. Manos Director October 22, 1997
____________________________________
Peter M. Manos
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
*1.1 Proposed Form of Underwriting Agreement..................
3.1 Form of Restated Certificate of Incorporation of the
Registrant (to be filed with the State of Delaware upon
the closing of the Offering).............................
3.2 Amended and Restated By-Laws of the Registrant...........
*5.1 Opinion of Bingham Dana LLP, counsel to the Registrant,
regarding the legality of the shares of the Common Stock
offered by the Prospectus contained in this registration
statement................................................
*10.1 Registration Rights Agreement............................
10.2 Revolving Credit Agreement dated August 25, 1997 between
the Registrant and First Union National Bank.............
10.3 Revolving Promissory Note dated August 25, 1997 made by
the Registrant in favor of First Union National Bank in
the principal amount of $7,500,000.......................
10.4 Subordinated Promissory Note dated as of April 1, 1997
made by IMTCI in favor of First Robert J. Dockhorn, M.D.,
as designee, in the principal amount of $1,000,000
(subject to adjustment)..................................
10.5 Subordinated Promissory Note dated as of April 1, 1997
made by IMTCI in favor of First Robert J. Dockhorn, M.D.,
as designee, in the principal amount of $5,000,000
(subject to adjustment)..................................
10.6 Lease Agreement dated as of April 1, 1997 between
Dockhorn Properties, L.L.C. and IMTCI....................
10.7 Lease Agreement dated as of April 1, 1997 between Beverly
W. Dockhorn Revocable Trust dated January 5, 1984 and
IMTCI....................................................
*10.8 Employment and Non-Competition Agreement dated as of
October 11, 1996 between Associates and Earle Martin, as
amended by Amendment No. 1 dated October , 1997.......
*10.9 Employment and Non-Competition Agreement dated as of
October 11, 1996 between Associates and James C. Powers,
as amended by Amendment No. 1 dated October , 1997....
*10.10 Employment Agreement dated April 14, 1992 between
Associates and Joachim Vollmar, as amended by Amendment
No. 1 dated October 28, 1992, Amendment No. 2 dated
November 17, 1992, Amendment No. 3 dated October 11,
1996, Memo No. 4 dated February 14, 1997, Amendment No. 5
dated March 14, 1997 and Amendment No. 6 dated October
, 1997................................................
*10.11 Employment and Non-Competition Agreement dated as of
October 16, 1996 between Associates and Patrick K.
Donnelly, as amended by Amendment No. 1 dated October
, 1997................................................
*10.12 Employment and Non-Competition Agreement dated as of
April 1, 1997 between IMTCI and Robert J. Dockhorn, M.D.,
as amended by Amendment No. 1 dated October , 1997....
*10.13 Consulting Agreement dated October , 1997 between
Associates and Dr. Judith Ann Hemberger..................
*10.14 Amended and Restated Option Agreement dated as of October
, 1997 between the Registrant and Earle Martin........
*10.15 Amended and Restated Option Agreement dated as of October
, 1997 between the Registrant and James C. Powers.....
*10.16 Amended and Restated Option Agreement dated as of October
, 1997 between the Registrant and Joachim Vollmar.....
*10.17 Amended and Restated Option Agreement dated as of October
, 1997 between the Registrant and Patrick K. Donnelly.
*10.18 Amended and Restated Option Agreement dated as of October
, 1997 between the Registrant and Robert J. Dockhorn,
M.D......................................................
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
*10.19 Restated Option Agreement dated as of October , 1997
among the Registrant, James C. Powers, Joachim Vollmar, W.
Bain MacLachlan, Roger Flora, Michael N. Boyd, William M.
Walsh and Patrick K. Donnelly.............................
10.20 PRA International, Inc. Amended and Restated 1993 Stock
Option Plan...............................................
10.21 PRA International, Inc. Amended and Restated 1997 Stock
Option Plan...............................................
11.1 Statement re Computation of Earnings (Losses) Per Share...
16.1 Letter re Change in Certifying Auditors...................
21.1 Subsidiaries of the Registrant............................
23.10 Consent of Arthur Andersen LLP............................
23.11 Consent of Ernst & Young LLP, Independent Auditors........
*23.2 Consent of Bingham Dana LLP counsel to the Registrant
(included in Exhibit 5.1).................................
24.1 Power of Attorney (included in signature page to
Registration Statement)...................................
27.1 Financial Data Schedule...................................
</TABLE>
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
- --------
* To be filed by amendment.
2
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PRA INTERNATIONAL, INC.
PRA INTERNATIONAL, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that (i) the Corporation was originally
incorporated under the name Pharmaceutical Research Associates, Inc. and the
original Certificate of Incorporation of the Corporation was filed by the
Corporation with the Secretary of State of Delaware on August 19, 1996, (ii)
this Restated Certificate of Incorporation was duly adopted in accordance with
the provisions of Sections 242 and 245 of the Delaware General Corporation Law,
and (iii) the Restated Certificate of Incorporation restates, integrates and
further amends the Corporation's current Certificate of Incorporation, as
heretofore amended, to read in its entirety as follows:
FIRST. The name of the Corporation is PRA INTERNATIONAL, INC.
SECOND. The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 30,000,000, consisting solely of:
25,000,000 shares of common stock, $.01 par value per share
("Common Stock"); and
5,000,000 shares of preferred stock, $.01 par value per share
("Preferred Stock").
<PAGE>
- 2 -
The following is a statement of the powers, designations, preferences,
privileges, and relative, participating, optional, and other special rights of
the Preferred Stock and Common Stock, respectively:
1. PREFERRED STOCK. The Board of Directors is hereby expressly
----------------
authorized to provide for, designate and issue, out of the authorized but
unissued shares of Preferred Stock, one or more other series of Preferred Stock,
subject to the terms and conditions set forth herein. Before any shares of any
such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
(b) whether the shares of such series shall have voting rights or
powers, in addition to any voting rights required by law, and, if so, the terms
of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or series;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable with respect to shares of such
class or series upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to
the operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or
<PAGE>
- 3 -
redemption of the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of stock of any other class or series of any
other securities and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and any
other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such class or series are outstanding upon the payment of dividends
or the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of stock of
any other class or series;
(i) the conditions or restrictions, if any, to be effective while
any shares of such class or series are outstanding upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other class or
series; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of authorized shares of Preferred Stock) or decrease (but
not below the number of shares thereof then outstanding) the number of shares of
stock of any series of Preferred Stock designated to any one or more series of
Preferred Stock pursuant to this Section 1. Different series of Preferred Stock
shall not be construed to constitute different classes of stock for purposes of
voting by classes unless expressly so provided in the resolution or resolutions
adopted by the Board of Directors creating or establishing any such series of
Preferred Stock. No resolution, vote, or consent of the holders of the capital
stock of the Corporation shall be required in connection
<PAGE>
- 4 -
with the creation or issuance of any shares of any series of Preferred Stock
authorized by and complying with the conditions of this Restated Certificate of
Incorporation, the right to any such resolution, vote, or consent being
expressly waived by all present and future holders of the capital stock of the
Corporation.
At such time as no shares of any series of Preferred Stock that may be
issued from time to time remain issued and outstanding, including without
limitation because all of such shares have been converted into shares of Common
Stock in accordance with this Restated Certificate of Incorporation, all
authorized shares of such series of Preferred Stock, automatically and without
further actions, shall be reclassified as authorized but unissued shares of
undesignated Preferred Stock of no particular class or series, and any and all
of such shares may thereafter be issued by the Board of Directors of the Company
in one or more series, and the terms of any such series may be determined by the
Board of Directors, as provided in this Section 1.
<PAGE>
- 5 -
2. COMMON STOCK
------------
2.1. Increase or Decrease in Authorized Number. The number of authorized
-----------------------------------------
shares of Common Stock may be increased or decreased (but not below the combined
number of shares thereof then outstanding) by the affirmative vote of the
holders of the majority of the stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the Delaware General
Corporation Law.
2.2. Voting Rights. Except as otherwise required by law, and subject to
-------------
the voting rights provided to the holders of any series of Preferred Stock, the
holders of Common Stock shall have full voting rights and powers to vote on all
matters submitted to stockholders of the Corporation for vote, consent or
approval, and each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held of record by such holder.
2.3. Dividend, Liquidation and Other Rights. Each share of Common Stock
--------------------------------------
issued and outstanding shall be identical in all respects with each other such
share, and no dividends shall be paid on any shares of Common Stock unless the
same dividend is paid on all shares of Common Stock outstanding at the time of
such payment. Except for and subject to those rights expressly granted to the
holders of Preferred Stock and except as may be provided by the laws of the
State of Delaware, the holders of Common Stock shall have all other rights of
stockholders, including, without limitation, (a) the right to receive dividends,
when and as declared by the Board of Directors, out of assets lawfully available
therefor, and (b) in the event of any distribution of assets upon a liquidation
or otherwise, the right to receive ratably and equally all the assets and funds
of the Corporation remaining after the payment to the holders of the Preferred
Stock or of any other class or series of stock ranking senior to the Common
Stock upon liquidation of the specific preferential amounts which they are
entitled to receive upon such liquidation.
FIFTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
<PAGE>
- 6 -
(a) Effective as of the closing (or the first closing) of the
Corporation's registered initial public offering of Common Stock (the "IPO
Closing"), the Board of Directors shall be divided into three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office
of the directors of the first such class ("Class I") to expire at the first
annual meeting of the Corporation's stockholders following the IPO Closing,
those of the second class ("Class II") to expire at the second annual
meeting of the Corporation's stockholders following the IPO Closing, and
those of the third class ("Class III") at the third annual meeting of the
Corporation's stockholders following the IPO Closing, such that at each
such annual meeting of stockholders, nominees will stand for election for
three-year terms to succeed those directors whose terms are to expire as of
such meeting. Likewise, at each other annual meeting of stockholders held
from and after the IPO Closing, those directors elected at such meeting to
succeed those directors whose terms expire at such meeting, shall serve for
a term expiring at the third annual meeting of stockholders following their
election. Notwithstanding anything expressed or implied to the contrary in
the foregoing provisions of this Article FIFTH, each director shall
continue to serve as such until the expiration of his term as set forth
above in this paragraph (a) and his successor is duly elected and qualified
or until his or her earlier death, incapacity, resignation or removal.
Subject to the right, if any, of holders of any series of Preferred Stock
to remove any director elected by the holders of such series and/or any
other series of Preferred Stock, any director serving as such pursuant to
this paragraph (a) of Article FIFTH may be removed only for cause and only
by the vote of the holders of a majority of the shares of the Corporation's
stock entitled to vote for the election of directors. Those directors in
office immediately prior to the IPO Closing shall be allocated among Class
I, Class II and Class III as determined by a resolution or resolutions of
the Board of Directors, which may have been adopted prior to the
effectiveness of this Restated Certificate of Incorporation.
(b) The Board of Directors shall have the power and authority: (1)
to adopt, amend or repeal any or all of the By-Laws of the Corporation,
subject only to such limitations, if any, as may be from time to time
imposed by other provisions of this Restated Certificate of Incorporation,
by law, or by the By-Laws; and (2) to the full extent permitted or not
prohibited by law, and without the consent of or other action by the
stockholders, to authorize or
<PAGE>
- 7 -
create mortgage, pledges or other liens or encumbrances upon any or all of
the assets, real, personal or mixed, and franchises of the Corporation,
including after-acquired property, and to exercise all of the powers of the
Corporation in connection therewith.
(c) Except as the Delaware General Corporation Law may otherwise
require, and subject to the rights of the holders of any series of
Preferred Stock with respect the filling of vacancies or new directorships
in the Board of Directors, any vacancies or new directorships in the Board
of Directors, including unfilled vacancies or new directorships resulting
from the removal of directors with cause or from any increase in the number
of directors, may be filled only by the vote of a majority of the remaining
directors then in office, although less than a quorum, or by the sole
remaining director.
(d) Directors need not be stockholders of the Corporation.
SIXTH. No director of the Corporation shall be personally liable to
the Corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; provided, however, that, to the extent required from time to time by
-------- -------
applicable law, this Article SIXTH shall not eliminate or limit the liability of
a director, to the extent such liability is provided by applicable law, (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code, or (iv) for any transactions from which the
director derived an improper personal benefit. No amendment to or repeal of
this Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
SEVENTH. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding, by
reason of being or having been a director or officer of the Corporation or
serving or having served at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan, whether the basis of such proceeding is alleged action or
failure to act in an official capacity
<PAGE>
- 8 -
as a director, trustee, officer, employee or agent or in any other capacity
while serving as a director, trustee, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such person in connection
therewith, as further provided in the By-Laws.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class or series of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of (S)391 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of (S)279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class or series of stockholders of the Corporation, as the case
may be, to be summoned in such a manner as the said court directs. If a majority
of the number representing three-fourths (3/4ths) in value of the creditors or
class of creditors, and/or of the stockholders or class or series of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all creditors or class of creditors, and/or
stockholders or class or series of stockholders of the Corporation, as the case
may be, and also on the Corporation.
NINTH. The Board of Directors, when considering a tender offer or
merger or acquisition proposal, may take into account factors in addition to
potential short-term economic benefits to stockholders of the Corporation,
including, without limitation, (i) comparison of the proposed consideration to
be received by stockholders in relation to the then current market price of the
Corporation's capital stock, the estimated current value of the Corporation in a
freely negotiated transaction and the estimated future value of the Corporation
as an independent entity and (ii) the impact of such a transaction on the
employees, suppliers, and customers of the Corporation and its effect on the
communities in which the Corporation operates.
<PAGE>
- 9 -
TENTH. Any action required or permitted to be taken by the
stockholders of the Corporation may be taken only at a duly called annual or
special meeting of the stockholders, and not by written consent in lieu of such
a meeting. Subject to the right, if any, of the holders of any series of
Preferred Stock to call special meetings of stockholders of the Corporation,
special meetings of stockholders of the Corporation may be called only by the
Chairman of the Board of Directors, the President, or a majority of the total
number of directors which the Corporation would have if there were no vacancies.
ELEVENTH. The affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding voting stock of the Corporation
(in addition to any separate class vote that may in the future be required
pursuant to the terms of any outstanding Preferred Stock) shall be required (i)
to amend or repeal the provisions of Articles FOURTH (to the extent such
provisions relate to the authority of the Board of Directors to issue shares of
Preferred Stock in one or more series, the terms of which may be determined by
the Board of Directors), FIFTH, SEVENTH, NINTH, TENTH or ELEVENTH of the
Corporation's Restated Certificate of Incorporation, as amended from time to
time, (ii) to amend, adopt or repeal the Corporation's By-Laws (provided,
--------
however, that the provisions of this Article ELEVENTH shall in no way limit the
- -------
power or authority of the Board of Directors to amend, adopt or repeal By-Laws),
or (iii) to reduce the number of authorized shares of Common Stock or Preferred
Stock.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed by its President this _____ day of __________, 1997.
PRA INTERNATIONAL, INC.
By
Earle Martin,
President
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
--------------------
BY-LAWS OF
----------
PRA INTERNATIONAL, INC.
-----------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Article I. - General...................................................... 1
1.1. Offices........................................................ 1
1.2. Seal........................................................... 1
1.3. Fiscal Year.................................................... 1
Article II. - Stockholders................................................ 1
2.1. Place of Meetings.............................................. 1
2.2. Annual Meeting................................................. 1
2.3. Special Meeting................................................ 1
2.4. Notice of Meeting.............................................. 2
2.5. Notice of Stockholder Business and Nominations................. 2
2.6. Quorum and Adjournment......................................... 4
2.7. Right to Vote; Proxies......................................... 5
2.8. Voting......................................................... 5
2.9. Inspectors..................................................... 5
2.10. Stockholders' List............................................. 6
2.11. No Stockholder Action by Written Consent....................... 6
Article III. - Directors.................................................. 6
3.1. General Powers................................................. 6
3.2. Qualifications of Directors.................................... 6
3.3. Number of Directors; Vacancies................................. 6
3.4. Resignation.................................................... 7
3.5. Removal........................................................ 7
3.6. Place of Meetings and Books.................................... 8
3.7. Executive Committee............................................ 8
3.8. Other Committees............................................... 8
3.9. Powers Denied to Committees.................................... 8
3.10. Substitute Committee Member.................................... 9
3.11. Compensation of Directors...................................... 9
3.12. Regular Meetings............................................... 9
3.13. Special Meetings............................................... 9
3.14. Quorum......................................................... 10
3.15. Telephonic Participation in Meetings........................... 10
3.16. Action by Consent.............................................. 10
</TABLE>
<PAGE>
-ii-
<TABLE>
<S> <C>
Article IV. - Officers.................................................... 10
4.1. Selection; Statutory Officers.................................. 10
4.2. Time of Election............................................... 11
4.3. Additional Officers............................................ 11
4.4. Terms of Office................................................ 11
4.5. Compensation of Officers....................................... 11
4.6. Chairman of the Board.......................................... 11
4.7. President...................................................... 11
4.8. Vice Presidents................................................ 12
4.9. Treasurer...................................................... 12
4.10. Secretary...................................................... 12
4.11. Assistant Secretary............................................ 13
4.12. Assistant Treasurer............................................ 13
4.13. Subordinate Officers........................................... 13
4.14. Removal........................................................ 13
4.15. Vacancies...................................................... 13
Article V. - Stock........................................................ 14
5.1. Stock.......................................................... 14
5.2. Fractional Share Interests..................................... 14
5.3. Transfers of Stock............................................. 15
5.4. Record Date.................................................... 15
5.5. Transfer Agent and Registrar................................... 16
5.6. Dividends...................................................... 16
5.7. Lost, Stolen or Destroyed Certificates......................... 16
Article VI. - Miscellaneous Management Provisions......................... 16
6.1. Checks, Drafts and Notes....................................... 16
6.2. Notices........................................................ 16
6.3. Conflict of Interest........................................... 17
6.4. Voting of Securities owned by this Corporation................. 17
6.5. Inspection of Books............................................ 18
Article VII. - Indemnification............................................ 18
7.1. Right to Indemnification....................................... 18
7.2. Right of Indemnitee to Bring Suit.............................. 19
7.3. Non-Exclusivity of Rights...................................... 20
7.4. Insurance...................................................... 20
7.5. Indemnification of Employees and Agents of the Corporation..... 20
Article VIII. - Amendments................................................ 21
8.1. Amendments..................................................... 21
</TABLE>
<PAGE>
AMENDED AND RESTATED
--------------------
BY-LAWS OF
-----------
PRA INTERNATIONAL, INC.
-----------------------
Article I. - General.
1.1 Offices. The registered office shall be in the City of Wilmington,
-------
County of New Castle, State of Delaware. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
1.2 Seal. The seal of the Corporation shall be in the form of a circle and
----
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware".
1.3 Fiscal Year. The fiscal year of the Corporation shall be the period
-----------
from January 1 through December 31.
Article II. - Stockholders.
------- ------------------
2.1 Place of Meetings. All meetings of the stockholders shall be held at
-----------------
the office of the Corporation in Vienna, Virginia except such meetings as the
Board of Directors expressly determine shall be held elsewhere, in which case
meetings may be held upon notice as hereinafter provided at such other place or
places within or without the Commonwealth of Virginia as the Board of Directors
shall have determined and as shall be stated in such notice.
2.2 Annual Meeting. The annual meeting of stockholders of the Corporation
--------------
shall be held on such date and at such place and time as may be fixed by
resolution of the Board of Directors and stated in the notice of the meeting. At
each annual meeting of stockholders, the stockholders entitled to vote shall
elect such members of the Board of Directors as are standing for election at
such meeting, and shall transact such other business as may properly be brought
before the meeting. At the annual meeting any business may be transacted,
irrespective of whether the notice calling such meeting shall have contained a
reference thereto, except where notice is required by law, the Corporation's
Restated Certificate of Incorporation, as amended and in effect from time to
time (the "Restated Certificate of Incorporation"), or these By-Laws.
2.3 Special Meeting. Subject to the rights of the holders of any series of
---------------
preferred stock of the Corporation ("Preferred Stock") with
<PAGE>
-2-
respect to calling special meetings of stockholders of the Corporation, special
meetings of the stockholders for any purpose or purposes may only be called by
the Chairman of the Board of Directors, the President, or a majority of the
total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board"). Only such business shall be conducted at a
special meeting as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting.
2.4 Notice of Meeting. Written notice of any meeting of the stockholders
-----------------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Any previously scheduled meeting of
the stockholders may be postponed, and (unless the Restated Certificate of
Incorporation otherwise provides) any special meeting of the stockholders may be
canceled, by resolution of the Board of Directors upon public notice given prior
to the date previously scheduled for such meeting of stockholders.
2.5 Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Nomination of Directors. Only persons who are
nominated in accordance with the procedures set forth in these By-Laws shall be
eligible to serve as directors. Nominations of persons for election to the Board
of Directors of the Corporation may be made at a meeting of stockholders (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice for
the election of directors at the meeting and who complies with the notice
procedures set forth in this Section 2.5(a). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 50 days prior to
the meeting; provided, however, that in the event that less than 55 days' notice
-------- -------
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of
<PAGE>
-3-
business on the seventh day following the day on which such notice of the date
of the meeting or such public disclosure was made. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected), and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Corporation's books, of
such stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2.5(a). The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the By-Laws, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded. Notwithstanding the foregoing provisions of this Section 2.5(a),
a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.5(a).
(b) Notice of Business. At any meeting of the stockholders, only such
------------------
business shall be conducted as shall have been brought before the meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 2.5(b), who shall be entitled to vote at such
meeting and who complies with the notice procedures set forth in this Section
2.5(b). For business to be properly brought before a stockholder meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 50 days prior to the meeting; provided, however, that
-------- -------
in the event that less than 55 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to
<PAGE>
-4-
be timely must be received no later than the close of business on the seventh
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting; (b) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, and (d) any material interest
of the stockholder in such business. Notwithstanding anything in the By-Laws to
the contrary, no business shall be conducted at a stockholder meeting except (i)
in accordance with the procedures set forth in this Section 2.5(b) or (ii) with
respect to nominations of persons for election as directors of the Corporation,
in accordance with the provisions of Section 2.5(a) hereof. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of the By-Laws, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing provisions of this Section
2.5(b), a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section.
2.6 Quorum and Adjournment. At all meetings of the stockholders, the
----------------------
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
requisite for the transaction of business except as otherwise provided by law,
by the Restated Certificate of Incorporation or by these By-Laws. The chairman
of the meeting or a majority of the shares so represented may, whether or not
there is such a quorum, adjourn the meeting from time to time without notice
other than announcement at the meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting, at which the requisite amount of voting stock shall be represented, any
business may be transacted which might have been transacted if the meeting had
been held as originally called. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact business until
adjournment,
<PAGE>
-5-
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
2.7 Right to Vote; Proxies. Each holder of a share or shares of capital
----------------------
stock of the Corporation having the right to vote at any meeting shall be
entitled to one vote for each such share of stock held by him. Any stockholder
entitled to vote at any meeting of stockholders may vote either in person or by
proxy, but no proxy which is dated more than one year prior to the meeting at
which it is offered shall confer the right to vote thereat unless the proxy
provides that it shall be effective for a longer period. A proxy may be granted
by a writing executed by the stockholder or his authorized officer, director,
employee or agent or by transmission or authorization of transmission of a
telegram, cablegram, or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, subject to the conditions set
forth in Section 212 of the Delaware General Corporation Law, as it may be
amended from time to time (the "Delaware GCL").
2.8 Voting. At all meetings of stockholders, except as otherwise expressly
------
provided for by statute, the Restated Certificate of Incorporation or these By-
Laws, (i) in all matters other than the election of directors, the affirmative
vote of a majority of shares present in person or represented by proxy at the
meeting and entitled to vote on such matter shall be the act of the stockholders
and (ii) directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Except as otherwise expressly provided by law, the
Restated Certificate of Incorporation or these By-Laws, at all meetings of
stockholders the voting shall be by ballot, each of which shall state the name
of the stockholder voting and the number of shares voted by him, and, if such
ballot be cast by a proxy, it shall also state the name of the proxy. The
chairman of the meeting shall fix and announce at the meeting the date and time
of the opening and the closing of the polls for each matter upon which the
stockholders will vote at the meeting.
2.9 Inspectors. The Board of Directors by resolutions shall appoint one or
----------
more inspectors, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives, to act at the meeting of stockholders and
make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed
<PAGE>
-6-
to act or is able to act at a meeting of stockholders, the chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
2.10 Stockholders' List. A complete list of the stockholders entitled to
------------------
vote at any meeting of stockholders, arranged in alphabetical order and showing
the address of each stockholder, and the number of shares registered in the name
of each stockholder, shall be prepared by the Secretary and filed either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, at least 10 days before such meeting, and shall
at all times during the usual hours for business, and during the whole time of
said election, be open to the examination of any stockholder for a purpose
germane to the meeting.
2.11 No Stockholder Action by Written Consent. Unless otherwise provided
----------------------------------------
in the Restated Certificate of Incorporation, and subject to the rights, if any,
of the holders of Preferred Stock to take action by written consent, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders.
Article III. - Directors.
------- ----------------
3.1 General Powers. In addition to the powers and authority expressly
--------------
conferred upon them by these By-Laws, the Board of Directors may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Restated Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
3.2 Qualifications of Directors. A director need not be a stockholder, a
---------------------------
citizen of the United States, or a resident of the State of Delaware.
3.3 Number of Directors; Vacancies. The number of directors constituting
------------------------------
the full Board of Directors shall be fixed from time to time exclusively
pursuant to a resolution adopted by a majority of the Whole Board of Directors.
Effective as of the closing (or the first closing) of the Corporation's
registered initial public offering of Common Stock (the "IPO
<PAGE>
-7-
Closing"), the Board of Directors shall consist of three classes of directors,
such classes to be as nearly equal in number of directors as possible, having
staggered three-year terms of office, the term of office of the directors of the
first such class to expire at the first annual meeting of the Corporation's
stockholders following the IPO Closing, those of the second class to expire at
the second annual meeting of the Corporation's stockholders following the IPO
Closing, and those of the third class at the third annual meeting of the
Corporation's stockholders following the IPO Closing, such that at each such
annual meeting of stockholders, nominees will stand for election for three-year
terms to succeed those directors whose terms are to expire at such meeting.
Likewise, at each other annual meeting of stockholders held from and after the
IPO Closing, those nominees elected at such meeting to succeed those directors
whose terms expire at such meeting, shall serve for a term expiring at the third
annual meeting of stockholders following their election. Members of the Board of
Directors shall hold office until the annual meeting of stockholders for the
year in which their term is scheduled to expire as set forth above in this
Section 3.3 and their respective successors are duly elected and qualified or
until their earlier death, incapacity, resignation, or removal. Except as the
Delaware GCL may otherwise require, and subject to the rights of the holders of
any series of Preferred Stock with respect to the filling of vacancies or new
directorships in the Board of Directors, any vacancies or new directorships in
the Board of Directors, including unfilled vacancies or new directorships
resulting from the removal of directors for cause or from any increase in the
number of directors, may be filled only by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
3.4 Resignation. Any director of this Corporation may resign at any time
-----------
by giving written notice to the Chairman of the Board, if any, the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, at the time of receipt if no time is specified therein or at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.5 Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock with respect the removal of any director elected by the holders
of such series and/or any other series of Preferred Stock, any director or the
entire Board of Directors may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of a majority of the then-
outstanding shares entitled to vote thereon, voting together as a class.
<PAGE>
-8-
3.6 Place of Meetings and Books. The Board of Directors may hold their
---------------------------
meetings and keep the books of the Corporation outside the State of Delaware, at
such places as they may from time to time determine.
3.7 Executive Committee. There may be an executive committee of one or
-------------------
more directors designated by resolution passed by a majority of the Whole Board.
The act of a majority of the members of such committee shall be the act of the
committee. Said committee may meet at stated times or on notice to all by any of
their own number, and shall have and may exercise those powers of the Board of
Directors in the management of the business affairs of the Corporation as are
provided by law and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Vacancies in the membership of the committee
shall be filled by the Board of Directors at a regular meeting or at a special
meeting called for that purpose.
3.8 Other Committees. The Board of Directors may also designate one or
----------------
more committees in addition to the executive committee, by resolution or
resolutions passed by a majority of the Whole Board; such committee or
committees shall consist of one or more directors of the Corporation, and to the
extent provided in the resolution or resolutions designating them, shall have
and may exercise specific powers of the Board of Directors in the management of
the business and affairs of the Corporation to the extent permitted by statute
and shall have power to authorize the seal of the Corporation to be affixed to
all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
3.9 Powers Denied to Committees. Committees of the Board of Directors
---------------------------
shall not, in any event, have any power or authority to amend the Restated
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
adopted by the Board of Directors as provided in Section 151(a) of the Delaware
GCL, fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's
<PAGE>
-9-
property and assets, recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution or to amend the By-Laws of the
Corporation. Further, no committee of the Board of Directors shall have the
power or authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware GCL, unless the resolution or resolutions designating such committee
expressly so provides.
3.10 Substitute Committee Member. In the absence or on the
---------------------------
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee shall keep regular minutes of its proceedings and report
the same to the Board of Directors as may be required by the Board of Directors.
3.11 Compensation of Directors. The Board of Directors shall have the
-------------------------
power to fix the compensation of directors and members of committees of the
Board of Directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors and/or a stated annual
fee (some or all of which may be paid in the form of capital stock of the
Corporation) as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.12 Regular Meetings. A regular meeting of the Board of Directors shall
----------------
be held without other notice than this Section 3.12, immediately after, and at
the same place as, the Annual Meeting of Stockholders. The Board of Directors
may, by resolutions, provide the time and place for the holding of additional
regular meetings without other notice than such resolution. Such regular
meetings shall be held at such place within or without the State of Delaware as
shall be fixed by the Board of Directors.
3.13 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by the Chairman of the Board of Directors, if any, or the President, on
one (1) day notice to each director, or such shorter period of time before the
meeting as will nonetheless be sufficient for the convenient assembly of the
directors so notified; special meetings shall be
<PAGE>
-10-
called by the Secretary in like manner and on like notice, on the written
request of two or more directors.
3.14 Quorum. At all meetings of the Board of Directors, a majority of the
------
total number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically permitted or
provided by statute, or by the Restated Certificate of Incorporation, or by
these By-Laws. If at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at said meeting which shall be so adjourned.
3.15 Telephonic Participation in Meetings. Members of the Board of
------------------------------------
Directors or any committee designated by such board may participate in a meeting
of the Board of Directors or committee thereof by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
this section shall constitute presence in person at such meeting.
3.16 Action by Consent. Unless otherwise restricted by the Restated
-----------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or committee.
Article IV. - Officers.
-----------------------
4.1 Selection; Statutory Officers. The officers of the Corporation shall
-----------------------------
be chosen by the Board of Directors. There shall be a President, a Secretary and
a Treasurer, and there may be a Chairman of the Board of Directors, a Chief
Executive Officer, a Chief Financial Officer, a Chief Operating Officer, one or
more Executive Vice Presidents, one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers, as the Board of
Directors may elect, each to perform such duties as may be assigned to him
hereunder or by the Board of Directors. Any number of offices may be held by the
same person, unless the Restated Certificate of Incorporation or these By-Laws
otherwise provide.
<PAGE>
-11-
4.2 Time of Election. The officers above named shall be chosen by the
----------------
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
4.3 Additional Officers. 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.
4.4 Terms of Office. The officers of the Corporation shall hold office
---------------
until their successors are chosen and qualify. Any officer elected or appointed
by the stockholders may be removed at any time by the affirmative vote of a
majority of the stockholders. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
4.5 Compensation of Officers. The Board of Directors (or a duly appointed
------------------------
committee of the Board of Directors) shall have power to fix the compensation of
all officers of the Corporation.
4.6 Chairman of the Board. The Chairman of the Board of Directors, if any,
---------------------
otherwise the President, if a director, or such other director as the Board may
choose, shall preside at all meetings of the Board of Directors and of the
stockholders of the Corporation. In the absence of the President, or in the
event of the President's inability or refusal to act, the Chairman of the Board
shall perform the duties and exercise the powers of the President until such
vacancy shall be filled in the manner prescribed by these By-Laws or by law. The
Chairman of the Board shall have such other powers and perform such other duties
as may from time to time be prescribed by the Board of Directors or these By-
Laws.
4.7 President. Unless the Board of Directors otherwise determines, the
---------
President shall be the Chief Executive Officer and head of the Corporation.
Unless there is a Chairman of the Board, the President shall preside at all
meetings of directors and stockholders. Under the supervision of the Board of
Directors and of the executive committee, the President shall have the general
control and management of its business and affairs, subject, however, to the
right of the Board of Directors and of the executive committee to confer any
specific power, except such as may be by statute exclusively conferred on the
President, upon any other officer or officers of the Corporation. The President
shall perform and do all acts and things incident to the position of President
and such other duties as may be assigned to him from time to time by the Board
of Directors or the executive committee.
<PAGE>
-12-
4.8 Executive Vice Presidents and Vice Presidents. The Executive Vice
---------------------------------------------
Presidents and Vice Presidents shall perform such of the duties of the President
on behalf of the Corporation as may be respectively assigned to them from time
to time by the Board of Directors or by the executive committee or by the
President. The Board of Directors or the executive committee may designate one
of the Executive Vice Presidents as the First Executive Vice President, and in
the absence or inability of the President to act, such Executive Vice President
shall have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the Board of Directors and of the executive
committee.
4.9 Treasurer. The Treasurer shall have the care and custody of all the
---------
funds and securities of the Corporation which may come into his hands as
Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Corporation in such bank or
banks or depository as the Board of Directors or the executive committee, or the
officers or agents to whom the Board of Directors or the executive committee may
delegate such authority, may designate, and he may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation. He may
sign all receipts and vouchers for the payments made to the Corporation. He
shall render an account of his transactions to the Board of Directors or to the
executive committee as often as the Board of Directors or the committee shall
require the same. He shall enter regularly in the books to be kept by him for
that purpose full and adequate account of all moneys received and paid by him on
account of the Corporation. He shall perform all acts incident to the position
of Treasurer, subject to the control of the Board of Directors and of the
executive committee. He shall when requested, pursuant to vote of the Board of
Directors or the executive committee, give a bond to the Corporation conditioned
for the faithful performance of his duties, the expense of which bond shall be
borne by the Corporation.
4.10 Secretary. The Secretary shall keep the minutes of all meetings of
---------
the Board of Directors and of the stockholders; and shall attend to the giving
and serving of all notices of the Corporation. Except as otherwise ordered by
the Board of Directors or the executive committee, the Secretary shall attest
the seal of the Corporation upon all contracts and instruments executed under
such seal and shall affix the seal of the Corporation thereto and to all
certificates of shares of capital stock of the Corporation. The Secretary shall
have charge of the stock certificate book, transfer book and stock ledger, and
such other books and papers as
<PAGE>
-13-
the Board of Directors or the executive committee may direct. He shall, in
general, perform all the duties of Secretary, subject to the control of the
Board of Directors and of the executive committee.
4.11 Assistant Secretary. The Assistant Secretary, or if there be more
-------------------
than one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, 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.
4.12 Assistant Treasurer. The Assistant Treasurer, or if there shall be
-------------------
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, 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.
4.13 Subordinate Officers. The Board of Directors may select such
--------------------
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
4.14 Removal. Any officer elected, or agent appointed, by the Board of
-------
Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by the President may be
removed by him whenever, in his judgment, the best interests of the Corporation
would be served thereby. No elected officer shall have any contractual rights
against the Corporation for compensation by virtue of such election beyond the
date of the election of his successor, his death, his resignation or his
removal, whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.
4.15 Vacancies. A newly created elected office and a vacancy in any
---------
elected office because of death, resignation or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by
<PAGE>
-14-
the President because of death, resignation, or removal may be filled by the
President.
Article V. - Stock.
-------------------
5.1 Stock. Each stockholder shall be entitled to a certificate or
-----
certificates of stock of the Corporation in such form as the Board of Directors
may from time to time prescribe. The certificates of stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall certify the holder's name and number and class of shares
and shall be signed by both of (i) either the President or a Vice President, and
(ii) any one of the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, and shall be sealed with the corporate seal of the
Corporation. If such certificate is countersigned (l) by a transfer agent other
than the Corporation or its employee, or, (2) by a registrar other than the
Corporation or its employee, the signature of the officers of the Corporation
and the corporate seal may be facsimiles. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on, any such certificate or certificates shall cease to be such officer or
officers of the Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature shall have
been used thereon had not ceased to be such officer or officers of the
Corporation.
5.2 Fractional Share Interests. The Corporation may, but shall not be
--------------------------
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (i) arrange for the disposition of fractional
interests by those entitled thereto, (ii) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer form which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable
<PAGE>
-15-
may be sold by the Corporation and the proceeds thereof distributed to the
holders of scrip or warrants, or subject to any other conditions which the Board
of Directors may impose.
5.3 Transfers of Stock. Subject to any transfer restrictions then in
------------------
force, the shares of stock of the Corporation shall be transferable only upon
its books by the holders thereof in person or by their duly authorized attorneys
or legal representatives and upon such transfer the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers or to such other person as the
directors may designate by whom they shall be cancelled and new certificates
shall thereupon be issued. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
5.4 Record Date. For the purpose of determining the stockholders entitled
-----------
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other action. If no
such record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at any meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
<PAGE>
-16-
5.5 Transfer Agent and Registrar. The Board of Directors may appoint one
----------------------------
or more transfer agents or transfer clerks and one or more registrars and may
require all certificates of stock to bear the signature or signatures of any of
them.
5.6 Dividends.
---------
(a) Power to Declare. Dividends upon the capital stock of the
----------------
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, in promissory notes or in shares of the capital stock,
subject to the provisions of the Restated Certificate of Incorporation and
the laws of Delaware.
(b) Reserves. Before payment of any dividend, there may be set aside
--------
out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think
conducive to the interest of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
5.7 Lost, Stolen or Destroyed Certificates. No certificates for shares of
--------------------------------------
stock of the Corporation shall be issued in place of any certificate alleged to
have been lost, stolen or destroyed, except upon production of such evidence of
the loss, theft or destruction and upon indemnification of the Corporation and
its agents to such extent and in such manner as the Board of Directors may from
time to time prescribe.
Article VI. - Miscellaneous Management Provisions.
-------------------------------------------------
6.1 Checks, Drafts and Notes. All checks, drafts or orders for the payment
------------------------
of money, and all notes and acceptances of the Corporation shall be signed by
such officer or officers, agent or agents as the Board of Directors may
designate.
6.2 Notices.
-------
(a) Notices to directors may, and notices to stockholders shall, be
in writing and delivered personally or mailed to the directors or
stockholders at their addresses appearing on the books of the Corporation.
Notice by mail shall be deemed to be given at
<PAGE>
-17-
the time when the same shall be mailed. Notice to directors may also be
given by telegram, telecopy or orally, by telephone or in person.
(b) Whenever any notice is required to be given under the provisions
of the statutes or of the Restated Certificate of Incorporation of the
Corporation or of these By-Laws, a written waiver of notice, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein or the meeting or action to which such notice relates, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
6.3 Conflict of Interest. No contract or transaction between the
--------------------
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders of the Corporation entitled to vote thereon, and the contract or
transaction as specifically approved in good faith by vote of such stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
6.4 Voting of Securities owned by this Corporation. Subject always to the
----------------------------------------------
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other corporation and owned or controlled by this
Corporation may be voted in person at any meeting of security
<PAGE>
-18-
holders of such other corporation by the President of this Corporation if he is
present at such meeting, or in his absence by the Treasurer of this Corporation
if he is present at such meeting, and (ii) whenever, in the judgment of the
President, it is desirable for this Corporation to execute a proxy or written
consent in respect to any shares or other securities issued by any other
corporation and owned by this Corporation, such proxy or consent shall be
executed in the name of this Corporation by the President, without the necessity
of any authorization by the Board of Directors, affixation of corporate seal or
countersignature or attestation by another officer, provided that if the
President is unable to execute such proxy or consent by reason of sickness,
absence from the United States or other similar cause, the Treasurer may execute
such proxy or consent. Any person or persons designated in the manner above
stated as the proxy or proxies of this Corporation shall have full right, power
and authority to vote the shares or other securities issued by such other
corporation and owned by this Corporation the same as such shares or other
securities might be voted by this Corporation.
6.5 Inspection of Books. The stockholders of the Corporation, by a
-------------------
majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Corporation except as conferred by
statute or authorized by the Board of Directors or by a resolution of the
stockholders.
Article VII. - Indemnification.
------------------------------
7.1 Right to Indemnification. Each person who was or is made a party or is
------------------------
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of being or having been a director or officer of the
Corporation or serving or having served at the request of the Corporation as a
director, trustee, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (an "Indemnitee"), whether the basis of such
proceeding is alleged action or failure to act in an official capacity as a
director, trustee, officer, employee or agent or in any other capacity while
serving as a director, trustee, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General
<PAGE>
-19-
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto) (as used in this Article VII, the "Delaware Law"), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith and such indemnification
shall continue as to an Indemnitee who has ceased to be a director, trustee,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators; provided, however, that, except as provided
in Section 7.2 hereof with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a Proceeding (or part thereof) initiated by such Indemnitee only
if such Proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article VII
shall be a contract right and shall include the right to be paid by the
Corporation the expenses (including attorneys' fees) incurred in defending any
such Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires, an
Advancement of Expenses incurred by an Indemnitee shall be made only upon
delivery to the Corporation of an undertaking (an "Undertaking"), by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "Final Adjudication") that such Indemnitee is not
entitled to be indemnified for such expenses under this Article VII or
otherwise.
7.2 Right of Indemnitee to Bring Suit. If a claim under Section 7.1 hereof
---------------------------------
is not paid in full by the Corporation within sixty days after a written claim
has been received by the Corporation, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has
<PAGE>
-20-
not met the applicable standard of conduct set forth in the Delaware Law.
Neither the failure of the Corporation (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the Indemnitee is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct set forth in the Delaware Law, nor an actual determination
by the Corporation (including its board of directors, independent legal counsel,
or its stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VII or otherwise shall be on the Corporation.
7.3 Non-Exclusivity of Rights. The rights to indemnification and to the
-------------------------
Advancement of Expenses conferred in this Article 7 shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Restated Certificate of Incorporation, By-Law,
agreement, vote of stockholders or disinterested directors or otherwise.
7.4 Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under this Article VII or under the Delaware Law.
7.5 Indemnification of Employees and Agents of the Corporation. The
----------------------------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the Advancement of Expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
Article VIII. - Amendments.
---------------------------
8.1 Amendments. Subject always to any limitations imposed by the
----------
Corporation's Restated Certificate of Incorporation, these By-Laws may be
altered, amended, or repealed, or new By-Laws may be adopted, only by (i) the
affirmative vote of the holders of at least three-quarters (75%) of the
outstanding voting stock of the Corporation (in addition to any separate class
vote that may be required pursuant to the terms of any then outstanding
preferred stock of the Corporation), or (ii) by resolution of the Board of
Directors duly adopted by not less than a majority of the directors then
constituting the full Board of Directors.
<PAGE>
Exhibit 10.2
Revolving Credit and Security Agreement
THIS AGREEMENT (the "Agreement"), dated as of August 25, 1997 between PRA
---------
International, Inc., a Delaware corporation ("Borrower"), and FIRST UNION
--------
NATIONAL BANK, a national banking association ("Bank");
----
W I T N E S S E T H :
In consideration of the premises and of the mutual covenants herein
contained and to induce Bank to extend credit to Borrower, the parties agree as
follows:
1. Definitions. In addition to terms defined elsewhere in this
-----------
Agreement, the following terms have the meanings indicated:
1.1. Defined Terms.
-------------
"Account" shall mean any account receivable, domestic and
-------
foreign, presented for payment ("Billed") and not yet presented for payment but
booked and reported as an "unbilled" account receivable ("Unbilled"), including
any rights of payment for goods sold or leased or for services rendered, which
is not evidenced by an instrument or chattel paper, whether or not it has been
earned by performance, and in addition includes all property included in the
definition of "accounts" as used in the Code, together with any guaranties,
letters of credit and other security therefor.
"Account Debtor" shall mean a Person who is obligated under any
--------------
Account, Chattel Paper, General Intangible or instrument (as instrument is
defined in the Code).
"Accounts Payable Report" shall mean reports listing all
-----------------------
accounts payable of Borrower and Guarantors as of the last day of any month in
reasonable detail and in form acceptable to Bank.
"Accounts Receivable Report" shall mean reports in the forms
--------------------------
attached as Exhibit A hereto.
---------
"Advance" shall mean an advance of proceeds of the Loan to
-------
Borrower pursuant to this Agreement.
"Advance Date" shall mean the date on which an Advance is made.
------------
"Advance Request" shall mean the written request for an Advance
---------------
under the Loan as identified in Subsection 3.4(b) hereof and shall also include
presentments triggering an automatic Advance, as described in Subsection 3.4(a).
"Affiliate" of a Person shall mean (a) any Person directly or
---------
indirectly owning 10% or more of the voting stock or rights of such named Person
or of which the named Person owns 10% or more of such voting stock or rights;
(b) any Person controlling, controlled by or under common control with such
named Person; (c) any officer or director of such named Person or any Affiliates
of the named Person; and (d) any family member of the named Person or any
Affiliate of such named Person.
<PAGE>
"Associates" means Pharmaceutical Research Associates, Inc.,
----------
a Virginia corporation.
"Available Balance" shall mean at any time (i) without
-----------------
duplication, all funds on deposit in the Special Loan Account at such time which
Bank, in accordance with its standard practices for posting of debits and
credits to demand deposit accounts of a type similar to the Special Loan
Account, deems to be collected funds, including, without limitation, all wire
transfers credited to the Special Loan Account at such time and all other
Federal or other immediately available funds on deposit in or deposited into the
Special Loan Account at such time less (ii) the sum of all interest, fees and
other Indebtedness related to the Loan due and payable at such time.
"Borrowing Base" shall mean at any time the sum of (i) 85% of
--------------
Borrower and Guarantors' Billed Eligible Accounts and (ii) the lesser of a) 60%
of Borrower and Guarantors' Unbilled Eligible Accounts or b) $2,500,000.
"Borrowing Base Certificate" shall mean a certificate executed
--------------------------
by the chief financial officer or President of Borrower, in the form attached as
Exhibit B hereto, certifying the accuracy and completeness of an Accounts
- ---------
Receivable Report, and showing the Borrowing Base at any particular time.
"Business Day" shall mean a weekday on which commercial banks
------------
are open for business in McLean, Virginia.
"Chattel Paper" shall mean all writing or writings which
-------------
evidence both a monetary obligation and a security interest in or lease of
specific goods and in addition includes all property included in the definition
of "chattel paper" as used in the Code, together with any guaranties, letters of
credit and other security therefor.
"Code" shall mean the Uniform Commercial Code, as in effect in
----
the Commonwealth of Virginia from time to time.
"Collateral" shall mean the following property of Borrower and
----------
Guarantors, wherever located and whether now owned by Borrower and Guarantors or
hereafter acquired: (a) all Inventory; (b) all General Intangibles; (c) all
Accounts and Chattel Paper and any other instrument or intangible representing
payment for goods or services; (d) any other collateral described in Exhibit
-------
1.1A hereto (if any) or in which Bank may be hereafter granted a security
- ----
interest or Lien; (e) all funds in the Special Loan Account or otherwise on
deposit with or under the control of Bank or its agents or correspondents; and
(f) all parts, replacements, substitutions, profits, products and cash and non-
cash proceeds of any of the foregoing (including insurance proceeds payable by
reason of loss or damage thereto) in any form and wherever located. Collateral
shall include all written or electronically recorded books and records relating
to any such Collateral and other rights relating thereto. Collateral shall not
mean the property of Pharmaceutical Research Associates, GmbH or Pharm Research
Associates (UK) Limited.
"Crucible" shall mean The Crucible Group, Inc., a Georgia
--------
corporation.
"Debt" shall mean all liabilities of a Person as determined
----
under GAAP (as defined in Section 1.2) and all obligations which such Person has
guaranteed or endorsed or is
2
<PAGE>
otherwise secondarily or jointly liable for, and shall include, without
limitation (a) all obligations for borrowed money or purchased assets, (b)
obligations secured by assets whether or not any personal liability exists, (c)
the capitalized amount of any capital or finance lease obligations, (d) the
unfunded portion of pension or benefit plans or other similar liabilities, (e)
obligations as a general partner, (f) contingent obligations pursuant to
guaranties, endorsements, letters of credit and other secondary liabilities in
respect of the Debt (as that termed is defined herein) of others, and (g)
obligations for deposits.
"Default Rate" shall mean the meaning ascribed to that term in
------------
the Note.
"Eligible Accounts" shall mean all Accounts of Borrower and
-----------------
each Guarantor (valued net of any sales tax, finance charge or late payment
charge included in the invoiced amount, and reduced by the maximum amount of any
discounts or other reductions) the terms for which provide or will provide that
they are to be payable not more than thirty (30) days after the date of invoice
and as to which Bank has a first priority perfected security interest subject
only to Permitted Liens, excluding (a) Accounts outstanding for ninety (90) days
or more from the date of invoice; (b) all Accounts owed by an Account Debtor if
more than 50% of the Accounts owed by such Account Debtor (or any Affiliate) to
Borrower or Guarantor are not deemed Eligible Accounts hereunder; (c) Accounts
owing from any Affiliate of Borrower or Guarantor; (d) Accounts which are the
subject of a good-faith dispute or subject to any good-faith counterclaim,
contra-account or offset; (e) Accounts owing by any Account Debtor which is
generally unable to pay its debts as they become due; (f) Accounts arising from
a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or similar basis or which is subject to repurchase, return,
rejection, repossession, loss or damage; (g) Accounts owed by an Account Debtor
that are payable from a location outside the United States, unless the Account
is secured by a letter of credit, or insured by credit insurance, acceptable to
Bank that is assigned to Bank; (h) Accounts owed by the United States of America
or an agency or department thereof in an aggregate amount greater than $250,000
unless Borrower or Guarantor shall have assigned such Account to Bank so as to
comply with the federal Assignment of Claims Act;(i) Accounts owed by an Account
Debtor and its Affiliates for which Bank in its reasonable judgment has
established a credit limit (to the extent the Accounts of such Account Debtor
and its Affiliates exceed such limit); (j) Accounts evidenced by a note or other
instrument, or Chattel Paper or reduced to judgment; (k) With respect to any
Account relating to an individual contract or agreement that exceeds, in dollar
terms, 20% of the total Accounts of Borrower and Guarantors, the excess amount
of such Account; (l) With respect to any Account Debtor or its Affiliates' whose
aggregate Accounts exceed, in dollar terms, 33% of the total Accounts of
Borrower and Guarantors, the excess of such Account Debtor or its Affiliates'
Accounts; (m) Accounts which, by contract, subrogation, mechanics' lien laws or
otherwise, are subject to good faith claims by Borrower or each Guarantor's
creditors or other third parties or which are owed by Account Debtors as to whom
any creditor of Borrower or each Guarantor (including any bonding company) has
lien rights; (n) Accounts owed by an Account Debtor which is located in a state
where Borrower or Guarantor is required to qualify to transact business or to
file reports in order to enforce its rights to collect such accounts, unless
Borrower or Guarantor has so qualified or filed; (o) Accounts owed by an Account
Debtor who disputes its liability therefor in good faith; and (p) Accounts owed
by an Account Debtor that shall take or be the subject of any action or
proceeding of the type described in Section 8.1(d) or (e). No Accounts shall be
Eligible Accounts if any representation, warranty or covenant herein relating
thereto shall be in default.
3
<PAGE>
"Equipment" shall mean all furniture, fixtures, equipment,
---------
motor vehicles, rolling stock and other tangible property of every description,
except Inventory, and in addition includes all property included in the
definition of "equipment" as used in the Code.
"Event of Default" shall mean any event specified as such in
----------------
Section 8.1 hereof ("Events of Default"), provided that there shall have been
-----------------
satisfied any requirement in connection with such event for the giving of notice
or the lapse of any cure period, or both; "Default" or "default" shall mean
-------
any of such events, whether or not any such requirement for the giving of notice
or the lapse of time or the happening of any further condition, event or act
shall have been satisfied.
"General Intangibles" shall mean all intangible personal
-------------------
property (including things in action) except Accounts, Chattel Paper and
instruments (as defined in the Code), including all contract rights, copyrights,
trademarks, trade names, service marks, patents, patent drawings, designs,
formulas, rights to a Person's name itself, customer lists, franchise rights,
rights to all prepaid expenses, marketing expenses, rights to receive future
contracts, fees, commissions and orders relating in any respect to any business
of a Person, all licenses and permits, all computer programs and other software
owned by a Person or which a Person has the right to use, and all rights for
breach of warranty or other claims for funds to which a Person may be entitled,
and in addition includes all property included in the definition of "general
intangibles" as used in the Code. General Intangibles shall not include
certificated and uncertificated securities.
"Guarantor" shall mean Associates, IMTCI and Crucible and any
---------
Person now or hereafter guaranteeing, endorsing or otherwise becoming liable for
any Indebtedness. Each Guarantor is a Subsidiary (as hereinafter defined).
"Guaranty Agreement" shall mean any guaranty instrument now or
------------------
hereafter executed and delivered by any Guarantor to Bank, as it may be
modified.
"IMTCI" shall mean International Medical Technical Consultants
-----
Inc., a Kansas corporation.
"Indebtedness" shall mean all obligations now or hereafter owed
------------
to Bank by Borrower, whether related or unrelated to the Loan, including,
without limitation, amounts owed or to be owed under the terms of the Loan
Documents, or arising out of the transactions described therein, including,
without limitation, the Loan, sums advanced to pay overdrafts on any account
maintained by Borrower with Bank, reimbursement obligations for outstanding
letters of credit or banker's acceptances issued for the account of Borrower or
its Subsidiaries, amounts paid by Bank under letters of credit or drafts
accepted by Bank for the account of Borrower or its Subsidiaries, together with
all interest accruing thereon, all fees under the Loan Documents, all reasonable
costs of collection, attorneys' fees and expenses of or advances by Bank which
Bank pays or incurs in discharge of obligations of Borrower or to repossess,
protect, preserve, store or dispose of any Collateral, whether such amounts are
now due or hereafter become due, direct or indirect and whether such amounts due
are from time to time reduced or entirely extinguished and thereafter re-
incurred.
"Inventory" shall mean all goods, merchandise and other
---------
personal property which is held for sale or lease or furnished or to be
furnished under a contract for services or raw materials, and all work in
process and materials used or consumed or to be used or consumed in a
4
<PAGE>
Person's business, and in addition, includes all property included in the
definition of "inventory" as used in the Code.
"Item" shall mean any "item" as defined in Section 4-104 of
----
the Code, and shall also mean and include checks, drafts, money orders or other
media of payment.
"Lien" shall mean any mortgage, pledge, statutory lien or
----
other lien arising by operation of law, security interest, trust arrangement,
security deed, financing lease, collateral assignment or other encumbrance,
conditional sale or title retention agreement, or any other interest in property
designed to secure the repayment of Indebtedness, whether arising by agreement
or under any statute or law or otherwise.
"Loan" shall mean the revolving loan identified in Section
----
hereof.
"Loan Documents" shall mean this Agreement, any other Security
--------------
Agreement, any Note, any Guaranty Agreement, the Advance Requests, Borrowing
Base Certificates, UCC-1 financing statements and all other documents and
instruments now or hereafter evidencing, describing, guaranteeing or securing
the Indebtedness contemplated hereby or delivered in connection herewith, as
they may be modified.
"Maximum Loan Amount" shall mean $7,500,000.00.
-------------------
"Note" shall mean the Revolving Note, as defined in Section 3.2
----
and any other promissory note now or hereafter evidencing any Indebtedness, and
all modifications, extensions and renewals thereof.
"Permitted Debt" shall mean (a) the Indebtedness; (b) current
--------------
liabilities of Borrower and its Subsidiaries incurred in the ordinary course of
business not incurred through (i) the borrowing of money, or (ii) the obtaining
of credit except for credit on an open account basis customarily extended and in
fact extended in connection with normal purchases of goods and services; (c)
Debt in respect of taxes, assessments, governmental charges or levies and claims
for labor, materials and supplies to the extent that payment therefor shall not
at the time be required to be made in accordance with the provisions of Section
5.8; (d) endorsements for collection, deposit or negotiation and warranties of
products or services, in each case incurred in the ordinary course of business;
(e) obligations under capitalized leases not exceeding $2,500,000 in aggregate
amount at any time outstanding; (f) Debt for borrowed money of Pharmaceutical
Research Associates, GmbH or Pharm Research Associates (UK) Limited secured
against the assets of Pharmaceutical Research Associates, GmbH or Pharm Research
Associates (UK) Limited, but not the Collateral, provided that the aggregate
--------
principal amount of such Debt shall not exceed the amount of $2,500,000 at any
one time; (g) Debt for borrowed money of Borrower and its Subsidiaries, provided
--------
that the aggregate principal amount of such Debt shall not exceed the amount of
$350,000 at any one time; (h) Debt of Borrower and its Subsidiaries existing on
the date of this Agreement, all of which is listed and described on Exhibit
-------
1.1C, and any extensions, renewals replacements, modifications and refundings of
- ----
such Debt, provided that the aggregate amount of such Debt may not be increased
--------
from the amount shown as outstanding on such Exhibit;(i) Subordinated Debt in
addition to the Debt listed on Exhibit 1.1C provided the aggregate principal
------------
amount of such additional Debt shall not exceed $2,000,000 at any one time; (j)
unsecured Debt for internal loans among Borrower and Guarantors; and (k) Debt in
respect of judgments and awards that have been in force for less than the
applicable period for taking an appeal so long as execution is not levied
thereunder or in respect of which Borrower or its applicable
5
<PAGE>
Subsidiary shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review.
"Permitted Liens" shall mean (a) Liens securing the
---------------
Indebtedness; (b) Liens on the assets of Pharmaceutical Research Associates,
GmbH or Pharm Research Associates (UK) Limited securing the Permitted
Indebtedness referred to in clause (f) of the definition thereof; (c) Liens to
secure taxes, assessments and other government charges in respect of obligations
not overdue or liens on properties to secure claims for labor, material or
supplies in respect of obligations not overdue; (d) deposits or pledges made in
connection with, or to secure payment of, workmen's compensation, unemployment
insurance, old age pensions or other social security obligations; (e) liens of
carriers, warehousemen, mechanics and materialmen, and other like liens on
properties, in existence less than 120 days from the date of creation thereof in
respect of obligations not overdue; (f) encumbrances consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's liens
under leases to which Borrower or a Subsidiary of Borrower is a party, and other
minor liens or encumbrances none of which in the opinion of Borrower interferes
materially with the use of the property affected in the ordinary conduct of the
business of Borrower and its Subsidiaries which defects do not individually or
in the aggregate have a materially adverse effect on the business of Borrower
individually or of Borrower and its Subsidiaries on a consolidated basis; (g)
presently outstanding liens listed on Exhibit 1.1D hereto; and (h) Liens on the
------------
assets of Borrower or Guarantors securing the Permitted Indebtedness referred to
in clauses (g) and (k) of the definition thereof.
"Person" shall mean any natural person, corporation,
------
unincorporated organization, trust, joint-stock company, joint venture,
association, company, limited or general partnership, any government or any
agency or political subdivision of any government, or any other entity or
organization.
"Revolving Credit Period" shall mean the period from and
-----------------------
including the date of this Agreement to but not including the Termination Date.
"Security Agreement" shall mean this Agreement as it relates to
------------------
a security interest in the Collateral, and any other mortgage, security
agreement or similar instrument now or hereafter executed by Borrower, the
Guarantors, or other Person granting Bank a security interest in any Collateral
to secure the Indebtedness.
"Special Loan Account" shall mean the demand deposit account
--------------------
established pursuant to Section 3.3 hereof.
"Subordinated Debt" shall mean Debt of Borrower, each
-----------------
Guarantor, or any Subsidiary that is by its terms expressly subordinated and
made junior to the payment and performance in full of the Indebtedness, on the
terms and conditions no less favorable to Bank than the subordination provisions
currently contained in the Permitted Debt listed under the heading "Subordinated
Debt" on Exhibit 1.1C.
------------
"Subsidiary" shall mean any corporation, partnership or other
----------
Person in which Borrower, directly or indirectly, owns more than fifty percent
(50%) of the stock, capital or income interests, or other beneficial interests,
or which is effectively controlled by Borrower.
6
<PAGE>
"Termination Date" shall mean June 30, 1999.
----------------
1.2. Financial Terms. All financial terms used herein shall have the
---------------
meanings assigned to them under generally accepted accounting principles in the
United States ("GAAP") unless another meaning shall be specified.
----
2. Representations and Warranties. In order to induce Bank to enter into
------------------------------
this Agreement and to make the Loan provided for herein, Borrower makes the
following representations and warranties, all of which shall survive the
execution and delivery of the Loan Documents. Unless otherwise specified, such
representations and warranties shall be deemed made as of the date hereof and as
of the Advance Date of any Advance by Bank to Borrower:
2.1. Valid Existence and Power. Borrower, each Guarantor and each
-------------------------
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and is duly
qualified or licensed to transact business in all places where the failure to be
so qualified would have a material adverse effect on it. Borrower and each
other Person which is a party to any Loan Document (other than Bank) has the
power to make and perform the Loan Documents executed by it and all such
instruments will constitute the legal, valid and binding obligations of such
Person, enforceable in accordance with their respective terms, subject only to
bankruptcy and similar laws affecting creditors' rights generally.
2.2. Authority. The execution, delivery and performance thereof by
---------
Borrower and each other Person (other than Bank) executing any Loan Document
have been duly authorized by all necessary action of such Person, and do not and
will not violate any provision of law or regulation, or any writ, order or
decree of any court or governmental or regulatory authority or agency or any
provision of the governing instruments of such Person, and do not and will not,
with the passage of time or the giving of notice, result in a breach of, or
constitute a default or require any consent under, or result in the creation of
any Lien upon any property or assets of such Person pursuant to, any law,
regulation, instrument or agreement to which any such Person is a party or by
which any such Person or its respective properties may be subject, bound or
affected, except as described on Exhibit 2.2 (if any).
-------
2.3. Financial Condition. Other than as disclosed in financial
-------------------
statements delivered on or prior to the date hereof to Bank, neither Borrower
nor any Subsidiary nor any Guarantor has any material direct or contingent
obligations or liabilities (including any guarantees or leases) or any material
unrealized or anticipated losses from any commitments of such Person except as
described on Exhibit (if any). All such financial statements have been
-------
prepared in accordance with GAAP and fairly present the financial condition of
Borrower, Subsidiary or Guarantor, as the case may be, as of the date thereof.
Borrower is not aware of any material adverse fact (other than facts which are
generally available to the public and not particular to Borrower, such as
general economic or industry trends) concerning the conditions or future
prospects of Borrower or any Subsidiary or any Guarantor which has not been
fully disclosed to Bank, including any adverse change in the operations or
financial condition of such Person since the date of the most recent financial
statements delivered to Bank. Borrower and each Guarantor (other than Crucible)
is solvent, and after consummation of the transactions set forth in this
Agreement and the other Loan Documents, Borrower and each Guarantor (other than
Crucible) will be solvent. Borrower, Guarantors and, Subsidiaries, taken as a
whole, are solvent, and after consummation of the transactions set forth in this
Agreement and the other Loan Documents, Borrower, Guarantor and, Subsidiaries,
taken as a whole, will be solvent.
7
<PAGE>
2.4. Litigation. Except as disclosed on Exhibit 2.4 (if any), there are
---------- -----------
no suits or proceedings pending, or to the knowledge of Borrower threatened,
before any court or by or before any governmental or regulatory authority,
commission, bureau or agency or public regulatory body against or affecting
Borrower, any Subsidiary or any Guarantor, or their assets, which if adversely
determined would have a material adverse effect on the financial condition or
business of Borrower, such Subsidiary or such Guarantor, taken as a whole.
2.5. Agreements, Etc. Neither Borrower nor any Guarantor nor any
---------------
Subsidiary is a party to any agreement or instrument or subject to any court
order, governmental decree or any charter or other corporate restriction,
materially adversely affecting its business, assets, operations or condition
(financial or otherwise) taken as a whole, nor is any such Person in default in
the performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any agreement or instrument to which it is
a party, or any law, regulation, decree, order or the like.
2.6. Authorizations. All authorizations, consents, approvals and
--------------
licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by Borrower, any Guarantor, or any
Subsidiary or for the conduct of any business in which it is engaged have been
duly issued and are in full force and effect except where a failure to obtain
same would not have a material adverse effect on such Person, taken as a whole,
and it is not in default, nor has any event occurred which with the passage of
time or the giving of notice, or both, would constitute a default, under any of
the terms or provisions of any part thereof, or under any order, decree, ruling,
regulation, closing agreement or other decision or instrument of any
governmental commission, bureau or other administrative agency or public
regulatory body having jurisdiction over such Person, which default would have a
material adverse effect on such Person. Except as noted herein, no approval,
consent or authorization of, or filing or registration with, any governmental
commission, bureau or other regulatory authority or agency is required with
respect to the execution, delivery or performance of any Loan Document.
2.7. Title. Borrower, each Guarantor, and each Subsidiary has good title
-----
to all of the assets shown in its financial statements free and clear of all
Liens, except Permitted Liens and except for assets sold or otherwise disposed
of in the ordinary course of business since that date in compliance with the
terms of this Agreement. Borrower and each Guarantor has full ownership rights
in all Collateral.
2.8. Collateral. The security interests granted to Bank herein and
----------
pursuant to any other Security Agreement (a) constitute and, as to subsequently
acquired property included in the Collateral covered by the Security Agreement,
will constitute, security interests under the Code entitled to all of the
rights, benefits and priorities provided by the Code and (b) are, and as to such
subsequently acquired Collateral will be, fully perfected (except with regard to
property in which a security interest cannot be perfected by the filing of a
financing statement in accordance with the Code), superior and prior to the
rights of all third persons, now existing or hereafter arising, subject only to
Permitted Liens. All of the Collateral is intended for use in Borrower's, each
Guarantor's and each Subsidiary's businesses.
2.9. Location. The chief executive office of Borrower and each Guarantor
--------
where Borrower's and each Guarantor's business records are located, all of
Borrower's and each Guarantor's other places of business and any other places
where any Collateral is kept, are all located at the addresses indicated on
Exhibit 2.9. The Collateral is located, and shall at all times be kept and
- -----------
8
<PAGE>
maintained only, at Borrower's and each Guarantor's location or locations as
described on Exhibit 2.9 herein or as notified in accordance with (S)6.8 hereof.
-----------
No such Collateral is attached or affixed to any real property so as to be
classified as a fixture unless Bank has otherwise agreed in writing.
2.10. Taxes. Borrower, each Guarantor, and each Subsidiary have filed
-----
all federal and state income and other tax returns which are required to be
filed, and have paid all taxes as shown on said returns and all taxes, including
withholding, FICA and ad valorem taxes, shown on all assessments received by it
-- -------
to the extent that such taxes have become due, except those, if any, being
contested in good-faith and by appropriate proceedings. Neither Borrower nor
any Subsidiary is subject to any federal, state or local tax Liens nor has such
Person received any notice of deficiency or other official notice to pay any
taxes, except those, if any, being contested in good-faith and by appropriate
proceedings. Borrower, each Guarantor, and each Subsidiary have paid all sales
and excise taxes payable by it, except those, if any, being contested in good-
faith and by appropriate proceedings. Notwithstanding (and as exception to) the
foregoing (S) 2.10, Guarantors and Subsidiaries, taken as a whole, shall be
entitled to have outstanding taxes in an aggregate amount not to exceed $25,000
at any one time.
2.11. Labor Law Matters. No goods or services, have been or will be
-----------------
produced by Borrower, each Guarantor, or any Subsidiary in violation of any
applicable labor laws or regulations or any collective bargaining agreement or
other labor agreements or in violation of any minimum wage, wage-and-hour or
other similar laws or regulations.
2.12. Accounts. Each Account, instrument, Chattel Paper and other
--------
writing that in each case constitutes any portion of the Collateral (a) is
genuine and enforceable in accordance with its terms except for such limits
thereon arising from bankruptcy and similar laws relating to creditors' rights;
(b) is not subject to any defense, set off, claim or counterclaim of a material
nature against Borrower or each Guarantor except as to which Borrower or each
Guarantor has notified Bank in writing; (c) is not subject to any other
circumstances that would impair the validity, enforceability or amount of such
Collateral except as to which Borrower or each Guarantor has notified Bank in
writing; (d) arises from a bona fide sale of goods or delivery of services in
---- ----
the ordinary course and in accordance with the terms and conditions of any
applicable purchase order, contract or agreement; and (e) is for a liquidated
amount maturing as stated in the invoice therefor. As an exception to the
foregoing, Borrower, Guarantors and Subsidiaries, taken as a whole, shall be
entitled to noncompliances to (S) 2.12(a)-(e), the aggregate effect of which
will not to exceed $200,000 (Borrower may seek permission from Bank for
aggregate noncompliances in excess of $200,000, but such permission will be
granted or withheld in Bank's absolute discretion). Notwithstanding this
exception, each Account included in any Advance Request, Borrowing Base
Certificate, report or other document as an Eligible Account meets all the
requirements set forth in (S) 2.12(a)-(e).
2.13. Judgment Liens. Neither Borrower, nor any Guarantor, nor any
--------------
Subsidiary, nor any of their assets, are subject to any unpaid judgments or any
judgment liens (other than Permitted Liens) in any jurisdiction.
2.14. Subsidiaries. The Borrower's Subsidiaries, including the
------------
Guarantors, are listed on Exhibit 2.14.
------------
2.15. Hazardous Materials. To the best of Borrower's knowledge,
-------------------
Borrower, each Guarantor, and each Subsidiary's property and improvements
thereon have not in the past been used
9
<PAGE>
by such Person, are not presently being used, and will not in the future be used
for, nor does Borrower, any Guarantor, or any Subsidiary engage in, the
handling, storage, manufacture, disposition, processing, transportation, use or
disposal of any material amount of hazardous or toxic materials that is not in
material compliance with applicable environmental law except for noncompliances
that would not have a material adverse effect on such Person, taken as a whole.
2.16. ERISA. Borrower and each Guarantor has furnished to Bank true and
-----
complete copies of the latest annual report required to be filed pursuant to
Section 104 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to each employee benefit plan or other plan maintained
-----
for employees of Borrower, each Guarantor, or any Subsidiary and covered by
Title IV of ERISA (a "Plan"), and no Termination Event (as hereinafter defined)
----
with respect to any Plan has occurred and is continuing. For the purposes of
this Agreement, a "Termination Event" shall mean a "reportable event" as defined
-----------------
in Section 4043(b) of ERISA, or the filing of a notice of intent to terminate
under Section 4041 of ERISA. Neither Borrower nor any Guarantor nor any
Subsidiary has any unfunded liability with respect to any such Plan.
2.17. Investment Company Act. Neither Borrower nor any Guarantor nor any
----------------------
Subsidiary is an "investment company" as defined in the Investment Company Act
of 1940, as amended.
2.18. Additional Representations. Any additional representations or
--------------------------
warranties set forth on Exhibit 2.18 (if any) hereto are true and correct in all
------------
material respects.
2.19. Perfection Questionnaire. All representations, warranties and
------------------------
statements made by Borrower and each Guarantor in the Perfection Questionnaire
executed and delivered by Borrower and each Guarantor to Bank in connection with
the Loan are true and correct as of the date hereof.
3. The Loan.
--------
3.1. Revolving Loan. Bank agrees, on the terms and conditions set forth
--------------
in this Agreement, to make Advances to Borrower from time to time during the
Revolving Credit Period in amounts such that the aggregate principal amount of
Advances at any one time outstanding will not exceed the lesser of (i) the
Maximum Loan Amount and (ii) the Borrowing Base. Within the foregoing limit,
Borrower may borrow, prepay and reborrow Advances at any time during the
Revolving Credit Period.
3.2. Revolving Note. The Loan shall be evidenced by and payable in
--------------
accordance with the terms of a promissory note in the face amount of the Maximum
Loan Amount (the "Revolving Note").
--------------
3.3. Special Loan Accounts. Borrower shall instruct and cause the
---------------------
Guarantors to instruct all Account Debtors and other Persons obligated in
respect of Accounts and other Collateral to make all payments in respect of the
Accounts or other Collateral directly to Bank (by instructing that such payments
be remitted to a post office box which shall be in the name and under the
control of Bank). Except as provided in Section 9.2 of this Agreement, all such
payments made to Bank shall be deposited in Special Loan Accounts. The Special
Loan Accounts shall be created in accordance with the schematic attached as
Exhibit 3.3 hereto. Borrower shall pay Bank's standard fees and charges in
- -------
connection with such lock-box arrangements, as such fees and charges may change
from time to
10
<PAGE>
time. Borrower further agrees that if the proceeds of any Collateral (including
the payments made in respect of Accounts) shall be received by it or the
Guarantors, Borrower shall deposit and shall cause the Guarantors to deposit,
such proceeds in the Special Loan Accounts as promptly as possible, unless
Section 9.2 of this Agreement shall require otherwise. Until so deposited, all
such proceeds shall be held in trust by Borrower and each Guarantor for and as
the property of Bank and shall not be commingled with any other funds or
property of Borrower or each Guarantor. Borrower, on behalf of itself and each
Guarantor, hereby irrevocably authorizes and empowers Bank, its officers,
employees and authorized agents to endorse and sign its name on all checks,
drafts, money orders or other media of payment so delivered, and such
endorsements or assignments shall, for all purposes, be deemed to have been made
by Borrower or each Guarantor prior to any endorsement or assignment thereof by
Bank.
3.4. Advances.
--------
(a) If on any Business Day Items are presented to Bank for payment against
the Special Loan Account, which Items, in the aggregate, would, if paid in full,
cause the Available Balance in the Special Loan Account on such day to be less
than $0, such presentment shall be deemed to be a request by Borrower for an
Advance on the date of such presentment in an amount equal to the amount
(rounded upward to the nearest multiple of $1,000) required to cause such
Available Balance to equal $0. Bank shall make an Advance by depositing such
amount deemed requested to the Special Loan Account.
(b) Bank shall accept from Borrower a signed written request for an
Advance in form attached as Exhibit 3.4 hereto, which request shall be delivered
-------
to Bank no later than 2.00 p.m. (local time McLean, Virginia) on the date of the
requested Advance, and shall set forth the calculation of the Borrowing Base and
a reconciliation to the previous request or Borrowing Base Certificate, specify
the date (which shall be a Business Day) and the amount of the proposed Advance
and provide such other information as Bank may require. Bank's acceptance of
such a request shall be indicated by its making the Advance requested. Such an
Advance shall be made available to Borrower in immediately available funds at
Bank's address referred to in Section 10.4.
3.5. Fees.
----
(a) Borrower shall pay to Bank a non-refundable facility fee in the amount
of $37,500, of which $18,500 was paid on June 11, 1997, with the remaining
$19,000 payable on the date of this Agreement.
(b) Borrower shall pay to Bank a commitment fee for each day at a rate per
annum equal to the product of (i) one-quarter of one percent (.0025%) multiplied
by (ii) the amount by which the Maximum Loan Amount exceeds the outstanding
amount of the Advances on such day, payable quarterly on the first day of each
calendar quarter with respect to the immediately preceding quarter.
3.6. Repayment of Loan.
-----------------
(a) If on any Business Day, after the payment of Items presented to Bank
for payment against the Special Loan Account, the Available Balance is greater
than $0, Bank shall apply such excess against the outstanding principal balance
of the Note.
11
<PAGE>
(b) Borrower may, upon at least one Business Day's notice to Bank, prepay
the principal amount of the Loan, in whole at any time, or from time to time in
part, by paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment.
(c) The Loan shall mature, and the principal amount thereof and all
interest, fees, expenses and other amounts payable under the Loan Documents
shall be due and payable, on the Termination Date.
(d) Bank may debit the Special Loan Account and/or make Advances to
Borrower (whether or not in excess of the lesser of the Maximum Loan Amount and
the Borrowing Base) and apply such amounts to the payment of interest and
reasonable fees, expenses and other amounts to which Bank may be entitled from
time to time pursuant to the Loan Documents and Bank is hereby irrevocably
authorized to do so without the consent of, but with prompt notice to, Borrower.
(e) Borrower shall make each payment of principal of and interest on the
Loan and fees hereunder not later than 2.00 p.m. (McLean, Virginia) on the date
when due, without set off, counterclaim or other deduction, in immediately
available funds to Bank at its address referred to in Section 10.4. Whenever
any payment of principal of, or interest on, the Loan or of fees shall be due on
a day which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
3.7. Overdue Amounts. Any payments not made as and when due shall bear
---------------
interest from the date due until paid at the Default Rate.
3.8. Calculation of Interest. All interest under the Note or hereunder
-----------------------
shall be calculated on the basis of the Actual/360 Computation, as defined in
the Note.
3.9. Sales Tax. Borrower shall notify Bank if any Account includes any
---------
sales or other similar tax and Bank may, but shall not be obligated to, remit
any such taxes directly to the taxing authority and make Advances or charge the
Special Loan Account therefor. In no event shall Bank be liable for any such
taxes.
3.10. Letters of Credit; Banker's Acceptances.
---------------------------------------
(a) At its discretion Bank may from time to time issue, extend or
renew letters of credit and banker's acceptances for the account of Borrower or
its Subsidiaries. The availability of Advances under the Loan shall be reduced
by outstanding obligations of Bank under any letters of credit and banker's
acceptances. All payments made by Bank under any such letters of credit or
banker's acceptances (whether or not Borrower is the account party or drawer)
and all fees, commissions, discounts and other amounts owed or to be owed to
Bank in connection therewith, shall be deemed to be Advances under the Note,
shall be secured by the Collateral, and shall be repaid on demand. Borrower
shall complete and sign such applications and supplemental agreements and
provide such other documentation as Bank may require. The form and substance of
all letters of credit and acceptances, including expiration dates, shall be
subject to Bank's approval. Bank may charge a fee or commission for issuance,
renewal or extension of a letter of credit or acceptance. Borrower
unconditionally guarantees all obligations of any Subsidiary with respect to
letters of credit issued by Bank for the account of such Subsidiary and all
acceptances of any Subsidiaries' drafts. Upon an Event
12
<PAGE>
of Default, Borrower shall, on demand, deliver to Bank good funds equal to 100%
of Bank's maximum liability under all outstanding letters of credit and banker's
acceptances, to be held as cash collateral for Borrower's reimbursement
obligations and other Indebtedness until such time that such reimbursement
obligations and other Indebtedness have been satisfied in full.
(b) Any letter of credit issued hereunder shall be governed by the
Uniform Customs of Practice for Documentary Credit (1993 Rev.), International
Chamber of Commerce Publication No. 500, as revised from time to time, except to
the extent that the terms of such publication would limit or diminish rights
granted to Bank hereunder or in any other Loan Document.
4. Conditions Precedent to Borrowing. Prior to any Advance, the following
---------------------------------
conditions shall have been satisfied, in the sole opinion of Bank and its
counsel:
4.1. Conditions Precedent to Initial Advance. In addition to any other
---------------------------------------
requirement set forth in this Agreement, Bank will not make the initial Advance
under the Loan unless and until the following conditions shall have been
satisfied:
(a) Loan Documents. Borrower and each other party to any Loan
--------------
Document, as applicable, shall have executed and delivered this Agreement, the
Note, and other required Loan Documents, all in form and substance reasonably
satisfactory to Bank.
(b) Supporting Documents. Borrower shall cause to be delivered to
--------------------
Bank the following documents:
(i) A copy of the governing instruments of Borrower and each
Guarantor, and a good standing certificate of Borrower and each Guarantor,
certified by the appropriate official of its state of incorporation and,
in the case of Borrower only, the Commonwealth of Virginia;
(ii) Incumbency certificate and certified resolutions of the
board of directors (or other appropriate Persons) of Borrower and each
other Person executing any Loan Documents, signed by the Secretary or
another authorized officer of Borrower or such other Person, authorizing
the execution, delivery and performance of the Loan Documents;
(iii) The legal opinion of Borrower's and any Guarantor's
legal counsel addressed to Bank regarding such matters as Bank and its
counsel may reasonably request;
(iv) A Borrowing Base Certificate duly completed by Borrower;
(v) Satisfactory evidence of payment of all fees due and
reimbursement of all costs incurred by Bank which Borrower is required to
pay under this Agreement, and evidence of payment to other parties of all
fees or costs which Borrower is required to pay under this Agreement; and
13
<PAGE>
(vi) UCC-1 searches and other Lien searches showing no
existing security interests in or Liens on the Collateral other than the
security interests of Bank and Permitted Liens.
(c) Insurance. Borrower shall have delivered to Bank certificates
---------
of insurance or other satisfactory evidence of insurance meeting the
requirements of Section.
(d) Perfection of Liens. UCC-1 financing statements and, if
-------------------
applicable, certificates of title covering the Collateral executed by Borrower
and each Guarantor shall duly have been recorded or filed in the manner and
places required by law to establish, preserve, protect and perfect the
interests and rights created or intended to be created by the Security
Agreement; and all taxes, fees and other charges in connection with the
execution, delivery and filing of the Security Agreement and the financing
statements shall duly have been paid.
(e) Subordinations and Acknowledgments. Bank shall have received
----------------------------------
subordinations satisfactory to it from (i) all Guarantors and Affiliates as
required by Section 5.9; and (ii) Virginia Capital, L.P. and Sirrom
Investments, Inc. Bank shall have received acknowledgments satisfactory to it
from any Person who provided seller financing for Borrower's acquisitions of
International Medical Technical Consultants, Inc. and The Crucible Group, Inc.
(f) Cash Management Accounts. The Special Loan Account and Cash
------------------------
Proceeds Account shall have been established, as required.
(g) Additional Documents. Borrower shall have delivered to Bank
--------------------
all additional opinions, documents, certificates and other assurances that
Bank or its counsel may reasonably require.
(h) Collateral Examination. Bank shall have received a report
----------------------
satisfactory to it in its sole discretion of an independent examination of the
Collateral.
4.2. Conditions Precedent to Each Advance. The following conditions,
------------------------------------
in addition to any other requirements set forth in this Agreement, shall have
been met or performed by the Advance Date with respect to any Advance Request
and each Advance Request (whether or not a written Advance Request is required)
shall be deemed to be a representation that all such conditions have been
satisfied:
(a) Advance Request. Borrower shall have delivered to Bank an
---------------
Advance Request and other information, as required in Section 3.4(b), unless
the procedures described in Section 3.4(a) are in effect.
(b) No Event of Default. No Event of Default shall have occurred
-------------------
or will occur upon the making of the Advance in question and, if Borrower is
required to deliver a written Advance Request, Borrower shall have delivered
to Bank an officer's certificate to such effect, which may be incorporated in
the Advance Request.
(c) Correctness of Representations. All representations and
------------------------------
warranties made by Borrower and any Guarantor herein or otherwise in writing
in connection herewith
14
<PAGE>
shall be true and correct with the same effect as though the representations
and warranties had been made on and as of the proposed Advance Date, and, if
Borrower is required to deliver a written Advance Request, Borrower shall have
delivered to Bank an officer's certificate to such effect, which may be
incorporated in the Advance Request.
(d) No Adverse Change. There shall have been no material adverse
-----------------
change in the condition, taken as a whole, financial or otherwise, of
Borrower, any Subsidiary or any Guarantor from such condition as it existed on
the date of the most recent financial statements delivered prior to date
hereof.
(e) Limitations Not Exceeded. The proposed Advance shall not cause
------------------------
the outstanding principal balance of the Loan to exceed the lesser of the
Maximum Loan Amount and the Borrowing Base. If Borrower is required to deliver
a written Advance Request, Bank shall have received a current monthly Accounts
Receivable Report (as required by Section) sufficient in form and substance to
calculate and verify the Borrowing Base.
(f) Additional Reporting Requirements on a Default. If a Default
----------------------------------------------
shall have occurred (unless such Default is cured prior to the lapse of the
applicable cure period and the time for the Advance to be made), Borrower
shall have delivered a current Borrowing Base Certificate and a current
monthly Accounts Receivable Report (as required by Section ) sufficient in
form and substance to calculate and verify the Borrowing Base.
(g) Further Assurances. Borrower shall have delivered such further
------------------
documentation or assurances as Bank may reasonably require.
5. Affirmative Covenants of Borrower. Borrower covenants and agrees that
---------------------------------
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, Borrower, each Guarantor, and each
Subsidiary:
5.1. Use of Loan Proceeds; Payment of Obligations. Shall use the
--------------------------------------------
proceeds of the Loan for working capital to be used in the operation of
Borrower's and its Subsidiaries' businesses, the repayment of (i) Borrower's
current loan from Bank and (ii) IMTCI's current loan from United Missouri Bank
(or its successor) (and furnish Bank all evidence that it may reasonably require
with respect to such use) and for other general corporate purposes. Shall pay
the obligations of the Loan as they become due.
5.2. Maintenance of Business and Properties. Shall at all times
--------------------------------------
maintain, preserve and protect all Collateral and all the remainder of its
material property used or useful 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 material needful and proper repairs, renewals,
replacements, betterments and improvements thereto so that the business carried
on in connection therewith may be conducted properly and in accordance with
standards generally accepted in businesses of a similar type and size at all
times, and maintain and keep in full force and effect all material licenses and
permits reasonably necessary to the proper conduct of its business.
5.3. Insurance. Shall maintain such liability insurance, workers'
---------
compensation insurance, and casualty insurance as may be required by law,
customary and usual for prudent businesses in its industry and shall insure and
keep insured all Collateral and other properties with good and responsible
insurance companies satisfactory to Bank. All hazard insurance covering
Collateral shall be in amounts and shall contain co-insurance and deductible
provisions reasonably approved by Bank, shall name and directly insure Bank as
secured party and loss payee under a long-form New York
15
<PAGE>
standard loss payee clause, or its equivalent, and shall not be terminable
except upon 30 days' written notice to Bank.
5.4. Notice of Default. Shall provide to Bank immediate notice of (a)
-----------------
the occurrence of a Default, (b) any material litigation or material changes in
existing litigation or any judgment against it or its assets, (c) any material
damage or loss to property, (d) any notice from taxing authorities as to claimed
deficiencies or any tax lien or any notice relating to alleged ERISA violations,
(e) any Reportable Event, as defined in ERISA, (f) any good-faith rejection,
return, offset, dispute, loss or other circumstance having a material adverse
effect on the Collateral taken as a whole, and (g) any loss or threatened loss
of material licenses or permits.
5.5. Inspections. Shall permit inspections of the Collateral and the
-----------
records of the Borrower or Guarantor pertaining thereto and verification of the
Accounts, at such times during normal business hours and in such manner as may
be reasonably required by Bank and shall further permit such inspection, review
and audits of Borrower's and each Guarantor's other records and its properties
(with such reasonable frequency and at such reasonable times as Bank may desire)
by Bank as Bank may deem necessary or desirable from time to time. The cost of
the first of such field audits, reviews, verifications and inspections per
fiscal year shall be borne by Borrower.
5.6. Financial Information. Shall maintain books and records in
---------------------
accordance with GAAP, and shall furnish to Bank the following periodic financial
information:
(a) Periodic Borrowing Base Reports. Within 25 days of the end of
-------------------------------
each month (or more frequently if required by Bank following a Default,
unless such Default is cured prior to the lapse of the applicable cure period
and the time for the Advance to be made) (i) Accounts Receivable Reports,
(ii) a Borrowing Base Certificate, and (iii) an Accounts Payable Report.
Within 25 days of each second and fourth fiscal quarter, a listing of all
Accounts, referencing each Account Debtor, its address, telephone number, and
contact name;
(b) Quarterly Reports. Within 45 days after the end of each fiscal
-----------------
quarter, on a consolidated and consolidating basis, which may be prepared as
one report, with separate columns for Borrower, each Guarantor, and each
Subsidiary, (i) an income statement and a balance sheet prepared in accordance
with GAAP, which includes separate columns for Borrower and each Guarantor, as
at the end of any such quarter, each certified by the chief financial officer
or president of Borrower and each Guarantor as being true and accurate, (ii)
an officer's certificate that Borrower is in compliance with the covenants of
Sections 5 and 6, and (iii) a contract backlog report;
(c) Annual Reports. Within 90 days after the end of each fiscal
--------------
year, on a consolidated and consolidating basis, which may be prepared as one
report, with separate columns for Borrower, each Guarantor, and each
Subsidiary, an income statement and a reconciliation of surplus statement for
such year, and a balance sheet as of the end of such year, prepared in
accordance with GAAP. Such annual reports for Borrower prepared on a
consolidated basis shall be certified by independent certified public
accountants of nationally recognized standing selected by Borrower. Such
annual reports for each Guarantor and Subsidiary need not be certified;
(d) No Default Certificates. Together with each report required by
-----------------------
Subsection (b) and (c), a certificate of Borrower's president or chief
financial officer that no Default then exists or if a Default exists, the
nature and duration thereof and Borrower's intention with respect thereto, and
in addition, shall cause Borrower's independent auditors (if applicable) to
submit to Bank, together with its audit report, a statement that, in the
course of
16
<PAGE>
such audit, it discovered no circumstances which it believes would result
in a Default or if it discovered any such circumstances, the nature and
duration thereof;
(e) Auditor's Management Letters. Promptly upon receipt
----------------------------
thereof, copies of each report submitted to Borrower or each Guarantor by
independent public accountants in connection with any annual, interim or
special audit made by them of the books of Borrower including, without
limitation, each report submitted to Borrower or each Guarantor concerning
its accounting practices and systems and any final comment letter submitted
by such accountants to management in connection with the annual audit of
Borrower or each Guarantor;
(f) Projections. 10 days before the start of each fiscal
-----------
year, that fiscal year's budget and three year projections for Borrower and
each Guarantor. With respect to Borrower, such budgets and projections
shall be prepared on a balance sheet, P&L, and cashflow basis. With respect
to Guarantors, such budgets and projections shall be prepared solely on a
P&L basis.
In addition to the financial statements required herein, Bank reserves the
right to require such other or additional financial or other information
concerning Borrower, its Subsidiaries, the Guarantors and/or the Collateral as
Bank may reasonably request.
5.7. Corporate Existence. Shall maintain its corporate existence,
-------------------
good standing and necessary and material qualifications to do business.
5.8. Payment of Taxes, Etc. Shall pay before delinquent all of its
---------------------
debts and taxes, except those being contested in good faith by appropriate
proceedings (provided that Bank may require bonding or other assurances in the
event such delinquent taxes exceed $100,000 in the aggregate).
5.9. Subordination. Shall cause all debt and other obligations now
-------------
or hereafter owed by Borrower to any Guarantor or Affiliate to be subordinated
in right of payment and security to the Indebtedness in accordance with
subordination terms reasonably satisfactory to Bank.
5.10. Compliance; Hazardous Materials. Shall comply with all laws,
-------------------------------
regulations, ordinances, and other legal requirements, specifically including,
without limitation, ERISA, all securities laws and all laws relating to
hazardous materials and the environment except for such noncompliances that
would not have a material adverse effect on such Person, taken as a whole.
Unless approved in writing by Bank, neither Borrower nor any Subsidiary shall
engage in the storage, manufacture, disposition, processing, handling, use or
transportation of any material amount of hazardous or toxic materials, whether
or not in compliance with applicable laws and regulations.
5.11. Compliance with Assignment Laws. Shall, if Borrower desires to
-------------------------------
include a government contract or contracts in an aggregate amount greater than
$250,000 as Eligible Accounts, comply with the Federal Assignment of Claims Act
and any other applicable law relating to assignment of government contracts.
5.12. Further Assurances. Shall take such further action and provide
------------------
to Bank such further assurances as may be reasonably requested to ensure
compliance with the intent of this Agreement and the other Loan Documents.
5.13. Principal Accounts. Shall maintain its principal accounts,
------------------
including its primary depository and cash management accounts, with Bank.
17
<PAGE>
5.14. Authorizations. Shall maintain all material authorizations,
--------------
consents, approvals and licenses required under applicable law or regulation for
the ownership or operation of the property owned or operated by Borrower or any
Subsidiary or for the conduct of any business in which it is engaged except
where the failure to obtain same would not have a material adverse effect on
such Person.
5.15. Financial Covenants. At all times, shall be in compliance with
-------------------
the following financial covenants on a consolidated basis to be tested at the
end of each of Borrower's fiscal quarters:
(a) The effective tangible net worth of Borrower shall not be
less than: (i) $3,000,000 as at December 31, 1997 and until December 30,
1998, (ii) and $4,000,000 as at December 31, 1998 and until the Termination
Date.
(b) The ratio of current assets of Borrower to its current
liabilities, less its current Subordinated Debt, shall be equal to or
greater than 1.0 to 1.0 as at the end of each fiscal quarter;
(c) The ratio of EBITDA of Borrower to its contractual debt
service calculated on a rolling basis, for the most recent past four fiscal
quarters, shall be equal to or greater than 1.15 to 1.0.
For purposes of this Agreement, the term "effective tangible
net worth" shall be defined as the net worth of a Person according to GAAP
less intangible assets plus subordinated debt not to be repaid within
twelve months, plus redeemable preferred stock.
For the purposes of this Agreement, the term "EBITDA" shall be
defined as net income before taxes plus interest expense, depreciation, and
amortization.
For the purposes of this Agreement, the term "contractual debt
service" shall be defined as current maturities of long-term debt,
capitalized leases, and subordinated debt plus associated interest costs
plus taxes due plus cash distributions.
5.16. Leases. Neither Borrower nor any Guarantor nor any Subsidiary
------
shall enter into or permit to exist any leases whereby the aggregate rentals and
other payments payable by Borrower and all Subsidiaries on an aggregate basis
shall exceed $4,750,000 during the current or any future twelve-month period.
6. Negative Covenants of Borrower. Borrower covenants and agrees that
------------------------------
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, Borrower, each Guarantor, and each
Subsidiary:
6.1. Debt. Shall not, without the approval of Bank, create or
----
permit to exist any Debt, except Permitted Debt.
6.2. Liens and Guaranties. Shall not, without the approval of Bank,
--------------------
which approval shall not be unreasonably withheld, create or permit any Liens on
Borrower, Guarantors, or Subsidiaries' property, including the Collateral,
except Permitted Liens. Shall not, without the approval of the Bank, which
approval shall not be unreasonably withheld, provide any guaranties, except
guaranties of Permitted Debt.
18
<PAGE>
6.3. Dividends. Shall not pay any dividends (other than stock
---------
dividends) or other distribution, or purchase, redeem or otherwise acquire any
of its stock or other equity interests or pay or acquire any of its debt
subordinate to the Indebtedness unless, after giving effect thereto, there shall
be no Default hereunder and such payment or acquisition is specifically
permitted by Exhibit 6.3 hereto (if any); provided, however, that any Subsidiary
-----------
may pay dividends to Borrower or another Subsidiary wholly-owned by Borrower.
6.4. Loans and Other Investments. Shall not make or permit to exist
---------------------------
any advances or loans to, or guarantee or become contingently liable, directly
or indirectly, in connection with the obligations, leases, stock or dividends
of, or own, purchase or make any commitment to purchase any stock, bonds, notes,
debentures or other securities of, or any interest in, or make any capital
contributions to (all of which are sometimes collectively referred to herein as
"Investments") any Person except for (a) purchases of direct obligations of the
-----------
federal government, (b) deposits in commercial banks, (c) commercial paper of
any U.S. corporation having the highest ratings then given by the Moody's
Investors Services, Inc. or Standard & Poor's Corporation, (d) existing
investments in Subsidiaries and additional investments therein permitted
pursuant to (S) 6.15, (e) endorsement of negotiable instruments for collection
in the ordinary course of business, (f) advances to employees for business
travel and other expenses incurred in the ordinary course of business which do
not at any time exceed $250,000 in the aggregate, and (g) acquisitions of
Persons permitted pursuant to (S) 6.13.
6.5. Change in Business. Shall not enter into any business which is
------------------
substantially different from the business in which it is presently engaged.
6.6. Accounts. (a) Shall not sell, assign or discount any of its
--------
Accounts, Chattel Paper or any promissory notes held by it other than the
discount of such notes in the ordinary course of business for collection; and
(b) to the extent it has knowledge thereof, shall notify Bank promptly in
writing of any material discount, offset or other deductions not shown on the
face of an Account invoice and any material dispute over an Account, and any
information relating to a material adverse change in any Account Debtor's
financial condition or ability to pay its obligations.
6.7. Transactions with Affiliates. Except as set forth on Exhibit
---------------------------- -------
6.7, shall not directly or indirectly purchase, acquire or lease any property
from, or sell, transfer or lease any property to, or otherwise deal with, in the
ordinary course of business or otherwise, any Affiliate (other than a
Subsidiary); provided, however, that any acts or transactions prohibited by this
Section may be performed or engaged in after written notice to Bank if upon
terms not less favorable to Borrower or such Subsidiary than if no such
relationship existed. Any such Affiliate may be a director, officer, employee
of Borrower or any Subsidiary.
6.8. No Change in Name, Offices; Removal of Collateral. Shall not,
-------------------------------------------------
unless it shall have given 30 days' advance written notice thereof to Bank, (a)
change its name or the location of its chief executive office or other office
where books or records are kept or (b) permit any material amount of Inventory
or other tangible Collateral to be located at any location other than as
specified in Section 2.9.
6.9. No Sale, Leaseback. Shall not, without the approval of Bank,
------------------
which approval shall not be unreasonably withheld, enter into any sale-and-
leaseback or similar transaction.
6.10. Margin Stock. Shall not use any proceeds of the Loan to
------------
purchase or carry any margin stock (within the meaning of Regulation U of the
Board of Governors of Federal Reserve System) or extend credit to others for the
purpose of purchasing or carrying any margin stock.
19
<PAGE>
6.11. Tangible Collateral. Except as otherwise provided herein, no
-------------------
Inventory or other tangible Collateral shall be commingled with, or become an
accession to or part of, any property of any other Person so long as such
property is Collateral. No tangible Collateral shall be allowed to become a
fixture unless Bank shall have given its prior written authorization.
6.12. Subsidiaries. Shall not acquire (except as approved by Bank
------------
pursuant to (S)6.13), form or dispose of any Subsidiaries or permit any
Subsidiary to issue capital stock except to its parent.
6.13. Merger, Sale, Etc. Borrower, each Guarantor, or each
-----------------
Subsidiary shall not, unless it shall have given thirty (30) days' advance
written notice thereof to Bank, merge (other than the merger of Crucible with
and into IMTCI) or consolidate with any Person or acquire all or substantially
all of the assets of, or 50% or more of any class of equity interest of, any
Person or sell, lease, assign or otherwise dispose of any Collateral or other
assets (other than sales of obsolete or worn-out equipment, sales of Inventory
in the ordinary course of business, and sales of assets less than $250,000), or
sell or otherwise dispose of stock of any Subsidiary (such events shall be
referred to herein, collectively and individually, as an "Event of Merger").
Upon receipt of thirty (30) days' advance written of an Event of Merger, Bank
shall have the option, which will not be unreasonably exercised, to require
payment in full of the Loan and all other Indebtedness simultaneous with the
Event of Merger (or earlier, if acceptable to Borrower).
6.14. Capital Expenditures.. Borrower, Subsidiary or any Guarantor
---------------------
shall not make combined capital expenditures during the fiscal years 1997 and
1998 in excess of $10,000,000 for Borrower, all Subsidiaries, and all
Guarantors.
6.15. Advances. Borrower, Subsidiary or any Guarantor shall not
---------
make, during the portion of the fiscal year 1997 remaining after the Closing
Date and fiscal year 1998, combined net advances to or investments in
Pharmaceutical Research Associates, GmbH and/or Pharm Research Associates (UK)
Limited in excess of $1,500,000. No advances in excess of $200,000 shall be
made to Pharmaceutical Research Associates, GmbH and/or Pharm Research
Associates (UK) Limited without two (2) days prior written notification to
Bank.
7. Other Covenants of Borrower. Borrower covenants and agrees that from
---------------------------
the date hereof and until payment in full of the Indebtedness and the formal
termination of this Agreement, Borrower and each Subsidiary shall comply with
such additional covenants as may be set forth in Exhibit 7 hereto (if any).
-------
8. Default.
-------
8.1. Events of Default. Each of the following shall constitute an
------------------
Event of Default:
(a) There shall occur any default by Borrower in the payment,
when due, of any principal of or interest on the Note, any amounts due
hereunder or under any other Loan Document, or any other Indebtedness,
which default shall not be cured within fifteen (15) days (and if cured
within fifteen (15) days shall occur more than twice in any fiscal year);
or
(b) There shall occur any default by Borrower or any other
Person in the performance of the covenants contained in Section 5.6 of this
Agreement, which default shall not be cured with five (5) Business Days; or
(c) There shall occur any default by Borrower or any other
Person in the performance of the covenants contained in Section 5.15 of
this Agreement, which default shall not be cured with fifteen (15) days; or
20
<PAGE>
(d) There shall occur any default by Borrower or any other
Person in the performance of the covenants contained in Section 6 of this
Agreement; or
(e) There shall occur any default, not provided for elsewhere
in this Section 8, by Borrower or any other party to any Loan Document
(other than Bank) in the performance of any agreement, covenant or
obligation contained in this Agreement or such Loan Document, which default
shall continue for a period of fifteen (15) days after the due date of such
performance or Borrower's receipt of notice of non-performance, unless such
default is not capable of being cured within fifteen (15) days despite
Borrower's reasonable efforts, in which event Borrower shall have an
additional period of time, not to exceed sixty (60) days, within which to
cure such default provided that Borrower diligently continues to pursue
such cure; or
(f) Any representation or warranty made by Borrower or any
other party to any Loan Document (other than Bank) herein or therein or in
any certificate or report furnished in connection herewith or therewith
shall prove to have been untrue or incorrect in any material respect when
made; or
(g) Any other obligation now or hereafter owed by Borrower or
any Subsidiary or Guarantor to Bank shall be in default and not cured
within the grace period, if any, provided therein; or any such Person shall
be in default under any obligation in excess of $250,000 owed to any other
obligee (other than Amplicon, Inc.), which default entitles the obligee to
accelerate any such obligations or exercise other remedies with respect
thereto; or any such Person shall be in default under any obligation owed
to Amplicon, Inc., which default shall result in Amplicon, Inc.
accelerating any such obligations or exercising other remedies with respect
thereto; or
(h) Borrower or any Subsidiary or Guarantor shall (i)
voluntarily liquidate or terminate operations or apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of such Person or of all or of a substantial part of
its assets, (ii) admit in writing its inability, or be generally unable, to
pay its debts as the debts become due, (iii) make a general assignment for
the benefit of its creditors, (iv) commence a voluntary case under the
federal Bankruptcy Code (as now or hereafter in effect), (v) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of
debts, (vi) fail to discharge or dismiss, within thirty (30) days of
filing, any petition filed against it in an involuntary case under the
Bankruptcy Code, or (vii) take any corporate action for the purpose of
effecting any of the foregoing; or
(i) Without its application, approval or consent, a proceeding
shall be commenced, in any court of competent jurisdiction, seeking in
respect of Borrower, Subsidiary or any Guarantor any remedy under the
federal Bankruptcy Code, the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of such Person, or of all or any
substantial part of the assets of such Person, or other like relief under
any law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such Person fails to discharge or
dismiss such proceeding within thirty (30) days of its commencement; or
(j) There shall occur any material loss, theft, damage or
destruction of any of the Collateral, which loss is not fully insured (net
of any applicable deductible); or
21
<PAGE>
(k) Notwithstanding anything to the contrary in the definition
of Permitted Debt, a judgment in excess of $250,000 shall be rendered
against the Borrower or any Subsidiary or Guarantor and shall remain
undischarged, undismissed and unstayed for more than thirty (30) days
(except judgments validly covered by insurance with a deductible of not
more than $50,000) or there shall occur any levy upon, or attachment,
garnishment or other seizure of, any material portion of the Collateral or
other assets of Borrower, any Subsidiary or any Guarantor by reason of the
issuance of any tax levy, judicial attachment or garnishment or levy of
execution; or
(l) Borrower, any Subsidiary or any Guarantor shall fail to
pay, on demand, any returned or dishonored draft, check, or other item
which has been deposited to the Special Loan Account or otherwise presented
to Bank and for which Borrower has received provisional credit; or
(m) Any Guarantor shall repudiate or revoke any Guaranty
Agreement; or
(n) The Carlyle Group, Inc. shall at any time cease to
control, after giving effect to any equity conversions, at least 50% of its
equity position of Borrower measured as the date hereof.
8.2. Remedies. Upon occurrence of an Event of Default, other than
--------
an Event of Default as defined in (S) 8.1(e), Bank may, without notice to
Borrower, at its option and in its absolute discretion, withhold further
Advances to Borrower. Upon occurrence of an Event of Default as defined in (S)
8.1(e), Bank may, without notice to Borrower, at its option and in its
reasonable discretion, withhold further Advances to Borrower. Notwithstanding
anything to the contrary in this Agreement or any other Loan Document, if any
Event of Default shall have occurred and be continuing, Bank may, at its option
and in its absolute discretion, take any or all of the following actions:
(a) Bank may declare any or all Indebtedness to be immediately due
and payable (if not earlier demanded), terminate its obligation to make
Advances to Borrower, bring suit against Borrower to collect the
Indebtedness, exercise any remedy available to Bank hereunder or at law and
take any action or exercise any remedy provided herein or in any other Loan
Document or under applicable law. No remedy shall be exclusive of other
remedies or impair the right of Bank to exercise any other remedies.
(b) Without waiving any of its other rights hereunder or under any
other Loan Document, Bank shall have all rights and remedies of a secured
party under the Code (and the Uniform Commercial Code of any other
applicable jurisdiction) and such other rights and remedies as may be
available hereunder, under other applicable law or pursuant to contract. If
requested by Bank, Borrower will promptly assemble the Collateral and make
it available to Bank at a place to be designated by Bank. Borrower agrees
that any notice by Bank of the sale or disposition of the Collateral or any
other intended action hereunder, whether required by the Code or otherwise,
shall constitute reasonable notice to Borrower if the notice is mailed to
Borrower by regular or certified mail, postage prepaid, at least five
Business Days before the action to be taken. Borrower shall be liable for
any deficiencies in the event the proceeds of the disposition of the
Collateral do not satisfy the Indebtedness in full.
(c) Bank may demand, collect and sue for all amounts owed pursuant
to Accounts, General Intangibles, Chattel Paper or for proceeds of any
Collateral (either in Borrower's name or Bank's name at the latter's
option), with the right to enforce, compromise, settle or discharge any
such amounts.
22
<PAGE>
8.3. Receiver. In addition to any other remedy available to it, if
--------
an Event of Default shall occur and be continuing, Bank shall have the absolute
right to seek and obtain the appointment of a receiver to take possession of and
operate and/or dispose of the business and assets of Borrower and any costs and
expenses incurred by Bank in connection with such receivership shall bear
interest at the Default Rate and shall be secured by all Collateral.
8.4. Deposits; Insurance. If an Event of Default shall occur and be
-------------------
continuing, Borrower authorizes Bank to collect and apply against the
Indebtedness when due any cash or deposit accounts in its possession, and any
refund of insurance premiums or any insurance proceeds payable on account of the
loss or damage to any of the Collateral and irrevocably appoints Bank as its
attorney-in-fact to endorse any check or draft or take other action necessary to
obtain such funds.
9. Security Agreement.
------------------
9.1. Security Interest.
-----------------
(a) As security for the payment and performance of any and all of
the Indebtedness and the performance of all other obligations and covenants
of Borrower hereunder and under the other Loan Documents, certain or
contingent, now existing or hereafter arising, which are now, or may at any
time or times hereafter be owing by Borrower to Bank, Borrower hereby
pledges to Bank and gives Bank a continuing security interest in and
general Lien upon and right of set-off against, all right, title and
interest of Borrower in and to the Collateral, whether now owned or
hereafter acquired by Borrower.
(b) Except as herein or by applicable law otherwise expressly
provided, Bank shall not be obligated to exercise any degree of care in
connection with any Collateral in its possession, to take any steps
necessary to preserve any rights in any of the Collateral or to preserve
any rights therein against prior parties, and Borrower agrees to take such
steps reasonably requested. In any case Bank shall be deemed to have
exercised reasonable care if it shall have taken such steps for the care
and preservation of the Collateral or rights therein as Borrower may have
reasonably requested Bank to take and Bank's omission to take any action
not requested by Borrower shall not be deemed a failure to exercise
reasonable care. No segregation or specific allocation by Bank of specified
items of Collateral against any liability of Borrower shall waive or affect
any security interest in or Lien against other items of Collateral or any
of Bank's options, powers or rights under this Agreement or otherwise
arising.
(c) If an Event of Default shall occur and be continuing, Bank may,
with or without notice to Borrower, (i) transfer into the name of Bank or
the name of Bank's nominee any of the Collateral, (ii) notify any Account
Debtor or other obligor of any Collateral to make payment thereon direct to
Bank of any amounts due or to become due thereon and (iii) receive and
direct the disposition of any proceeds of any Collateral.
9.2. Cash Proceeds Account.
---------------------
(a) There may be established with Bank a cash collateral account
(the "Cash Proceeds Account") in the name of "____________________________
---------------------
- FIRST UNION NATIONAL BANK" and under the exclusive control of Bank into
which there shall be deposited from time to time the cash proceeds of the
Collateral required to be delivered to Bank pursuant to paragraph (b) of
this Section or any other provision of the Loan Documents. Any income
received by Bank with respect to the balance from time to time standing to
the credit of the Cash Proceeds Account, including any interest, shall
remain, or be deposited, in the Cash Proceeds Account. All right, title and
interest in and to the cash amounts on deposit from time
23
<PAGE>
to time in the Cash Proceeds Account shall vest in Bank, shall constitute
part of the Collateral and shall not constitute payment of the Indebtedness
until applied thereto as hereinafter provided.
(b) If an Event of Default shall occur and be continuing, all
payments made to Bank which would otherwise be deposited in the Special
Loan Account shall be deposited in the Cash Proceeds Account. In addition
to the foregoing, Borrower agrees that if the proceeds of any Collateral
(including the payments made in respect of Accounts) shall be received by
it, Borrower shall as promptly as possible deposit such proceeds to the
Cash Proceeds Account. Until so deposited, all such proceeds shall be held
in trust by Borrower for and as the property of Bank and shall not be
commingled with any other funds or property of Borrower. Borrower hereby
irrevocably authorizes and empowers Bank, its officers, employees and
authorized agents to endorse and sign its name on all checks, drafts, money
orders or other media of payment so delivered, and such endorsements or
assignments shall, for all purposes, be deemed to have been made by
Borrower prior to any endorsement or assignment thereof by Bank.
(c) Collected funds on deposit in the Cash Proceeds Account shall
be withdrawn by Bank on the Business Day following the day on which Bank
considers the funds deposited therein to be collected funds and applied to
repay the Indebtedness which is then due and payable. All collected funds
remaining on deposit in the Cash Proceeds Account after the application
required by the preceding sentence shall then be deposited in the Special
Loan Account.
9.3. Power of Attorney. Borrower authorizes Bank at Borrower's
-----------------
expense to file any financing statements relating to the Collateral (without
Borrower's signature thereon) which Bank reasonably deems appropriate and
Borrower irrevocably appoints Bank as its attorney-in-fact to execute any such
financing statements in Borrower's name and to perform all other acts which Bank
deems appropriate to perfect and to continue perfection of the security interest
of Bank. Borrower hereby appoints Bank as Borrower's attorney-in-fact to
endorse, present and collect on behalf of Borrower and in Borrower's name any
draft, checks or other documents necessary or desirable, if an Event of Default
shall occur and be continuing, to collect any amounts which Borrower may be
owed. If an Event of Default shall occur and be continuing, Bank is hereby
granted a license or other right to use, without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any Property of a similar nature, as it
pertains to the Collateral, in advertising for sale and selling any Collateral,
and Borrower's rights under all licenses and all franchise agreements shall
inure to Bank's benefit. The proceeds realized from the sale or other
disposition of any Collateral may be applied, after allowing two (2) Business
Days for collection, first to the reasonable costs, expenses and attorneys' fees
and expenses incurred by Bank for collection and for acquisition, completion,
protection, removal, storage, sale and delivering of the Collateral; secondly,
to interest due upon any of the Obligations; and thirdly, to the principal
amount of the Obligations. If any deficiency shall arise, Borrower and each
Guarantor shall remain jointly and severally liable to Bank therefor.
9.4. Entry. Borrower hereby irrevocably consents on its behalf and
-----
on behalf of the Guarantors to any act by Bank or its agents in entering upon
any premises during normal business hours for the purposes of either (i)
inspecting the Collateral following reasonable prior notice, or (ii), at any
time after an Event of Default shall have occurred and be continuing, without
any need to provide prior notice, taking possession of the Collateral. Borrower
hereby waives its right to assert against Bank or its agents any claim based
upon trespass or any similar cause of action for entering upon any premises
where the Collateral may be located.
24
<PAGE>
9.5. Other Rights. Borrower authorizes Bank without affecting
------------
Borrower's obligations hereunder or under any other Loan Document from time to
time (a) to take from any party and hold additional Collateral or guaranties for
the payment of the Indebtedness or any part thereof, and to exchange, enforce or
release such collateral or guaranty of payment of the Indebtedness or any part
thereof and to release or substitute any endorser or guarantor or any party who
has given any security interest in any collateral as security for the payment of
the Indebtedness or any part thereof or any party in any way obligated to pay
the Indebtedness or any part thereof; and (b) upon the occurrence of any Event
of Default to direct the manner of the disposition of the Collateral and the
enforcement of any endorsements, guaranties, letters of credit or other security
relating to the Indebtedness or any part thereof as Bank in its sole discretion
may determine.
9.6. Accounts. If an Event of Default shall have occurred and be
--------
continuing, Bank may notify any Account Debtor of Bank's security interest and
may direct such Account Debtor to make payment directly to Bank for application
against the Indebtedness. Any such payments received by or on behalf of
Borrower at any time, whether before or after Default, shall be the property of
Bank, shall be held in trust for Bank and not commingled with any other assets
of any Person (except to the extent they may be commingled with other assets of
Borrower in an account with Bank) and shall be immediately delivered to Bank in
the form received. Bank shall have the right to apply any proceeds of
Collateral to such of the Indebtedness as it may determine.
9.7. Waiver of Marshalling. Borrower hereby waives any right it
---------------------
may have to require marshalling of its assets.
10. Miscellaneous.
-------------
10.1. No Waiver, Remedies Cumulative. No failure on the part of Bank
------------------------------
to exercise, and no delay in exercising, any right hereunder or under any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and are in addition to any other remedies provided by law, any Loan Document or
otherwise.
10.2. Survival of Representations. All representations and
---------------------------
warranties made herein shall survive the making of the Loan hereunder and the
delivery of the Note, and shall continue in full force and effect so long as any
Indebtedness is outstanding, there exists any commitment by Bank to Borrower,
and until this Agreement is formally terminated in writing.
10.3. Expenses. Whether or not the Loan herein provided for shall be
--------
made, Borrower shall pay all reasonable costs and expenses in connection with
the preparation, execution, delivery, amendment and enforcement of this
Agreement and any Loan Document, including the reasonable fees and disbursements
of counsel for Bank in connection therewith, whether suit be brought or not and
whether incurred at trial or on appeal, and all costs of repossession, storage,
disposition, protection and collection of Collateral. If Borrower should fail
to pay any tax or other amount required by this Agreement to be paid or which
may be reasonably necessary to protect or preserve any Collateral or Borrower's
or Bank's interests therein, Bank may make such payment and the amount thereof
shall be payable on demand, shall bear interest at the Default Rate from the
date of demand until paid and shall be deemed to be Indebtedness entitled to the
benefit and security of the Loan Documents. In addition, Borrower agrees to pay
and save Bank harmless against any liability for payment of any state
documentary stamp taxes, intangible taxes or similar taxes (including interest
or penalties, if any) which may now or hereafter be determined to be payable in
respect to the execution, delivery or recording of any Loan Document or the
making of any Advance, whether originally thought to be due or not, and
regardless of any mistake of fact or law on the part of Bank or Borrower with
respect to the applicability of such tax. The provisions of this section shall
survive payment in full of the Loan and
25
<PAGE>
termination of this Agreement. Absent extensive negotiations, legal expenses
related to the Agreement and the other Loan Documents shall be limited to
$15,000. Expenses related to the initial collateral examination shall be
limited to $5,000.
10.4. Notices. Any notice or other communication hereunder or under
-------
the Note to any party hereto or thereto shall be by hand delivery, overnight
delivery, facsimile, telegram, telex or registered or certified mail and unless
otherwise provided herein shall be deemed to have been given or made when
delivered, telegraphed, telexed, faxed or three (3) Business Days after having
been deposited in the mails, postage prepaid, addressed to the party at its
address specified below (or at any other address that the party may hereafter
specify to the other parties in writing):
Bank: First Union National Bank
1970 Chain Bridge Road
McLean, Virginia 21202
Attention: David Cooper, Portfolio Management
Borrower: PRA International, Inc.
8300 Boone Boulevard, Suite 310
Vienna, Virginia 22182
Attention: Patrick K. Donnelly, Executive Vice President
Guarantors: Pharmaceutical Research Associates, Inc.
c/o PRA International, Inc.
8300 Boone Boulevard, Suite 310
Vienna, Virginia 22182
Attention: Patrick K. Donnelly, Executive Vice President
International Medical Technical Consultants, Inc.
c/o PRA International, Inc.
8300 Boone Boulevard, Suite 310
Vienna, Virginia 22182
Attention: Patrick K. Donnelly, Executive Vice President
The Crucible Group, Inc.
c/o PRA International, Inc.
8300 Boone Boulevard, Suite 310
Vienna, Virginia 22182
Attention: Patrick K. Donnelly, Executive Vice President
10.5. Governing Law. This Agreement and the Loan Documents shall be
-------------
deemed contracts made under the laws of the Commonwealth of Virginia and shall
be governed by and construed in accordance with the laws of said Commonwealth
except insofar as the laws of another jurisdiction may, by reason of mandatory
provisions of law, govern the perfection, priority and enforcement of security
interests in the Collateral.
10.6. Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of Borrower and Bank, and their respective
successors and assigns; provided, that Borrower may not assign any of its rights
hereunder without the prior written consent of Bank, and any such assignment
made without such consent will be void.
26
<PAGE>
10.7. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same instrument.
10.8. No Usury. Notwithstanding anything contained in this
--------
Agreement, the Note, or in any other Loan Document to the contrary, in no event
will interest or other charges deemed to be interest be chargeable against
Borrower if such amount (combined with any other amounts considered to be in the
nature of interest) would exceed the maximum amount permitted by law from time
to time while any of the Indebtedness is outstanding, and in the event any
amount in excess of the lawful maximum is charged or collected by Bank or paid
by Borrower, Borrower shall be entitled to the reimbursement of such excess
together with interest thereon at the Prime Rate.
10.9. Powers. All powers of attorney granted to Bank are coupled
------
with an interest and are irrevocable.
10.10. Approvals. If this Agreement calls for the approval or consent
----------
of Bank, such approval or consent may be given or withheld in the discretion of
Bank unless otherwise specified herein.
10.11. Jurisdiction, Service of Process.
--------------------------------
(a) Any suit, action or proceeding against Borrower with respect to
this Agreement, the Collateral or any Loan Document or any judgment entered
by any court in respect thereof may be brought in the courts of Fairfax
County, Virginia or in the U.S. District Court for the Eastern District of
Virginia as Bank (in its sole discretion) may elect, and Borrower hereby
accepts the nonexclusive jurisdiction of those courts for the purpose of
any suit, action or proceeding. Service of process in any such case may be
had against Borrower by delivery in accordance with the notice provisions
herein or as otherwise permitted by law, and Borrower agrees that such
service shall be valid in all respects for establishing personal
jurisdiction over it.
(b) In addition, Borrower hereby irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement, the Loan Documents, the Collateral or any
judgment entered by any court in respect thereof brought in Fairfax County,
Virginia or the U.S. District Court for the Eastern District of Virginia,
as selected by Bank, and hereby further irrevocably waives any claim that
any suit, action or proceedings brought in Fairfax County, Virginia or in
such District Court has been brought in an inconvenient forum.
10.12. Multiple Borrowers. If more than one Person is named herein
------------------
as Borrower, all obligations, representations and covenants herein and in other
Loan Documents to which Borrower is a party shall be joint and several.
10.13. Other Provisions. Any other or additional terms and conditions
----------------
set forth in Exhibit 10.13 (if any) are hereby incorporated herein.
-------
10.14. Waiver of Jury Trial. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
--------------------
BORROWER AND BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED UPON THIS AGREEMENT OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER LOAN DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE
27
<PAGE>
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
Borrower and Bank agree that they shall not have a remedy of punitive
or exemplary damages against the other in any dispute and hereby waive any right
or claim to punitive or exemplary damages that they have now or which may arise
in the future in connection with any dispute.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal as of the day and year first above written.
FIRST UNION NATIONAL BANK
By /s/ Gregory N. Withers (SEAL)
---------------------------------
Its Vice President
PRA INTERNATIONAL, INC.
By /s/ P.K. Donnelly (SEAL)
---------------------------------
Its Executive Vice President
29
<PAGE>
SCHEDULE OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Section Reference Title
- ------- ----------------- -----
<S> <C> <C>
A Accounts Receivable Report Accounts Receivable Report
B Borrowing Base Certificate Borrowing Base
Certificate
1.1C 1.1 ("Permitted Debt") Permitted Debt
1.1D 1.1 ("Permitted Liens") Permitted Liens
2.3 2.3 ("Financial Condition") Financial Condition
2.4 2.4 ("Litigation") Litigation
2.9 2.9 ("Location") Offices of Borrower
2.11 2.11 ("Labor Law Matters") Labor Law Matters
2.14 2.14 ("Subsidiaries") List of Subsidiaries
3.3 3.3 ("Special Loan Accounts") Special Loan Accounts
3.4 3.4 ("Advances") Advances
6.3 6.3 ("Permitted Dividends and Distributions") Permitted Dividends
6.7 6.7 ("Transactions with Affiliates") Transactions with Affiliates
</TABLE>
30
<PAGE>
EXHIBIT 1.1C
Permitted Debt
--------------
Pharmaceutical Research Associates, Inc.
----------------------------------------
$2,000,000 Loan from Sirrom Capital to Associates (closed 8/11/95),
including Loan Agreement, as amended, Secured Promissory Note, Security
Agreement (and corresponding financing statements)
Lease between The Royal Bank of Scotland plc, Pharm Research Associates
(UK) Limited and the Company pursuant to which Associates has guaranteed
the obligations of the Lessee thereunder
Undertaking by Overseas Parent Company executed by Associates for the
benefit of the Wales Secretary of State in connection with the grant
provided to Pharm Research Associates (UK) Limited
International Medical Technical Consultants, Inc.
-------------------------------------------------
Promissory Notes between IMTCI and UMB Bank Kansas to be paid in full at
closing
$5,000,000 and $1,000,000 Secured Promissory Notes each subject to
adjustment, dated April 1, 1997 from IMTCI to Robert J. Dockhorn, M.D. as
designee
Pharmaceutical Research Associates, GmbH
----------------------------------------
Leases totaling approximately DM1.500.000 pursuant to a facility with
Deutsche Bank
<PAGE>
EXHIBIT 1.1D
Permitted Liens
---------------
Subordinated liens securing the Permitted Debt owing to Sirrom referred to
on Exhibit 1.1C
-------- ----
Landlord's lien on furniture, fixtures, personal property and equipment
located at Associates' office located at 2400 Old Ivy Road,
Charlottesville, VA
Liens on equipment leased by Borrower and its Subsidiaries
<PAGE>
EXHIBIT 2.3
Financial Condition
-------------------
Guaranties or contingent liabilities of Borrower or any of its Subsidiaries
in respect of liabilities disclosed in financial statements delivered to
Bank on or prior to the date hereof or as otherwise disclosed in Exhibit
1.1C
Guaranty dated May 8, 1997 by Borrower of the payment and performance of
Associates' present and future obligations to Amplicon, Inc.
Real Property Leases
--------------------
Pharmaceutical Research Associates, Inc.
----------------------------------------
Agreement of Lease dated as of October 29, 1992 between County West Limited
Partnership and the Associates (2400 Old Ivy Road, Charlottesville, VA)
Agreement of Lease dated as of April 21, 1996 between Execen Limited
Partnership and the Associates (1030 Broad Street, Shrewsbury, NJ)
Agreement of Lease commencing on October 1, 1997 between Sunpark Properties
and the Associates (150 Executive Park Boulevard, San Francisco, CA)
Agreement of Lease commencing on November 1, 1976 between Met Life
International Real Estate Equity Shares and the Associates (8300 Boone
Boulevard, Vienna, VA)
Agreement of Lease commencing on November 15, 1996 between Old Ivy Centre
and Associates (2250 Old Ivy Road, Charlottesville, VA)
Agreement of Lease commencing on April 1, 1997 between Rio West Limited
Partnership and the Associates (337 West Rio Road, Charlottesville, VA)
Associates is also currently negotiating a real property lease for
approximately 80,000 square feet of space in Charlottesville
<PAGE>
-2-
International Medical Technical Consultants, Inc.
-------------------------------------------------
Lease Agreement between the Company and Investment Associates, L.L.C. dated
November 1, 1996 (11755 W. 112th Street, Overland Park, KS)
Lease Agreement dated as of April 1, 1997 between Dockhorn Properties,
L.L.C. and the Company (16300 and 16400 College Blvd. and 11011 Eicher Dr.,
Lenexa, KS)
Lease Agreement dated as of April 1, 1997 between the Beverly Dockhorn
Revocable Trust dated January 5, 1984 and the Company (5300 West 94th
Terrace, Prairie Village, KS)
The Crucible Group, Inc.
------------------------
Lease Agreement dated on or about June 1, 1997 between North Physicians,
Ltd. and Crucible (Northside Professional Center, Building C, Atlanta, GA)
<PAGE>
EXHIBIT 2.4
Litigation
----------
PRA International, Inc. and Pharmaceutical Research Associates, Inc.
--------------------------------------------------------------------
A former employee of Associates filed a complaint against Associates and
Borrower on July 3, 1997 in the United States District Court for the Middle
District of Pennsylvania. Such employee alleges that he is entitled to, under
the terms of his employment contract, commissions on sales in an amount between
$92,737.31 and $130,677.88. Borrower and Associates believe such allegation is
without merit and intend to vigorously defend such charges.
International Medical Technical Consultants, Inc.
-------------------------------------------------
Fall by patient during study at IMTCI. Patient allegedly suffered trauma to
head and Brain resulting in loss of functions in varying severity. It was
determined the incident was drug related, and therefor Hoechst Marion Roussel,
Inc., the Sponsor of the study, has assumed responsibility to defend.
Request for medical records by patient who subsequently tested positive for
Hepatitis C. Medical records indicate the patient tested positive for increased
levels to liver enzymes during pre-screening tests. Such increased levels of
liver enzymes typically indicate Hepatitis C infection, and this indicates that
this positive result was from past exposure. No subsequent contact has been
made since the initial inquiry, nor has any claim been made.
Latonya Hutton filed a charge of discrimination with the Kansas Human Rights
Commission and the Equal Employment Opportunity Commission on September 11,
1996. Ms. Hutton alleges that during her employment with IMTCI, she was
discriminated against on the basis of her race. IMTCI denies the allegations
set forth in Ms. Hutton's charge of discrimination, and intends to vigorously
defend such charges.
A complaint was filed by United Communications Contractors, Inc. ("UCCI")
against IMTCI on May 5, 1997 in the District Court of Johnson County, Kansas.
UCCI alleges that they are due $12,672.29 for work rendered under a contract
with IMTCI to install a phone network system. IMTCI is contesting the payment
on the grounds that UCCI's faulty installation of the phone system caused IMTCI
to suffer substantial damages.
<PAGE>
-2-
Pharmaceutical Research Associates, GmbH ("GmbH")
-------------------------------------------------
Mr. Christophe Bailleul, Insurance Quality Manager Europe, has alleged in
writing that GmbH is liable to him in connection with a number of employment
related matters, including the improper modification of his employment
agreement, the improper withdrawal of his right to use a company car and the
failure to pay him for overtime to which he is entitled. GmbH believes that
these claims are without merit and intends to vigorously defend such charges.
<PAGE>
EXHIBIT 2.9
Offices of Borrower
-------------------
PRA International, Inc.
-----------------------
8300 Boone Boulevard, #310
Vienna, VA 22182
Pharmaceutical Research Associates, Inc.
----------------------------------------
8300 Boone Boulevard, #310 2250 Old Ivy Road
Vienna, VA 22182 Charlottesville, VA 22903
2400 Old Ivy Road 1030 Broad Street
Charlottesville, VA 22903 Shrewsbury, NJ 07702
16400 College Boulevard 150 Executive Park Boulevard
Lenexa, KS 66219 2nd Floor
San Francisco, CA 94134
337 West Rio Road
Charlottesville, VA 22901
International Medical Technical Consultants, Inc.
-------------------------------------------------
8300 Boone Boulevard, #310 5300 West 94th Terrace
Vienna, VA 22182 Prairie Village, KS
16300 College Boulevard 2864 Thornridge Drive
Lenexa, KS 66219 Atlanta, GA 30340
11755 W. 112th Street 1459 Montreal Road, Suite 506
Overland Park, KS Tucker, GA 30084
11011 Eicher Drive 993-D Johnson Ferry Road
Lenexa, KS Suite 360
Atlanta, GA 30342
The Crucible Group, Inc.
------------------------
8300 Boone Boulevard, #310 1459 Montreal Road, Suite 506
Vienna, VA 22182 Tucker, GA 30084
2864 Thornridge Drive 993-D Johnson Ferry Road
Atlanta, GA 30340 Suite 360
Atlanta, GA 30342
<PAGE>
-2-
Northside Professional Center
Building C
Atlanta, GA
<PAGE>
EXHIBIT 2.11
Labor Law Matters
-----------------
None
<PAGE>
EXHIBIT 2.14
Subsidiaries
------------
Pharmaceutical Research Associates, Inc.
International Medical Technical Consultants, Inc.
The Crucible Group, Inc.
Pharmaceutical Research Associates, GmbH
Pharm Research Associates (UK) Limited
<PAGE>
EXHIBIT 6.3
Permitted Dividends and Distributions
-------------------------------------
Dividends accruing on a quarterly basis on the Borrower's Series A
Preferred Stock and related distributions, all as more fully set forth in
the Certificate of Designations of Borrower dated October 10, 1996
<PAGE>
EXHIBIT 6.7
Transaction with Affiliates
---------------------------
Stockholders' Agreement dated as of October 11, 1996, as amended, among
International, the Carlyle Stockholders as defined therein and the Company
Stockholders as defined therein
Lease Agreement dated as of April 1, 1997 between Dockhorn Properties,
L.L.C. and IMTCI (16300 and 16400 College Blvd. and 11011 Eicher Dr.,
Lenexa, KS)
Lease Agreement dated as of April 1, 1997 between the Beverly Dockhorn
Revocable Trust dated January 5, 1984 and IMTCI (5300 West 94th Terrace,
Prairie Village, KS)
<PAGE>
Exhibit 10.3
REVOLVING PROMISSORY NOTE
$7,500,000.00 August 25, 1997
PRA International, Inc.
8300 Boone Boulevard, Suite 310
Vienna Virginia 22182
("Borrower")
--------
First Union National Bank
1970 Chain Bridge Road
McLean, Virginia 22102
("Bank")
----
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of up to Seven Million and Five Hundred Thousand and No/100
Dollars ($7,500,000.00) or such sum as may be advanced and outstanding from time
to time, with interest on the unpaid principal balance at the rate and on the
terms provided in this Promissory Note (including all renewals, extensions or
modifications hereof, this "Note").
----
INTEREST RATE. Subject to the provisions hereof, the unpaid principal balance
of this Note shall bear interest from the date hereof at the LIBOR MARKET
INDEX-BASED RATE (hereinafter defined). The LIBOR Market Index-Based Rate shall
be adjusted daily as applicable to reflect the LIBOR MARKET INDEX (hereinafter
defined).
"LIBOR Market Index-Based Rate" means the LIBOR Market Index-Rate plus two
-----------------------------
percent, as the LIBOR Market Index may change from day to day. "LIBOR Market
------------
Index", for any day, is the rate (rounded to the next higher 1/100 of 1%) for
- -----
1-month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m.,
London time, on such day, or if such day is not a London business day, then the
immediately preceding London business day (or if not so reported, then as
determined by Bank from another recognized source of interbank quotation).
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 2%
("Default Rate"). The Default Rate shall also apply from acceleration until the
--------------
Obligations or any judgment thereon is paid in full.
INTEREST COMPUTATION. (ACTUAL/360). Interest shall be computed on the basis of
a 360-day year for the actual number of days in the applicable period
("Actual/360 Computation"). The Actual/360 Computation determines the annual
------------------------
effective interest yield by taking the stated (nominal) interest rate for a
year's period and then dividing said rate by 360 to determine the daily periodic
rate to be applied for each day in the interest period. Application of the
Actual/360 Computation produces an annualized effective interest rate exceeding
that of the nominal rate.
<PAGE>
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only on the first Business Day of each month, until
fully paid. In any event, all principal and accrued interest shall be due and
payable on the Termination Date, or at such other time at which all of the
outstanding Obligations hereunder shall be due and payable (whether by
acceleration or otherwise).
RESCISSION OF PAYMENTS. If any payment received by Bank under this Note or
other Loan Documents is rescinded, avoided or for any reason returned by Bank
because of any adverse claim or threatened action, the returned payment shall
remain payable as an obligation of all persons liable under this Note or other
Loan Documents as though such payment had not been made.
LOAN AGREEMENT; LOAN DOCUMENTS; OBLIGATIONS. This Note is subject to the terms
and conditions of that certain Revolving Credit and Security Agreement between
Bank and Borrower dated as of the date hereof, as the same may be modified and
amended from time to time (the "Loan Agreement"). All capitalized terms not
--------------
otherwise defined herein shall have such meaning as assigned to them in the Loan
Agreement. The term "Obligations" used in this Note refers to any and all
-----------
indebtedness and other obligations under this Note and all other obligations as
defined in the respective Loan Documents.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 4% of each payment past due for 15 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's deposit accounts with Bank and any of its
affiliates.
EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or more of
----------------
the following events shall occur (individually, an "Event of Default," and
----------------
collectively, "Events of Default"):
-----------------
NONPAYMENT; NONPERFORMANCE. The failure of timely payment or performance of the
Obligations under this Note, which default shall not be cured within fifteen
(15) days (and if cured within (15) days shall occur more than twice in any
fiscal year); or
2
<PAGE>
EVENT OF DEFAULT. The occurrence of any Event of Default as defined in the Loan
Agreement.
REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence and during the continuation
of an Event of Default, Bank may take the following actions: BANK LIEN AND SET-
OFF. Exercise its right of set-off or to foreclose its security interest or
lien against any deposit account of any nature or maturity of Borrower with Bank
without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this
Note and all other Obligations, and all of the Obligations shall be immediately
due and payable. CUMULATIVE. Exercise any rights and remedies as provided
under the Note, the Loan Agreement, other Loan Documents, or as provided by law
or equity.
REVOLVING CREDIT ADVANCES. This is a revolving credit note. Borrower may
borrow, repay and reborrow, and Bank may advance and readvance under this Note
respectively from time to time, so long as the total indebtedness outstanding at
any one time does not exceed the lesser of (i) the principal amount stated on
the face of this Note or (ii) the Borrowing Base. Bank's obligation to advance
or readvance under this Note shall terminate if Borrower is in Default under
this Note.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note
and other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default shall operate as a waiver of
any other Default or the same Default on a future occasion. Neither the failure
nor any delay on the part of Bank in exercising any right, power, or remedy
under this Note and other Loan Documents shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Each Borrower and any other Person liable under this Note waives presentment,
protest, notice of dishonor, demand for payment, notice of intention to
accelerate maturity, notice of acceleration of maturity, notice of sale and all
other like notices. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any Borrower or any Person
liable under this Note or other Loan Documents, all without notice to or consent
of any Borrower or any person who may be liable under this Note or other Loan
Documents and without affecting the liability of Borrower or any Person who may
be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. Borrower shall not assign its rights and interest
hereunder without the prior written consent of Bank, and any attempt by Borrower
to assign without Bank's prior written consent is null and void. Any assignment
shall not release Borrower from the Obligations. APPLICABLE LAW; CONFLICT
BETWEEN DOCUMENTS. This Note and other Loan Documents shall be governed by and
construed under the laws of the state where Bank first shown above is located
without regard to that state's conflict of laws principles. SEVERABILITY. If
any provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. PLURAL; CAPTIONS. All references in the Loan Documents to Borrower,
guarantor, person, document or other nouns of reference mean both the singular
and plural form, as the case may be. The captions contained in the Loan
Documents are inserted for convenience only and shall not affect the meaning or
interpretation of the Loan Documents. BINDING CONTRACT. Borrower by execution
of and Bank by acceptance of this Note agree that each party is bound to all
3
<PAGE>
terms and provisions of this Note. ENTIRETY. This Note and the other Loan
Documents delivered in connection herewith and therewith embody the entire
agreement between the parties and supersede all prior agreements and
understandings relating to the subject matter hereof and thereof. ADVANCES.
Bank shall make other advances and readvances under this Note pursuant hereto
and subject to the terms and provisions of the Credit Agreement. POSTING OF
PAYMENTS. All payments received during normal banking hours after 2:00 p.m.
local time at the office of Bank first shown above shall be deemed received at
the opening of the next banking day. Unless otherwise permitted by Bank, any
repayments of this Note, other than immediately available U.S. currency, will
not be credited to the outstanding loan balance until Bank receives collected
funds. JOINT AND SEVERAL OBLIGATIONS. Each Borrower is jointly and severally
obligated under this Note. FEES AND TAXES. Borrower shall promptly pay all
documentary, intangible recordation and/or similar taxes on this transaction
whether assessed at closing or arising from time to time. BUSINESS PURPOSE.
Borrower represents that the loan evidenced hereby is being obtained for
business purposes.
WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWER AND BANK
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS NOTE OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER LOAN
DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES ENTERING INTO THIS NOTE.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any dispute and hereby waive any right or
claim to punitive or exemplary damages that they have now or which may arise in
the future in connection with any dispute.
4
<PAGE>
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
PRA International, Inc.
Taxpayer Identification Number: 54-1820933
CORPORATE By: /s/ Patrick K. Donnelly (SEAL)
SEAL ------------------------------------------------
Patrick K. Donnelly
Executive Vice President
5
<PAGE>
Exhibit 10.4
SUBORDINATED PROMISSORY NOTE
----------------------------
Due April 1, 2000
$1,000,000.00 (subject to As of April 1, 1997
adjustment as set forth below)
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL MEDICAL TECHNICAL
CONSULTANTS, INC., a Kansas corporation (herein called the "Company"), hereby
promises to pay to ROBERT J. DOCKHORN, M.D. (as the designee of the Sellers (as
hereafter defined)) or permitted registered assigns (hereinafter called the
"Payee"), the principal sum of One Million Dollars ($1,000,000.00) (subject to
adjustment in accordance with the terms of this Note and Section 2.3 of the
Purchase Agreement (as hereafter defined)), together with interest from the date
hereof (computed on the basis of the actual number of days elapsed) at the rate
of eight and one-third of one percent (8.33%) per annum on the unpaid balance
hereof, from time to time at 8510 Delmar Lane, Prairie Village, Kansas 66207 or
at such other place as the Payee may designate from time to time in writing.
The principal balance hereof shall be payable in lawful money of the United
States of America in three (3) equal annual installments of $333,333.33 payable
on the first day of April, commencing on April 1, 1998. In the event that the
outstanding principal amount of this Note is adjusted in accordance with this
Note or Section 2.3 of the Purchase Agreement, such adjustment shall be made in
accordance with this Note or the Purchase Agreement and shall be reflected in an
allonge to this Note.
On the first day of January, April, July, and October commencing on July 1,
1997 (each an "Interest Payment Date"), the Company will pay in cash accrued
interest on the unpaid balance hereof. If not sooner paid, the entire unpaid
principal balance hereof and accrued interest thereon shall be due and payable
in full on April 1, 2000.
This Note has been issued pursuant to the terms of a Stock Purchase Agreement
dated as of February 11, 1997 by and among PRA International, Inc. (the
"Buyer"), Robert J. Dockhorn, M.D., Beverly W. Dockhorn, Douglas R. Dockhorn,
Douglas R. and Stephanie Dockhorn JTWROS, David W. and Allison Dockhorn JTWROS
and Robert and Beverly Dockhorn Charitable Remainder Unitrust (collectively, the
"Sellers") and the Company (as amended and in effect from time to time, the
"Purchase Agreement"). Any and all payments that otherwise may be due and
payable under this Note are subject to rights of setoff, as, to the extent and
in accordance with the terms of the Purchase Agreement.
<PAGE>
-2-
1. Definitions.
-----------
(a) Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meaning ascribed to them in the
Purchase Agreement.
(b) "Bankruptcy Event" means (i) any insolvency or bankruptcy case or
---------- -----
proceeding, or any receivership, liquidation (total or partial),
conservatorship, moratorium, rearrangement, reorganization, or other similar
case or proceeding in connection therewith relative to the Company, the Buyer or
their respective assets, whether voluntary or involuntary, (ii) any total or
partial liquidation (but specifically excluding any consensual sale by the
Company or the Buyer of a portion of its assets), dissolution or winding up of
the Company or the Buyer, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (iii) any full or partial assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company or the Buyer, whether voluntary or involuntary.
(c) "Senior Indebtedness" means the principal of and interest on (including
------ ------------
any interest accruing subsequent to any Bankruptcy Event), and all obligations
of the Company for the payment of fees, indemnities, costs, expenses, protective
advances and other amounts payable with respect to, arising from or in
connection with, all Indebtedness for borrowed money or credit received
outstanding at any time, including, without limitation, Indebtedness evidenced
by notes, bonds or debentures regardless of whether such Indebtedness may be
convertible into equity securities of the Company or any of its affiliates,
unless by the terms of the instrument creating, governing or evidencing such
Indebtedness it is expressly provided that such Indebtedness is not senior to or
superior in right of payment to this Note; provided, however, that Senior
Indebtedness shall not include (a) trade payables, general obligations and
accrued expenses incurred in the ordinary course of business owing to persons
other than commercial banks, financial institutions or other institutional
lenders or investors and (b) any Indebtedness of the Company (or any of its
successors) to any selling Person in connection with the acquisition of any
Person or business, or some, substantially all or all of the assets of any such
Person or business, irrespective of the form or nature of such transaction
(whether by merger, reverse merger, asset purchase or otherwise), which
Indebtedness is owed by the Company (or its successor) to a selling Person or
selling Persons in such acquisition (such Indebtedness to such a selling Person
to rank pari passu with the Indebtedness evidenced by this Note).
---- -----
<PAGE>
-3-
(d) "Senior Indebtedness Representative" means, as of a particular date,
------ ------------ --------------
the Person holding the largest outstanding principal amount of Senior
Indebtedness as of such date.
(e) "Standstill Period" means the period commencing on the date on which
---------- ------
the Payee shall have received written notice from any holder of Senior
Indebtedness of the occurrence of an Event of Default (as defined in any of the
loan documents relating to Senior Indebtedness (collectively, as any such loan
documents may be amended, modified, amended and restated or replaced, the
"Senior Loan Documents") under any of the Senior Loan Documents and ending on
the earlier of (A) 365 days after the commencement of such period and (B) the
date on which all Events of Default under the Senior Loan Documents have been
cured or waived.
(f) "Subordinated Indebtedness" means, collectively, any and all principal,
------------ ------------
interest and other amounts that may be owing or payable from time to time under,
with respect to or in any way in connection with this Note.
2. Subordination.
-------------
(a) Subordination to Senior Indebtedness. Notwithstanding any other
------------------------------------
provision of this Agreement, the payment of the Subordinated Indebtedness is and
shall be junior and subordinated in right of payment to the extent and in the
manner set forth in this Note, to the prior payment in full of all amounts due
and owing upon all Senior Indebtedness at any time outstanding (including any
interest accruing subsequent to any Bankruptcy Event). This Paragraph (a) shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions.
(b) Prior Payment of Senior Indebtedness in Bankruptcy, Etc.
--------------------------------------------------------
(i) In the event of any Bankruptcy Event, if all Senior Indebtedness
(including any interest accruing subsequent to any Bankruptcy Event) has
not been paid in full at such time, the Payee and the Sellers shall demand,
but only the holders of Senior Indebtedness may collect, payment of all
Subordinated Indebtedness due from the Company or the Buyer, as the case
may be. Furthermore, in the event of the occurrence of any Bankruptcy
Event, or any meeting, hearing or proceeding in connection therewith,
involving the Company or the Buyer,
<PAGE>
-4-
if all of the Senior Indebtedness have not been paid in full in cash at
such time, the Senior Indebtedness Representative is hereby irrevocably
authorized at any meeting or hearing, in any such proceeding and,
generally, in connection with any and all aspects of such Bankruptcy Event,
and each of the Company and the Buyer hereby irrevocably appoints the
Senior Indebtedness Representative to act as its attorney-in-fact in
connection therewith (which power is agreed and acknowledged to be coupled
with an interest):
(A) To endorse claims comprising any of the Subordinated
Indebtedness in its own name or the name of any or all of the holders
of Subordinated Indebtedness and apply the same or the proceeds of any
realization upon the same, to the Senior Indebtedness (which payments,
in the absence of an agreement between the holders of Senior
Indebtedness, shall be made on a ratable basis, based upon the amount
of principal outstanding, if there should be two (2) or more holders
of Senior Indebtedness);
(B) To collect any assets of the Company or the Buyer, dividended
or applied by way of dividend or payment or any securities issued on
account of any of the Subordinated Indebtedness and apply the same or
the proceeds thereof, which creditor elects to accept, to the Senior
Indebtedness;
(C) To act in all respects on behalf of and with respect to the
Subordinated Indebtedness, including voting claims from any of the
Subordinated Indebtedness to accept or reject any plan or partial or
complete liquidation, reorganization, arrangement, composition or
extension and negotiating and compromising any such claim in
connection therewith or otherwise; and
(D) To take generally any action in connection with any such
meeting or proceeding which any or all of the holders of Subordinated
Indebtedness might otherwise take.
(ii) Notwithstanding the provisions of this Paragraph (b), each holder
of Subordinated Indebtedness shall, on behalf of and in the name of any or
all of the holders of Senior Indebtedness be entitled to file any claims,
proofs of claim or other instruments of similar character necessary to
enforce the obligations of the Company or the Buyer with respect to the
<PAGE>
-5-
Subordinated Indebtedness and the Senior Indebtedness Representative shall
be entitled to file any claims, proofs of claim or other instruments of
similar character necessary to enforce the obligations of the Company or
the Buyer with respect to the Senior Indebtedness. Any and all payments or
distributions received in any such proceedings on account of the
Subordinated Indebtedness shall be delivered to the Senior Indebtedness
Representative until the Senior Indebtedness shall have been paid in full
in cash.
(iii) In order to enable the Senior Indebtedness Representative to
undertake the foregoing, each of the holders of Subordinated Indebtedness
hereby, effective as of the date of initiation or occurrence of any
Bankruptcy Event involving the Company or the Buyer (to and including the
date on which the Senior Indebtedness is irrevocably paid in full in cash),
assigns to the Senior Indebtedness Representative the Subordinated
Indebtedness.
(c) No Payment on Subordinated Indebtedness Under Certain Conditions.
----------------------------------------------------------------
(i) During any Standstill Period with respect to any Subordinated
Indebtedness, (A) no payment shall be made by the Company or the Buyer or
accepted by the Payee or any of the Sellers with respect to the
Subordinated Indebtedness; and (B) unless the holders of Senior
Indebtedness shall have commenced an action or proceeding against the
Company or the Buyer to enforce any of their rights in respect of the
Senior Indebtedness, no action or proceeding shall be commenced by the
Payee or any of the Sellers with respect to the Subordinated Indebtedness
to collect payment thereof. The acceleration of any Subordinated
Indebtedness by the Payee or any of the Sellers during any Standstill
Period applicable thereto shall be deemed to be automatically rescinded
upon the expiration of such Standstill Period if upon such expiration no
Event of Default (other than failure by the Company or the Buyer to pay the
principal amount so accelerated) exists under this Note.
(ii) Notwithstanding anything herein to the contrary, no Standstill
Period shall commence within 60 days after the end of another Standstill
Period nor may the provisions of this Paragraph (c) nor the Standstill
Periods established hereby restrict or prohibit for more than 365 days in
any 730-day period the Company from making or the holder thereof from
accepting any payment of Subordinated Indebtedness or the
<PAGE>
-6-
Payee or any of the Sellers from bringing any action or proceeding to
collect any such payment.
(d) Permitted Payments in Respect of Subordinated Indebtedness.
----------------------------------------------------------
Notwithstanding any provisions to the contrary contained in this Note, so long
as no Standstill Period or Bankruptcy Event shall then exist, the Company shall
be permitted to remit to the Payee scheduled payments of principal and interest
hereunder (to the extent such payments are due under the terms of this Note).
(e) Payments Held in Trust. If the Payee or any of the Sellers receives
----------------------
any payment or distribution in respect of the Subordinated Indebtedness in
violation of the terms of this Note, such payment or distribution shall be held
in trust for and paid ratably to the holders of Senior Indebtedness or their
representatives. No such payments or distributions paid to the holders of
Senior Indebtedness or their representatives by the Payee or any of the Sellers
shall be deemed to discharge any of such Subordinated Indebtedness.
(f) Scope of Subordination. The subordination provisions of this Note are
----------------------
intended solely to define the relative rights of (i) the Payee and the Sellers
with respect to the Subordinated Indebtedness and (ii) the holders of Senior
Indebtedness. Nothing in this Note shall impair, as between or among the
Company, the Buyer, their respective creditors (other than the holders of Senior
Indebtedness) and the Payee and Sellers with respect to the Subordinated
Indebtedness, the unconditional and absolute obligation of the Company and the
Buyer to timely pay the principal, interest, and other amounts and obligations
owing under the terms of this Note or affect the rights of the Payee and the
Sellers and the respective creditors of the Company and the Buyer (other than
the holders of Senior Indebtedness), nor shall anything prevent the Payee or any
Seller from accepting any payment with respect to the Subordinated Indebtedness
or exercising all remedies otherwise permitted by applicable law upon default
with respect to the Subordinated Indebtedness or this Note, subject to any
rights under this Note of the holders of Senior Indebtedness.
(g) Notices. The holders of Senior Indebtedness will promptly notify the
-------
Payee in writing of the occurrence of any Event of Default (as defined in any of
the Senior Loan Documents), and Payee and the Sellers will promptly notify the
holders of Senior Indebtedness in writing of the occurrence of any Event of
Default hereunder. The failure to give such notice shall not, however, deprive
either the holders of Senior Indebtedness or Payee and the Sellers of any rights
or remedies to which they are entitled hereunder.
<PAGE>
-7-
(h) Survival of Rights. No right of any present or future holders of any
------------------
Senior Indebtedness to enforce the subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, by any forbearance, waiver, consent, compromise, or taking or release of
security by the Company or the Buyer or any such holder in respect of such
Senior Indebtedness or by any noncompliance by the Company or the Buyer with the
terms of this Note, regardless of any knowledge thereof which any such holder
may have or be otherwise charged with. No provision in any supplemental
agreement which affects the superior position of the holders of the Senior
Indebtedness shall be effective against the holders of the Senior Indebtedness
who have not consented thereto.
(i) Miscellaneous.
-------------
(i) The subordination provisions of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be
returned by any holder of Senior Indebtedness or any representative of such
holder upon the insolvency, bankruptcy or reorganization of the Company, or
the Buyer, or otherwise, all as though such payment had not been made.
(ii) The Payee and the Sellers, the Company and the Buyer each hereby
waive promptness, diligence, notice of acceptance and any other notice with
respect to any of the Senior Indebtedness and the subordination provisions
of this Note and any requirement that any holder of Senior Indebtedness
protect, secure, perfect or insure any security interest or lien or any
property subject thereto or exhaust any right or take any action against
the Company or the Buyer, or any other person or entity or any collateral.
(iii) No failure on the part of any holder of Senior Indebtedness or
any representative of such holder to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
<PAGE>
-8-
(iv) The subordination provisions of this Note constitute a continuing
agreement and shall (A) remain in full force and effect until the Senior
Indebtedness shall have been paid in full in cash (or such payment shall
have been duly provided for to the reasonable satisfaction of the holders
of Senior Indebtedness), (B) be binding upon the Payee, the Sellers, the
Company, the Buyer, and each of their respective successors and assigns,
and (C) inure to the benefit of and be enforceable by each holder of Senior
Indebtedness and their representatives, successors, transferees and
assigns. Without limiting the generality of the foregoing clause (C), any
holder of the Senior Indebtedness may assign or otherwise transfer any note
or other evidence of indebtedness held by it, or grant any participation in
any of its rights or obligations under the Senior Loan Documents, to any
other person or entity, and such other person or entity shall thereupon
become vested with all the rights in respect thereof granted to such holder
herein or otherwise.
(v) All rights and interests under the subordination provisions of
this Note of the holders of the Senior Indebtedness and all agreements and
obligations of the Payee, the Sellers, the Company and the Buyer under the
subordination provisions of this Note shall remain in full force and effect
irrespective of (A) any amendment or waiver of or any consent to departure
from any of the Senior Loan Documents or any other agreement or instrument
relating thereto, (B) any exchange, release or non-perfection of any
collateral or security interests therein, or any release or waiver of or
consent to departure from any guarantee for all or any of the Senior
Indebtedness, or (C) the taking of any other action, or any inaction, by or
on the part of any of the holders of Senior Indebtedness or any other
Person that might otherwise in any manner operate to modify or otherwise
affect the subordination provisions contained herein, all of which may be
done without notice to any of the holders of Subordinated Indebtedness or
any other Person.
3. Prepayment.
----------
The Company may prepay all or any portion of the outstanding principal
amount of this Note at any time and from time to time without any penalty or
premium in the manner provided below. In the case of any partial prepayment
hereof, payments shall be applied first to payment of any accrued interest owing
hereunder, and then against the principal balance hereof. Prepayment of
principal will be applied to the installments due on this Note in the order of
their maturity.
<PAGE>
-9-
4. Events of Default; Acceleration.
-------------------------------
If any of the following events ("Events of Default") shall occur: (a) the
Company shall fail to make any principal or interest payment hereunder when the
same becomes due and such failure shall continue for fifteen (15) days after
receipt of written notice from the Payee; (b) the Company or Buyer; (i) shall
make an assignment for the benefit of creditors; (ii) shall be adjudicated
bankrupt or insolvent; (iii) shall seek the appointment of, or be the subject of
an order appointing, a trustee, liquidator or receiver as to all or part of its
assets, (iv) shall commence, approve or consent to, any case or proceeding under
any bankruptcy, reorganization or similar law and, in the case of an involuntary
case or proceeding, such case or proceeding is not dismissed within forty-five
(45) days following the commencement thereof, or (v) shall be the subject of an
order for relief in an involuntary case under federal bankruptcy law; or (c) the
Company or Buyer shall be unable to pay its debts as they mature;
THEN, or at any time thereafter:
(1) In the case of any Event of Default under clauses (b) or (c), the
entire unpaid principal amount outstanding hereunder and all interest accrued
and unpaid thereon shall automatically become forthwith due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Company; and
(2) In the case of any Event of Default other than under clauses (b) or
(c), the Payee may, by written notice to the Company, declare the unpaid
principal amount outstanding hereunder and all interest accrued and unpaid
thereon to be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company.
No remedy herein conferred upon the Payee is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and in addition
to every other remedy hereunder, now or hereafter existing at law or in equity
or otherwise.
5. Exchange Option in the Event of an IPO.
--------------------------------------
In the event of an initial public offering of the Buyer's Common Stock, par
value $.01 per share (the "Common Stock"), the Company shall deliver to the
Payee a written notice of such offering at least thirty (30) days prior to such
offering. For a period of ten (10) days after the Company's delivery of such
notice, the Payee shall have the right, exercisable in its discretion by
delivering
<PAGE>
-10-
to the Company written notice of exercise within such ten (10) day period, to
exchange any portion of this Note for (a) the number of shares of Common Stock
obtained by (i) dividing the portion of the outstanding amount of this Note
(including accrued and unpaid interest thereon) being exchanged by the per share
issuance price of the Common Stock established by the underwriter engaged by the
Buyer in connection with such offering, and (ii) rounding such quotient down to
the nearest whole number, and (b) a cash payment to the Payee in an amount equal
to the amount by which the quotient obtained pursuant to clause (i) above was
rounded down pursuant to clause (ii) above multiplied by such per share issuance
price. The Company represents and warrants to the Payee that the Buyer has
agreed to provide the shares of Common Stock necessary to effect the exchange
contemplated by this Section in consideration for the Payee and the Sellers'
canceling or, in the case of a partial exchange, decreasing the amount owing to
Sellers under the Note and the Buyer's obligations in respect thereof under the
Guaranty. Notwithstanding anything to the contrary contained in this Section 5,
the rights of the Payee and the Sellers hereunder shall be subject in all cases
to any and all restrictions and requirements imposed by the Buyer's underwriter
in such offering.
6. Further Assurances.
------------------
The Payee and the Sellers, the Company and the Buyer each will, at the
Company's (or, in the case of the Buyer, the Buyer's) expense and at any time
and from time to time, promptly execute and deliver all further agreements,
instruments and documents, and take all further action, that any actual or
potential holders of Senior Indebtedness may reasonably deem necessary or
appropriate in order to reflect the terms of this Note, protect any right or
interest granted or purported to be granted by the provisions of this Note or to
enable any of the holders of Senior Indebtedness to exercise and enforce their
rights and remedies hereunder.
7. Miscellaneous
-------------
(a) In case any provision of this Note shall be invalid, illegal or
unenforceable, or partially invalid, illegal or unenforceable, the provision
shall be enforced to the extent, if any, that it may legally be enforced and the
validity, legality and unenforceability of the remaining provisions shall not in
any way be affected or impaired thereby. The headings in this Note are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
(b) The terms of this Note shall be governed by and construed in accordance
with the laws of the State of Delaware.
<PAGE>
-11-
(c) This Note shall not be valid or obligatory for any purpose until
authenticated by the execution hereof by an officer of the Company.
(d) None of the Sellers shall be entitled to transfer to any Person (other
than to the spouse or lineal descendants of any Seller or a trust solely for the
benefit of one or more of the foregoing) all or any portion of such Seller's
interest in this Note or the Indebtedness evidenced hereby.
<PAGE>
-12-
IN WITNESS WHEREOF, International Medical Technical Consultants, Inc., a
Kansas corporation, has caused this Note to be signed in its corporate name by
its officer, by authority duly given, all as of the day and year first above
written.
INTERNATIONAL MEDICAL
TECHNICAL CONSULTANTS, INC.
[SEAL]
By: /s/ P.K. Donnelly
---------------------------------------
Title: Executive Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGES]
<PAGE>
-13-
ACCEPTED AND AGREED
as of the date first above written:
"PAYEE"
- -------
- ------------------------------
- ------------------------------
"SELLERS"
- ---------
/s/ ROBERT J. DOCKHORN, M.D.
- ------------------------------
ROBERT J. DOCKHORN, M.D.
/s/ BEVERLY W. DOCKHORN
- ------------------------------
BEVERLY W. DOCKHORN
/s/ DOUGLAS R. DOCKHORN
- ------------------------------
DOUGLAS R. DOCKHORN
DOUGLAS R. AND STEPHANIE
DOCKHORN JTWROS
By: /s/ DOUGLAS R. DOCKHORN
---------------------------
DOUGLAS R. DOCKHORN
By: /s/ STEPHANIE DOCKHORN
---------------------------
STEPHANIE DOCKHORN
<PAGE>
-14-
DAVID W. AND ALLISON
DOCKHORN JTWROS
By: /s/ DAVID W. DOCKHORN
---------------------------
DAVID W. DOCKHORN
By: /s/ ALLISON DOCKHORN
---------------------------
ALLISON DOCKHORN
ROBERT AND BEVERLY DOCKHORN
CHARITABLE REMAINDER UNITRUST
By: /s/ Larry J. Bingham
---------------------------
Title: Trustee
<PAGE>
Exhibit 10.5
SUBORDINATED PROMISSORY NOTE
----------------------------
Due April 1, 2001
$5,000,000.00 (subject to As of April 1, 1997
adjustment as set forth below)
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL MEDICAL TECHNICAL
CONSULTANTS, INC., a Kansas corporation (herein called the "Company"), hereby
promises to pay to ROBERT J. DOCKHORN, M.D. (as the designee of the Sellers (as
hereafter defined)) or permitted registered assigns (hereinafter called the
"Payee"), the principal sum of Five Million Dollars ($5,000,000.00) (subject to
adjustment in accordance with the terms of this Note and Section 2.3 of the
Purchase Agreement (as hereafter defined)), together with interest from the date
hereof (computed on the basis of the actual number of days elapsed) at the rate
of eight and one-third of one percent (8.33%) per annum on the unpaid balance
hereof, from time to time at 8510 Delmar Lane, Prairie Village, Kansas 66207 or
at such other place as the Payee may designate from time to time in writing.
The principal balance hereof shall be payable in lawful money of the United
States of America in fourteen (14) equal quarterly installments of $357,142.86
payable on the first day of January, April, July, and October commencing on
October 1, 1997 (each a "Quarterly Payment Date"). In the event that the
outstanding principal amount of this Note is adjusted in accordance with this
Note or Section 2.3 of the Purchase Agreement, such adjustment shall be made in
accordance with this Note or the Purchase Agreement and shall be reflected in an
allonge to this Note.
Until the first anniversary of the date hereof, interest shall accrue on
the unpaid balance hereof and be added to the outstanding principal amount of
this Note on such first anniversary and the twelve (12) remaining quarterly
installments of principal shall be increased by $34,708.33 (subject to
adjustment in accordance with this Note or the Purchase Agreement). On each
Quarterly Payment Date thereafter, the Company will pay in cash accrued interest
on the unpaid balance hereof. If not sooner paid, the entire unpaid principal
balance hereof and accrued interest thereon shall be due and payable in full on
April 1, 2001.
This Note has been issued pursuant to the terms of a Stock Purchase
Agreement dated as of February 11, 1997 by and among PRA International, Inc.
(the "Buyer"), Robert J. Dockhorn, M.D., Beverly W. Dockhorn, Douglas R.
Dockhorn, Douglas R. and Stephanie Dockhorn JTWROS, David W. and Allison
Dockhorn JTWROS and Robert and Beverly Dockhorn Charitable Remainder
<PAGE>
-2-
Unitrust (collectively, the "Sellers") and the Company (as amended and in effect
from time to time, the "Purchase Agreement"). Any and all payments that
otherwise may be due and payable under this Note are subject to rights of
setoff, as, to the extent and in accordance with the terms of the Purchase
Agreement.
1. Definitions.
-----------
(a) Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meaning ascribed to them in the
Purchase Agreement.
(b) "Bankruptcy Event" means (i) any insolvency or bankruptcy case or
---------- -----
proceeding, or any receivership, liquidation (total or partial),
conservatorship, moratorium, rearrangement, reorganization, or other similar
case or proceeding in connection therewith relative to the Company, the Buyer or
their respective assets, whether voluntary or involuntary, (ii) any total or
partial liquidation (but specifically excluding any consensual sale by the
Company or the Buyer of a portion of its assets), dissolution or winding up of
the Company or the Buyer, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (iii) any full or partial assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company or the Buyer, whether voluntary or involuntary.
(c) "Senior Indebtedness" means the principal of and interest on (including
------ ------------
any interest accruing subsequent to any Bankruptcy Event), and all obligations
of the Company for the payment of fees, indemnities, costs, expenses, protective
advances and other amounts payable with respect to, arising from or in
connection with, all Indebtedness for borrowed money or credit received
outstanding at any time, including, without limitation, Indebtedness evidenced
by notes, bonds or debentures regardless of whether such Indebtedness may be
convertible into equity securities of the Company or any of its affiliates,
unless by the terms of the instrument creating, governing or evidencing such
Indebtedness it is expressly provided that such Indebtedness is not senior to or
superior in right of payment to this Note; provided, however, that Senior
Indebtedness shall not include (a) trade payables, general obligations and
accrued expenses incurred in the ordinary course of business owing to persons
other than commercial banks, financial institutions or other institutional
lenders or investors and (b) any Indebtedness of the Company (or any of its
successors) to any selling Person in connection with the acquisition of any
Person or business, or some, substantially all or all of the assets of any such
Person or business, irrespective of the form or nature of such transaction
(whether by merger, reverse merger, asset purchase or otherwise), which
<PAGE>
-3-
Indebtedness is owed by the Company (or its successor) to a selling Person or
selling Persons in such acquisition (such Indebtedness to such a selling Person
to rank pari passu with the Indebtedness evidenced by this Note).
---- -----
(d) "Senior Indebtedness Representative" means, as of a particular date,
------ ------------ --------------
the Person holding the largest outstanding principal amount of Senior
Indebtedness as of such date.
(e) "Standstill Period" means the period commencing on the date on which
---------- ------
the Payee shall have received written notice from any holder of Senior
Indebtedness of the occurrence of an Event of Default (as defined in any of the
loan documents relating to Senior Indebtedness (collectively, as any such loan
documents may be amended, modified, amended and restated or replaced, the
"Senior Loan Documents") under any of the Senior Loan Documents and ending on
the earlier of (A) 365 days after the commencement of such period and (B) the
date on which all Events of Default under the Senior Loan Documents have been
cured or waived.
(f) "Subordinated Indebtedness" means, collectively, any and all principal,
------------ ------------
interest and other amounts that may be owing or payable from time to time under,
with respect to or in any way in connection with this Note.
2. Subordination.
-------------
(a) Subordination to Senior Indebtedness. Notwithstanding any other
------------------------------------
provision of this Agreement, the payment of the Subordinated Indebtedness is and
shall be junior and subordinated in right of payment to the extent and in the
manner set forth in this Note, to the prior payment in full of all amounts due
and owing upon all Senior Indebtedness at any time outstanding (including any
interest accruing subsequent to any Bankruptcy Event). This Paragraph (a) shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions.
(b) Prior Payment of Senior Indebtedness in Bankruptcy, Etc.
--------------------------------------------------------
(i) In the event of any Bankruptcy Event, if all Senior Indebtedness
(including any interest accruing subsequent to any Bankruptcy Event) has
not been paid in full at such time, the Payee and the Sellers shall demand,
but only the holders of Senior Indebtedness may
<PAGE>
-4-
collect, payment of all Subordinated Indebtedness due from the Company or
the Buyer, as the case may be. Furthermore, in the event of the occurrence
of any Bankruptcy Event, or any meeting, hearing or proceeding in
connection therewith, involving the Company or the Buyer, if all of the
Senior Indebtedness have not been paid in full in cash at such time, the
Senior Indebtedness Representative is hereby irrevocably authorized at any
meeting or hearing, in any such proceeding and, generally, in connection
with any and all aspects of such Bankruptcy Event, and each of the Company
and the Buyer hereby irrevocably appoints the Senior Indebtedness
Representative to act as its attorney-in-fact in connection therewith
(which power is agreed and acknowledged to be coupled with an interest):
(A) To endorse claims comprising any of the Subordinated
Indebtedness in its own name or the name of any or all of the holders
of Subordinated Indebtedness and apply the same or the proceeds of any
realization upon the same, to the Senior Indebtedness (which payments,
in the absence of an agreement between the holders of Senior
Indebtedness, shall be made on a ratable basis, based upon the amount
of principal outstanding, if there should be two (2) or more holders
of Senior Indebtedness);
(B) To collect any assets of the Company or the Buyer, dividended
or applied by way of dividend or payment or any securities issued on
account of any of the Subordinated Indebtedness and apply the same or
the proceeds thereof, which creditor elects to accept, to the Senior
Indebtedness;
(C) To act in all respects on behalf of and with respect to the
Subordinated Indebtedness, including voting claims from any of the
Subordinated Indebtedness to accept or reject any plan or partial or
complete liquidation, reorganization, arrangement, composition or
extension and negotiating and compromising any such claim in
connection therewith or otherwise; and
(D) To take generally any action in connection with any such
meeting or proceeding which any or all of the holders of Subordinated
Indebtedness might otherwise take.
<PAGE>
-5-
(ii) Notwithstanding the provisions of this Paragraph (b), each
holder of Subordinated Indebtedness shall, on behalf of and in the name of
any or all of the holders of Senior Indebtedness be entitled to file any
claims, proofs of claim or other instruments of similar character necessary
to enforce the obligations of the Company or the Buyer with respect to the
Subordinated Indebtedness and the Senior Indebtedness Representative shall
be entitled to file any claims, proofs of claim or other instruments of
similar character necessary to enforce the obligations of the Company or
the Buyer with respect to the Senior Indebtedness. Any and all payments or
distributions received in any such proceedings on account of the
Subordinated Indebtedness shall be delivered to the Senior Indebtedness
Representative until the Senior Indebtedness shall have been paid in full
in cash.
(iii) In order to enable the Senior Indebtedness Representative to
undertake the foregoing, each of the holders of Subordinated Indebtedness
hereby, effective as of the date of initiation or occurrence of any
Bankruptcy Event involving the Company or the Buyer (to and including the
date on which the Senior Indebtedness is irrevocably paid in full in cash),
assigns to the Senior Indebtedness Representative the Subordinated
Indebtedness.
(c) No Payment on Subordinated Indebtedness Under Certain Conditions.
----------------------------------------------------------------
(i) During any Standstill Period with respect to any Subordinated
Indebtedness, (A) no payment shall be made by the Company or the Buyer or
accepted by the Payee or any of the Sellers with respect to the
Subordinated Indebtedness; and (B) unless the holders of Senior
Indebtedness shall have commenced an action or proceeding against the
Company or the Buyer to enforce any of their rights in respect of the
Senior Indebtedness, no action or proceeding shall be commenced by the
Payee or any of the Sellers with respect to the Subordinated Indebtedness
to collect payment thereof. The acceleration of any Subordinated
Indebtedness by the Payee or any of the Sellers during any Standstill
Period applicable thereto shall be deemed to be automatically rescinded
upon the expiration of such Standstill Period if upon such expiration no
Event of Default (other than failure by the Company or the Buyer to pay the
principal amount so accelerated) exists under this Note.
(ii) Notwithstanding anything herein to the contrary, no Standstill
Period shall commence within 60 days after the end of another
<PAGE>
-6-
Standstill Period nor may the provisions of this Paragraph (c) nor the
Standstill Periods established hereby restrict or prohibit for more than
365 days in any 730-day period the Company from making or the holder
thereof from accepting any payment of Subordinated Indebtedness or the
Payee or any of the Sellers from bringing any action or proceeding to
collect any such payment.
(d) Permitted Payments in Respect of Subordinated Indebtedness.
----------------------------------------------------------
Notwithstanding any provisions to the contrary contained in this Note, so long
as no Standstill Period or Bankruptcy Event shall then exist, the Company shall
be permitted to remit to the Payee scheduled payments of principal and interest
hereunder (to the extent such payments are due under the terms of this Note).
(e) Payments Held in Trust. If the Payee or any of the Sellers receives
----------------------
any payment or distribution in respect of the Subordinated Indebtedness in
violation of the terms of this Note, such payment or distribution shall be held
in trust for and paid ratably to the holders of Senior Indebtedness or their
representatives. No such payments or distributions paid to the holders of
Senior Indebtedness or their representatives by the Payee or any of the Sellers
shall be deemed to discharge any of such Subordinated Indebtedness.
(f) Scope of Subordination. The subordination provisions of this Note are
----------------------
intended solely to define the relative rights of (i) the Payee and the Sellers
with respect to the Subordinated Indebtedness and (ii) the holders of Senior
Indebtedness. Nothing in this Note shall impair, as between or among the
Company, the Buyer, their respective creditors (other than the holders of Senior
Indebtedness) and the Payee and Sellers with respect to the Subordinated
Indebtedness, the unconditional and absolute obligation of the Company and the
Buyer to timely pay the principal, interest, and other amounts and obligations
owing under the terms of this Note or affect the rights of the Payee and the
Sellers and the respective creditors of the Company and the Buyer (other than
the holders of Senior Indebtedness), nor shall anything prevent the Payee or any
Seller from accepting any payment with respect to the Subordinated Indebtedness
or exercising all remedies otherwise permitted by applicable law upon default
with respect to the Subordinated Indebtedness or this Note, subject to any
rights under this Note of the holders of Senior Indebtedness.
(g) Notices. The holders of Senior Indebtedness will promptly notify the
-------
Payee in writing of the occurrence of any Event of Default (as defined in any of
the Senior Loan Documents), and Payee and the Sellers will promptly notify
<PAGE>
-7-
the holders of Senior Indebtedness in writing of the occurrence of any Event of
Default hereunder. The failure to give such notice shall not, however, deprive
either the holders of Senior Indebtedness or Payee and the Sellers of any rights
or remedies to which they are entitled hereunder.
(h) Survival of Rights. No right of any present or future holders of any
------------------
Senior Indebtedness to enforce the subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, by any forbearance, waiver, consent, compromise, or taking or release of
security by the Company or the Buyer or any such holder in respect of such
Senior Indebtedness or by any noncompliance by the Company or the Buyer with the
terms of this Note, regardless of any knowledge thereof which any such holder
may have or be otherwise charged with. No provision in any supplemental
agreement which affects the superior position of the holders of the Senior
Indebtedness shall be effective against the holders of the Senior Indebtedness
who have not consented thereto.
(i) Miscellaneous.
-------------
(i) The subordination provisions of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be
returned by any holder of Senior Indebtedness or any representative of such
holder upon the insolvency, bankruptcy or reorganization of the Company, or
the Buyer, or otherwise, all as though such payment had not been made.
(ii) The Payee and the Sellers, the Company and the Buyer each hereby
waive promptness, diligence, notice of acceptance and any other notice with
respect to any of the Senior Indebtedness and the subordination provisions
of this Note and any requirement that any holder of Senior Indebtedness
protect, secure, perfect or insure any security interest or lien or any
property subject thereto or exhaust any right or take any action against
the Company or the Buyer, or any other person or entity or any collateral.
(iii) No failure on the part of any holder of Senior Indebtedness or
any representative of such holder to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
<PAGE>
-8-
provided are cumulative and not exclusive of any remedies provided by law.
(iv) The subordination provisions of this Note constitute a
continuing agreement and shall (A) remain in full force and effect until
the Senior Indebtedness shall have been paid in full in cash (or such
payment shall have been duly provided for to the reasonable satisfaction of
the holders of Senior Indebtedness), (B) be binding upon the Payee, the
Sellers, the Company, the Buyer, and each of their respective successors
and assigns, and (C) inure to the benefit of and be enforceable by each
holder of Senior Indebtedness and their representatives, successors,
transferees and assigns. Without limiting the generality of the foregoing
clause (C), any holder of the Senior Indebtedness may assign or otherwise
transfer any note or other evidence of indebtedness held by it, or grant
any participation in any of its rights or obligations under the Senior Loan
Documents, to any other person or entity, and such other person or entity
shall thereupon become vested with all the rights in respect thereof
granted to such holder herein or otherwise.
(v) All rights and interests under the subordination provisions of
this Note of the holders of the Senior Indebtedness and all agreements and
obligations of the Payee, the Sellers, the Company and the Buyer under the
subordination provisions of this Note shall remain in full force and effect
irrespective of (A) any amendment or waiver of or any consent to departure
from any of the Senior Loan Documents or any other agreement or instrument
relating thereto, (B) any exchange, release or non-perfection of any
collateral or security interests therein, or any release or waiver of or
consent to departure from any guarantee for all or any of the Senior
Indebtedness, or (C) the taking of any other action, or any inaction, by or
on the part of any of the holders of Senior Indebtedness or any other
Person that might otherwise in any manner operate to modify or otherwise
affect the subordination provisions contained herein, all of which may be
done without notice to any of the holders of Subordinated Indebtedness or
any other Person.
3. Prepayment.
----------
The Company may prepay all or any portion of the outstanding principal
amount of this Note at any time and from time to time without any penalty or
premium in the manner provided below. In the case of any partial prepayment
hereof, payments shall be applied first to payment of any accrued interest owing
hereunder, and then against the principal balance hereof. Prepayment of
<PAGE>
-9-
principal will be applied to the installments due on this Note in the order of
their maturity.
4. Events of Default; Acceleration.
-------------------------------
If any of the following events ("Events of Default") shall occur: (a) the
Company shall fail to make any principal or interest payment hereunder when the
same becomes due and such failure shall continue for fifteen (15) days after
receipt of written notice from the Payee; (b) the Company or Buyer; (i) shall
make an assignment for the benefit of creditors; (ii) shall be adjudicated
bankrupt or insolvent; (iii) shall seek the appointment of, or be the subject of
an order appointing, a trustee, liquidator or receiver as to all or part of its
assets, (iv) shall commence, approve or consent to, any case or proceeding under
any bankruptcy, reorganization or similar law and, in the case of an involuntary
case or proceeding, such case or proceeding is not dismissed within forty-five
(45) days following the commencement thereof, or (v) shall be the subject of an
order for relief in an involuntary case under federal bankruptcy law; or (c) the
Company or Buyer shall be unable to pay its debts as they mature;
THEN, or at any time thereafter:
(1) In the case of any Event of Default under clauses (b) or (c), the
entire unpaid principal amount outstanding hereunder and all interest accrued
and unpaid thereon shall automatically become forthwith due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Company; and
(2) In the case of any Event of Default other than under clauses (b) or
(c), the Payee may, by written notice to the Company, declare the unpaid
principal amount outstanding hereunder and all interest accrued and unpaid
thereon to be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company.
No remedy herein conferred upon the Payee is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and in addition
to every other remedy hereunder, now or hereafter existing at law or in equity
or otherwise.
5. Exchange Option in the Event of an IPO.
--------------------------------------
In the event of an initial public offering of the Buyer's Common Stock, par
value $.01 per share (the "Common Stock"), the Company shall deliver to the
<PAGE>
-10-
Payee a written notice of such offering at least thirty (30) days prior to such
offering. For a period of ten (10) days after the Company's delivery of such
notice, the Payee shall have the right, exercisable in its discretion by
delivering to the Company written notice of exercise within such ten (10) day
period, to exchange any portion of this Note for (a) the number of shares of
Common Stock obtained by (i) dividing the portion of the outstanding amount of
this Note (including accrued and unpaid interest thereon) being exchanged by the
per share issuance price of the Common Stock established by the underwriter
engaged by the Buyer in connection with such offering, and (ii) rounding such
quotient down to the nearest whole number, and (b) a cash payment to the Payee
in an amount equal to the amount by which the quotient obtained pursuant to
clause (i) above was rounded down pursuant to clause (ii) above multiplied by
such per share issuance price. The Company represents and warrants to the Payee
that the Buyer has agreed to provide the shares of Common Stock necessary to
effect the exchange contemplated by this Section in consideration for the Payee
and the Sellers' canceling or, in the case of a partial exchange, decreasing the
amount owing to Sellers under the Note and the Buyer's obligations in respect
thereof under the Guaranty. Notwithstanding anything to the contrary contained
in this Section 5, the rights of the Payee and the Sellers hereunder shall be
subject in all cases to any and all restrictions and requirements imposed by the
Buyer's underwriter in such offering.
6. Further Assurances.
------------------
The Payee and the Sellers, the Company and the Buyer each will, at the
Company's (or, in the case of the Buyer, the Buyer's) expense and at any time
and from time to time, promptly execute and deliver all further agreements,
instruments and documents, and take all further action, that any actual or
potential holders of Senior Indebtedness may reasonably deem necessary or
appropriate in order to reflect the terms of this Note, protect any right or
interest granted or purported to be granted by the provisions of this Note or to
enable any of the holders of Senior Indebtedness to exercise and enforce their
rights and remedies hereunder.
7. Miscellaneous
-------------
(a) In case any provision of this Note shall be invalid, illegal or
unenforceable, or partially invalid, illegal or unenforceable, the provision
shall be enforced to the extent, if any, that it may legally be enforced and the
validity, legality and unenforceability of the remaining provisions shall not in
any way be affected or impaired thereby. The headings in this Note are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
<PAGE>
-11-
(b) The terms of this Note shall be governed by and construed in accordance
with the laws of the State of Delaware.
(c) This Note shall not be valid or obligatory for any purpose until
authenticated by the execution hereof by an officer of the Company.
(d) None of the Sellers shall be entitled to transfer to any Person (other
than to the spouse or lineal descendants of any Seller or a trust solely for the
benefit of one or more of the foregoing) all or any portion of such Seller's
interest in this Note or the Indebtedness evidenced hereby.
<PAGE>
-12-
IN WITNESS WHEREOF, International Medical Technical Consultants, Inc., a
Kansas corporation, has caused this Note to be signed in its corporate name by
its officer, by authority duly given, all as of the day and year first above
written.
INTERNATIONAL MEDICAL
TECHNICAL CONSULTANTS, INC.
[SEAL]
By: /s/ P.K. Donnelly
-----------------------------
Title: Executive Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGES]
<PAGE>
-13-
ACCEPTED AND AGREED
as of the date first above written:
"PAYEE"
- -------
- ----------------------------
- ----------------------------
"SELLERS"
- ---------
/s/ ROBERT J. DOCKHORN, M.D.
- ----------------------------
ROBERT J. DOCKHORN, M.D.
/s/ BEVERLY W. DOCKHORN
- ----------------------------
BEVERLY W. DOCKHORN
/s/ DOUGLAS R. DOCKHORN
- ----------------------------
DOUGLAS R. DOCKHORN
DOUGLAS R. AND STEPHANIE
DOCKHORN JTWROS
By: /s/ DOUGLAS R. DOCKHORN
-------------------------
DOUGLAS R. DOCKHORN
By: /s/ STEPHANIE DOCKHORN
-------------------------
STEPHANIE DOCKHORN
<PAGE>
-14-
DAVID W. AND ALLISON
DOCKHORN JTWROS
By: /s/ DAVID W. DOCKHORN
------------------------
DAVID W. DOCKHORN
By: /s/ ALLISON DOCKHORN
------------------------
ALLISON DOCKHORN
ROBERT AND BEVERLY DOCKHORN
CHARITABLE REMAINDER UNITRUST
By: Larry J. Bingham
------------------------
Title: Trustee
<PAGE>
Exhibit 10.6
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of
the 1st day of April, 1997, by and between DOCKHORN PROPERTIES, L.L.C., a Kansas
limited liability company (the "Landlord"), and INTERNATIONAL MEDICAL TECHNICAL
CONSULTANTS, INC., a Kansas corporation (the "Tenant"), with respect to the
following facts and objectives.
RECITALS:
--------
A. Landlord owns those certain tracts of real property described as
set forth on Exhibit A, attached hereto and incorporated herein by this
reference, upon which are located (i) a building containing approximately 15,680
square feet of gross leasable area, commonly known and numbered as 16300 College
Boulevard, Lenexa, Kansas; (ii) a building containing approximately 19,160
square feet of gross leasable area, commonly known and numbered as 11011 Eicher
Drive, Lenexa, Kansas; and a building containing approximately 32,400 square
feet of gross leasable area, commonly known and numbered as 16400 College
Boulevard, Lenexa, Kansas (collectively referred to herein as the "Premises").
B. Landlord and Tenant desire to enter into this Lease to evidence
their agreements with respect to Tenant's occupancy of the Premises from and
after the Commencement Date of this Lease.
NOW, THEREFORE, in consideration of the Rent herein reserved and the
mutual promises and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
1. Grant of Lease; Reservations.
----------------------------
1.01. Landlord hereby leases and lets the Premises to Tenant, and
Tenant hereby accepts and leases the Premises from Landlord, upon and subject to
the terms, conditions, covenants and provisions of this Lease.
1.02. Landlord excepts and reserves the right to place, install,
maintain, carry through, repair and replace such utility lines, pipes, wires,
tunneling and the like in, over and upon the Premises as may be reasonably
necessary or advisable for the servicing of the Premises or of other tracts or
parcels of land owned by Landlord adjacent to, near or around the Premises, but
this provision shall in no way limit or otherwise modify Tenant's
responsibilities set forth elsewhere in this Lease including, without
limitation, those requiring maintenance and repair by Tenant. Landlord agrees
that if any such installation results in damage to any of Tenant's property or
improvements, Landlord will restore said improvements to substantially the same
condition as existed prior to said installation, all at Landlord's expense. Any
such work shall be done at such time so as to minimize any inconvenience to
Tenant and its business invitees.
2. Term; Memorandum of Lease.
-------------------------
2.01. The term of this Lease (the "Term") shall commence on the
date of this Lease (sometimes herein called the "Commencement Date") and shall
continue for a period of ninety (90) months expiring at midnight on September
30, 2004. The term "Lease Year" whenever used in this Lease shall mean the
twelve (12) consecutive calendar months commencing April 1st and ending on the
next succeeding March 31st.
2.02. Upon the request of either of them, Landlord and Tenant agree
to execute an
<PAGE>
instrument in recordable form setting forth the Commencement Date and expiration
date of the Term of this Lease and such other matters as may be mutually agreed
upon. Said instrument may be recorded by either party at its cost, but this
Lease shall not be recorded.
2.03. Tenant shall have the option to renew the Term of this Lease
for one (1) renewal term of ninety (90) months (the "Renewal Term"). This
renewal option shall be exercised by written notice from Tenant to Landlord at
least six (6) months prior to the end of the initial Term. If Tenant exercises
its renewal option, this Lease shall continue unchanged for the Renewal Term,
except that: (i) there shall not be any further renewal or extension options
upon expiration of the Renewal Term; and (ii) the Rent payable by Tenant during
the Renewal Term shall continue to be adjusted on annual basis as set forth in
paragraph 3.02 hereof. Even if Tenant exercises this renewal option, the renewal
shall not be effective unless Tenant has materially performed all of its
obligations under this Lease which have accrued as of the date that Tenant
exercises this renewal option and as of the date on which the Renewal Term
commences. If the renewal is not effective as set forth above, Landlord shall be
entitled to lease the Premises to any third party free and clear of any claim or
interest of Tenant.
3. Rent and Late Charges.
---------------------
3.01. Tenant agrees to pay for the use and occupancy of the
Premises during the entire Term of this Lease, at the times and in the manner
herein provided, the Monthly Rent (as adjusted) described below. As used in this
Lease, the term "Rent" means, collectively, the Monthly Rent (as adjusted) and
any other charges, sums or amounts to be paid by Tenant described in this Lease.
3.02. During the first year Lease Year, Tenant shall pay to
Landlord the following rent amounts:
<TABLE>
<CAPTION>
Gross Leasable Rental Rate
Building Square Footage (per square foot) Monthly Rent
-------- -------------- ----------------- ------------
<S> <C> <C> <C>
16300 College 15,680 $20.50 $ 26,786.67
16400 College 19,160 $18.00 $ 28,740.00
11011 Eicher 32,400 $18.00 $ 48,600.00
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Total $104,126.67
</TABLE>
Rent for the first Lease Year shall be payable in monthly
installments of One Hundred Four Thousand One Hundred Twenty-Six and 67/100
Dollars ($104,126.67) each, in advance, on the first day of each calendar month
commencing on the Commencement Date (the "Monthly Rent"). Thereafter, during the
Term and any Renewal Term, the amount of the Monthly Rent shall be adjusted
annually commencing with the 1st day of the second Lease Year (April 1, 1998)
after the Commencement Date and on each one-year anniversary thereof (each an
"Adjustment Date"). On each Adjustment Date, the Monthly Rent shall be increased
by two and two/thirds percent (2.66%). Each Adjustment Date, Landlord shall give
Tenant written notice of the adjusted Monthly Rent and the amount of the monthly
payments of same.
3.03. Rent payable by Tenant under this Lease shall be paid when
due without notice or prior demand and shall be paid by Tenant to Landlord at
13000 Rosehill, Overland Park, Kansas 66213, or at such other place as may be
designated from time to time by notice from Landlord to Tenant. Rent shall be
payable without notice, demand or set-off.
3.04. Any Rent unpaid for more than fifteen (15) days after the
date when due and/or received and accepted more than fifteen (15) days after the
due date shall be subject to a late charge of Two Thousand Five Hundred Dollars
($2,500.00). Late charges shall be due from Tenant on or before the next due
date for the purpose of defraying Landlord's administrative expenses
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incident to the handling of such overdue payments. Any default in the payment of
Rent shall not be considered cured unless and until said late charges are paid
by Tenant. In the event of a default in payment of late charges, Landlord shall
have the same remedies as upon default in the payment of Rent. Late charges
shall be in addition to any other rights or remedies provided to Landlord by
this Lease or as allowed by law. In the event Rent (including Monthly Rent or
late charges) are not paid within thirty (30) days following the due date
thereof, such sums shall bear interest at a rate equal to two percentage points
(2%) above the then publicly announced prime interest rate as set forth in the
Wall Street Journal. Interest shall be due from Tenant on or before the next
- -------------------
rental due date and shall accrue from the date that such Rent becomes due and
payable hereunder. Interest shall continue to accrue up to and including the
date Rent is paid. Any default in the payment of Rent shall not be considered
cured unless and until actually paid by Tenant. Upon default in the payment any
applicable interest, Landlord shall have the same remedies as upon default in
payment of Rent. Interest shall be in addition to any other rights or remedies
provided to Landlord by this Lease or as allowed by law.
3.05. Landlord and Tenant agree that Monthly Rent shall include all
operating expenses of the Premises, including, but not limited to, those
expenses set forth on Exhibit B attached hereto; provided, however, that in no
event shall Landlord's cost of operating the Premises in any Lease Year exceed
that amount set forth on Exhibit B, which are the actual operating expenses of
16300 College Blvd. and 11011 Eicher for calendar year 1996 on a per-square-foot
basis, and an estimated amount of the annual operating expenses for 16400
College Blvd., calculated on a per-square-foot basis by dividing the operating
expenses of 11011 Eicher for calendar year 1996 by the total square footage of
such building ("Operating Expense Base"). The parties agree that commencing with
the second Lease Year (April 1, 1998), the Operating Expense Base shall be
increased by two and two-thirds percent (2.66%) per Lease Year. In the event
Landlord's cost per square foot in any Lease Year for the items set forth on
Exhibit B exceeds the Operating Expense Base, then Tenant shall be liable for
any overage at its sole cost. Landlord shall provide Tenant with an itemized
statement detailing such overage, and Tenant shall pay the amount of such
overage to Landlord as additional rent within thirty (30) days of receipt of
such statement.
4. Condition of Premises; Zoning; ADA; Estoppel Certificate.
--------------------------------------------------------
4.01. Landlord agrees to cause the Premises to be inspected by a
recognized architect within thirty (30) days after the Commencement Date to
measure the square footage of the Premises and to insure that the Premises
structural and mechanical condition complies with BOMA standards. The cost of
such architect shall be divided evenly between Landlord and Tenant. After any
adjustments agreed to by Landlord and Tenant arising from such inspection,
Tenant agrees to accept the Premises in its then present condition as delivered
by Landlord to Tenant hereunder. Thereafter, Landlord shall make no warranties,
expressed or implied, concerning the physical or other condition of the Premises
or the buildings or improvements thereon or their suitability for Tenant's
purposes, other than as expressly set forth herein.
4.02. Landlord represents and warrants to Tenant that: (i) the
Premises are presently zoned to permit Tenant's use of the Premises as
contemplated by this Lease; and (ii) the Premises as delivered to Tenant on the
Commencement Date are in compliance with the Americans with Disabilities Act (42
U.S.C. (S) 12101 et seq.), and all regulations, guidelines and interpretations
promulgated thereunder from time to time (collectively, as the same may be
amended or supplemented from time to time, and together with any successors
thereto, the "ADA"). Landlord and Tenant agree that any modifications or repairs
required to the Premises due to an amendment to the ADA shall be at Landlord's
sole expense. The parties further agree that any modifications or repairs
required to the Premises under the ADA due to improvements of or modifications
to the Premises made by Tenant shall be at Tenant's sole expense, and subject to
Landlord's prior written review and approval.
4.03. From time to time during the Term of this Lease, as it may be
extended, Tenant
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agrees that it will, at the request of Landlord or any lender or Landlord,
promptly, and in any event within seven (7) days after written request, execute,
acknowledge and deliver, in a form satisfactory to Landlord or its lender, an
estoppel certificate in the form requested, addressing the same to whomsoever
Landlord or its lender designates. Such estoppel certificate shall state, among
other things: whether this Lease is in full force and effect; whether this Lease
has been modified or amended, and, if so, identifying and describing any such
modification or amendment; the date to which Rent and any other charges have
been paid; whether Tenant knows of any default on the part of Landlord or has
any claim against Landlord and, if so, specifying the nature of such default or
claim; and stating such other facts or providing such other information as
reasonably may be requested.
5. Use of Premises; Compliance With Laws.
-------------------------------------
5.01. Tenant agrees to occupy and use the Premises (and the
buildings and improvements thereon) only for office, light warehouse, medical
testing, laboratory and related uses as presently being conducted by Tenant in
its normal course of business and Tenant shall not use or occupy the buildings
or other improvements on the Premises, or any portion thereof, for any other
purpose or purposes without the prior written consent of Landlord first
obtained, which consent shall not be unreasonably withheld.
5.02. Tenant agrees to comply with all laws, ordinances, orders,
rules and regulations now or hereafter in force affecting the Premises and/or
the buildings or other improvements thereon, or the use thereof, and not to
conduct in, or permit the use of, the Premises or any part thereof for any
illegal or improper purpose or use.
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<PAGE>
6. Environmental Matters. Tenant agrees that it shall: not cause
---------------------
or permit any hazardous substances or hazardous materials to be brought on,
used, stored, generated or exposed or released on or in the Premises except in
strict accordance and compliance with all applicable environmental laws; not
discharge, dispose of or emit, or permit to be discharged, disposed of, leaked
or emitted, any hazardous substances or hazardous materials in the air,
atmosphere, ground, water supply or sewer systems except only as may be
permitted by applicable environmental laws and then only in strict accordance
and compliance therewith; disclose to Landlord the names and approximate amounts
of hazardous materials and hazardous substances, if any, that Tenant stores,
uses, generates or disposes of on or in the Premises; not place, construct,
erect or install or permit to be used in or on the Premises any above ground or
underground storage tanks, whether for fuel, chemicals or any other substances,
or fluids or materials except with the prior written consent of Landlord; obtain
and maintain in existence all permits, licenses or similar authorizations
required of Tenant by all applicable environmental laws (and provide Landlord
with copies thereof); and provide Landlord with true copies of all notices or
other communications received by Tenant from any governmental authority alleging
or claiming any violation of any applicable environmental law by Tenant with
respect to the Premises or Tenant's operations thereon together with Tenant's
proposed response thereto including any remedial actions to be undertaken.
Tenant agrees to and shall indemnify, defend and hold Landlord and its members
harmless from and against any and all claims, damages, fines, judgments,
settlements, penalties, costs or losses (including, without limitation, any
decrease in the value of the Premises) arising, during or after the Term of this
Lease, directly or indirectly from any breach or default by Tenant, its
employees, agents, contractors or invitees, of any of the foregoing provisions
including, without limitation, any injury or damage to persons or property of
Landlord, other persons on or around the Premises or properties adjacent
thereto, arising from any spill, seepage, leakage, release, discharge, emission,
generation, storage or disposal of hazardous substances or hazardous materials
which results in damage or contamination. This indemnification includes, without
limitation, any and all costs incurred in or because of any investigation of the
Premises or Tenant's use of or operations or activities therein or thereon and
any clean-up, removal, restoration or remediation mandated by any governmental
authority or reasonably required by Landlord's environmental consultants.
Without limiting the foregoing, in the event of any spill, seepage, leakage,
release, emission, generation, or disposal of hazardous substances or hazardous
materials in or upon the Premises caused or permitted by Tenant, its employees,
agents, contractors or invitees that results in damage or contamination, Tenant
shall promptly upon discovery or notification thereof, whether during or after
the Term of this Lease, at its sole cost and expense, take any and all actions
to return the Premises to substantially the same condition as existed prior to
the presence of any such hazardous substances or hazardous materials thereon or
therein. Tenant shall obtain Landlord's approval for any such remedial actions,
which approval shall not be unreasonably withheld or delayed. If known prior to
the expiration of the Term of this Lease and if any remediation or clean has not
been fully completed by such expiration date, Landlord shall have and is hereby
granted the unilateral right (but not the obligation) to extend the Term of this
Lease on a month-to-month basis (and on all of the same terms and conditions as
then prevail) until such remediation or clean-up is completed by giving written
notice of extension to Tenant. The provisions of the indemnity contained herein
shall survive the expiration or sooner termination of this Lease and shall inure
to the benefit of and be enforceable by any person or entity which purchases the
Premises from Landlord or by any lender of or to Landlord which forecloses any
mortgage, deed of trust or other security interest it may have in the Premises.
For all purposes hereof, the terms "hazardous materials" and "hazardous
substances" shall mean all materials, substances, or wastes defined as such
under all applicable environmental laws together with any oil, petroleum,
petroleum products or by-products, medical or infectious wastes, explosives,
asbestos, nuclear or radioactive materials, and polychlorobiphenyls. For all
purposes of this Lease, the phrase "applicable environmental laws" means common
law and all statutes, laws, ordinances, acts, rules, regulations (temporary,
interim or final), decrees, orders and rulings of all federal, state, county or
municipal governments and any political subdivisions, agents, departments,
commissions, boards, bureaus or instrumentalities of any of them which have
jurisdiction of or over the Premises and which relates or pertains to health,
the environment, oil, chemicals, petroleum products, explosives, underground or
above ground storage tanks, hazardous substances, hazardous materials, solid,
medical, infectious or other wastes, radioactive materials,
5
<PAGE>
air quality or water quality, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (by,
among others, the Superfund Amendments and Reauthorization Act), the Resource
Conservation and Recovery Act, as amended, the Clean Air Act, as amended, the
Clean Water Act, as amended, the Toxic Substances Control Act, as amended, the
Safe Drinking Water Act, as amended, the Federal Insecticide, Fungicide and
Rodenticide Act, as amended, and the environmental control laws of the State of
Kansas, as amended.
6
<PAGE>
7. Services. During the term of the Lease, Landlord shall
--------
furnish heat, water, electricity, air-conditioning, security, janitor and
cleaning services which, in Landlord's judgment, are necessary for the
comfortable occupation and use of the Premises as permitted under paragraph 5.01
of this Lease. Tenant shall be responsible, at its sole expense, for obtaining
and maintaining local and long distance telephone service. Landlord shall
maintain the Premises, including permanent building components such as heating,
air-conditioning and ventilating systems and the like, and the associated off-
street parking facilities in good condition and repair. Landlord's failure to
furnish the services provided for in this paragraph shall not render Landlord
liable in any respect for damages to either person or property, nor shall it
affect any of Tenant's obligations under this Lease. Landlord's sole liability
shall be to use diligent prosecution in furnishing the services referred to in
this paragraph. Tenant shall have no claim for rebate of rent or damages on
account of any interruption in those services. Tenant's sole remedy in the event
of interruption of any service would be to compel Landlord to exercise diligent
prosecution in furnishing the service, if Landlord is not doing so; provided,
however, that if such services are interrupted for a period of five (5)
consecutive business days or more such that all or any portion of the Premises
are rendered unusable, then Tenant shall be entitled to an abatement of Rent for
such portion of the Premises from the time of such interruption until such
services are resumed.
8. Maintenance and Repair of the Premises.
--------------------------------------
8.01. Subject to the provisions of Section 3.05 of this Lease,
Landlord shall be responsible, at Landlord's sole expense, for all repairs and
maintenance of the interior and exterior of the Premises caused by normal wear
and tear in the use and occupancy of the Premises by Tenant. This shall include,
without limiting the generality of the foregoing, all utility meters, pipes and
conduits, roofs, foundations, structures, parking lot surfaces and markings,
curbs, sidewalks, driveways, docks, landscaped and planted areas, exterior and
interior portions of all doors, windows, plate glass, interior and exterior
lighting fixtures and lamps, heating, ventilating and air conditioning units and
systems, all plumbing and sewage facilities, all electrical installations,
systems and equipment, exterior and interior walls, partitions, floors, floor
covering, ceilings, all interior painting and all interior and exterior building
appliances and similar equipment or fixtures originally installed or thereafter
placed in said buildings and improvements.
8.02. Any repairs or maintenance required to the Premises by
Tenant's use which cannot be reasonably characterized as "normal wear and tear"
shall be the responsibility of Tenant, and performed at Tenant's sole expense.
In the event Tenant fails to make those repairs or replacements and to do that
work provided herein as Tenant's obligation within ninety (90) days after
written notice or demand given by Landlord or, if such repairs and work are of a
character that the same cannot be completed within thirty days, Tenant fails to
commence the diligent prosecution of such repairs or work within at least ninety
90)days after written notice from Landlord of the need therefor and diligently
continues to prosecute the same, without interruption, to completion, Landlord
may, at its option, perform the same, and any and all expenses incurred by
Landlord in such connection shall be payable by Tenant to Landlord immediately
upon demand. If Tenant disputes or desires to contest Landlord's notice of
repairs or work to be done, then within thirty (30) days after Landlord's
written notice, Tenant may submit the matter to arbitration as provided for in
this paragraph. If Tenant fails to submit any such matter to arbitration or cure
or commence cure within such 30 day period, Landlord may proceed to make such
repairs. Nothing herein shall imply any duty upon the part of Landlord to do any
such work which under the provisions of this Lease Tenant is required to
perform, and the performance thereof by Landlord shall not constitute a waiver
of Tenant's default for failure to perform the same. Landlord shall not be
liable in any event for inconvenience, annoyance, disturbance, loss of business
or other damage by Tenant by reason of making such repairs or the performance of
any such work in the Premises or the buildings or improvements thereon. Tenant
shall also have the right to submit to arbitration any dispute as to the amount
of any repairs made by Landlord in the event Tenant fails to make the same if
commenced within ten (10) days after Landlord's written demand for
reimbursement.
7
<PAGE>
If it becomes necessary under the immediately preceding paragraph to
arbitrate a matter, then Landlord and Tenant shall mutually agree upon an
arbitrator within ten (10) days after the earlier of (a) expiration of Tenant's
period for payment or cure or (b) Tenant's notice to Landlord disputing the
repairs and requesting arbitration. If they shall be unable to agree within such
ten (10) day period, then each shall have five (5) days to select an arbitrator
and notify the other party to this Lease of their selection. If either Landlord
Tenant does not select an arbitrator and so notify within such five (5) day
period, then the arbitrator selected by the other party shall have the sole
right to arbitrate this matter. The two arbitrators selected shall have ten (10)
days after the selection of the last one of them to mutually agree upon a third
arbitrator. Thereafter, the three arbitrators shall have thirty (30) days to
consider any evidence presented by Landlord and Tenant and render a decision by
majority. If such decision requires payment of any sum by Tenant or Landlord,
such sum shall be paid in full to Landlord or Tenant, as the case may be, within
ten (10) days after the decision is rendered. If it is not paid within such ten
(10) day period, such sum shall be deemed to be Rent and Landlord may
immediately, without waiting an additional ten (10) days or providing additional
written notice, exercise its rights for Tenant's default set forth below in this
Lease. The majority decision of the arbitrators shall be final and conclusive
and enforceable under the Kansas Uniform Arbitration Act.
9. Landlord's Right of Entry.
-------------------------
9.01. Landlord, its agents, employees, contractors and designees
shall have the right, during the Term of this Lease, as it may be extended, to
enter upon the Premises (and the buildings or any of the other improvements
located thereon) for all lawful purposes and to whatever extent necessary or
appropriate to enable Landlord to exercise all of its rights under this Lease,
including, without limiting the generality of the foregoing, the right to enter
for the following purposes:
(i) To perform certain provisions of this lease on Tenant's
behalf as set forth elsewhere herein;
(ii) To inspect the Premises (and the buildings and all other
improvements thereon) for the purpose of ascertaining the
condition of the same and in order to ascertain that the same
are being maintained by Tenant as required under the
provisions of this Lease; and
(iii) To exhibit the Premises and the buildings and other
improvements thereon to others.
Tenant shall make no claim for damages or inconvenience caused by
any such entry. Landlord and Tenant agree that, except in the cases of
emergency, Landlord shall use its best efforts to notify Tenant prior to any
entry, and enter upon the Premises only during normal business hours.
9.02. The exercise by Landlord of its right of entry herein granted
shall not constitute an eviction of Tenant, and the Rent payable under this
Lease shall not abate by reason thereof.
10. Changes or Additions to Buildings; Surrender at Termination.
-----------------------------------------------------------
10.01. Tenant agrees not to alter, revise, change, add to or remove
any part or portion of the buildings or the other improvements or erect any
other improvements of any nature on the Premises without the prior written
consent of Landlord which will not be unreasonably withheld or delayed. Nothing
herein contained shall prohibit Tenant from making interior, non-structural
changes or renovations to the buildings not exceeding $40,000 in the aggregate
over the Term (excluding expenditures for a security system) of this Lease
without Landlord's consent; provided, however, that (i) Tenant shall be required
to obtain Landlord's consent, not to be unreasonably withheld, prior to any
installation of a security system and (ii) in no event shall Tenant be required
to obtain the consent of Landlord to an upgrading of the Premises' existing
wiring. Landlord may condition its consent on, among other things, the delivery
of completion and/or performance bonds
8
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or other security to insure completion of the work lien free.
10.02. Tenant may install in or upon the Premises such trade
fixtures and equipment as Tenant considers essential or desirable for the
conduct of business therein. Such items shall be considered removable business
property and referred to in this Lease as "Tenant's Property". Tenant shall have
the right to remove any of Tenant's Property at any time. Landlord shall have no
right to assert any lien or equitable charge against any of Tenant's Property,
inventory or other personal property. Any damage caused to the Premises by the
removal of Tenant's Property shall be repaired by Tenant at its sole cost and
expense, whether before or after the expiration or termination of this Lease.
10.03. On the last day of the Term of this Lease, as it may be
extended, or on the sooner termination thereof, all improvements not otherwise
already vested in Landlord and located on the Premises shall be deemed to be a
part of the Premises, title thereto shall be vested in Landlord, and Tenant
shall (i) peaceably surrender to Landlord the Premises, together with the
buildings and all improvements thereon as a part thereof, without disturbance,
molestation, injury or any further claim thereto by Tenant; and (ii) deliver the
Premises (together with the buildings and all improvements thereon) to Landlord
in good order, condition and repair (normal wear and tear and damage by insured
casualty excluded); and (iii) remove from the Premises, at the sole expense of
Tenant, Tenant's Property (and any of Tenant's Property not so removed prior to
the termination of this Lease, may, at the option of Landlord and without
limiting Landlord's right to compel removal thereof, be deemed abandoned); and
(iv) deliver any and all keys to the buildings and improvements on the Premises,
which Tenant may possess, to Landlord at the place designated by Landlord for
the payment of Rent. Surrender of keys by Tenant prior to or at the expiration
or termination of this Lease and receipt of same by Landlord shall not release
Tenant from any obligations, liabilities or conditions to be performed by Tenant
pursuant to the provisions of this Lease. Any damage to the Premises or the
buildings or improvements thereon caused by Tenant in the removal of Tenant's
Property shall be repaired by and at Tenant's sole expense promptly following
removal.
11. Assignment and/or Subletting.
----------------------------
11.01. Tenant shall not sublet or license all or any portion of the
Premises nor assign its interest under this Lease to any person without the
prior written consent of Landlord, which Landlord shall not unreasonably
withhold. No sublease, license or assignment consented to by Landlord shall
relieve Tenant of primary liability for all of Tenant's obligations hereunder
including, without limitation, Rent obligations. For purposes hereof assignment
shall include transfer by merger, consolidation, reorganization or operation of
law, a transfer of more than fifty percent (50%) of Tenant's stock, or the sale
of substantially all of Tenant's assets.
11.02. Landlord may freely assign its interest in this Lease to a
third party.
12. Mechanics' and Other Liens.
--------------------------
12.01. Tenant shall not suffer any mechanic's or materialmen's lien
to be filed against the Premises, or any part thereof, by reason of work, labor,
services or materials performed by or furnished to Tenant or anyone holding any
part of the Premises under Tenant. If any such lien shall at any time be filed,
Tenant shall, within thirty (30) days after the filing thereof, cause such lien
to be discharged of record by payment, or by bond, or by order of a court of
competent jurisdiction, or otherwise or shall commence the contest of said lien
and provide Landlord with reasonably adequate security against such contested
claim. In the event of Tenant's failure to discharge or commence contest of any
such lien within such period, Landlord shall have the right and privilege, at
Landlord's option, of removing said lien by paying the full amount thereof or by
bonding or in any other manner Landlord deems appropriate, without investigating
the validity thereof and irrespective of the fact that Tenant may contest the
propriety or the amount thereof, and any amount so paid,
9
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including any attorneys' fees and all expenses connected therewith and interest
at the rate set forth in paragraph 3.04 on any sums paid or advanced shall be
deemed to be additional Rent due from Tenant to Landlord and shall be repaid to
Landlord immediately on rendition to Tenant of a statement therefor. Tenant will
defend, indemnify and save harmless Landlord from and against all loss, claims,
damages, costs or expenses suffered by Landlord by reason of any repairs,
installations or improvements made by Tenant.
12.02. Nothing in this Lease shall be construed to authorize Tenant,
or any person dealing with or under Tenant, to charge the Rents of the Premises,
or the interest of Landlord in the estate of the Premises, or the interest of
Landlord in the Premises or any part thereof, with a mechanics' or materialmen's
lien or with any other lien of similar kind whatsoever, and under no
circumstances shall Tenant be construed to be the agent, employee or
representative of Landlord in the making of any alterations to or improvements
on the Premises, but on the contrary, the right or power to charge or impose any
lien or claim of any kind whatsoever against Landlord's Rents or against the
Premises or against any part thereof is hereby denied.
12.03. Tenant shall not create or suffer to be created or imposed a
security interest, encumbrance, mortgage or any other lien of any kind
whatsoever against or on the Premises or against or on any improvements,
additions or other construction made by Tenant on or to the Premises or against
or on any equipment or fixtures installed by Tenant therein (other than Tenant's
Property as defined above, its inventory and its interest in this Lease), and
should any security interest or lien be created or imposed in breach of the
foregoing provisions, Landlord shall be entitled to discharge the same by
exercising the rights and remedies afforded it under paragraph 12.01.
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13. Indemnification of Landlord; Liability Insurance.
------------------------------------------------
13.01. Tenant covenants and agrees that it will protect, indemnify,
save harmless and defend Landlord, its members, agents and employees, from and
against any and all loss, cost, damage, expense, and claims for damage, death or
injury of any kind whatsoever to any person or any property howsoever occurring
in, upon or about the Premises or the buildings or other improvements thereon,
or arising from any accident, injury, death or damage occurring outside the
Premises where such accident, damage, death or injury results or is claimed to
have resulted from an act or omission on the part of Tenant or Tenant's
contractors, subtenants, licensees, concessionaires, agents, representatives,
servants or employees, other than and excluding any acts or omissions of
Landlord and/or its agents constituting willful, wanton or gross negligence.
This indemnity and hold harmless agreement shall include indemnity arising from
any accident, injury, death or damage to the person and property of Tenant, its
employees and all persons on the Premises or the buildings and other
improvements thereon, at Tenant's invitation or sufferance, and shall include
indemnity against all costs, claims, expenses, penalties, liens, attorneys' fees
and liabilities incurred in or in connection with any claim or proceeding
brought thereon, and the defense thereof. If any action or proceeding is brought
against Landlord, its members, agents or employees, by reason of any of the
aforementioned causes, Tenant, upon receiving notice thereof from Landlord,
agrees to defend such action or proceeding by competent counsel at Tenant's sole
expense.
13.02. Tenant agrees to maintain at its expense in full force,
during the entire Term of this Lease, as it may be extended, comprehensive
general public liability insurance under which Landlord, its lenders, if any,
and Tenant are named as insureds, and under which the insurer agrees to defend
and indemnify Landlord and hold it harmless from and against all cost, loss,
damages, expense and/or liability arising out of or based upon any and all
accidents, death, injuries and/or damages of any kind whatsoever to any person
or any property howsoever occurring and claimed to have been suffered upon the
Premises, the buildings and improvements thereon (including parking lots), or
the sidewalks, driveways or approaches immediately adjoining the same other than
and excluding any acts or omissions of Landlord and/or its agents constituting
willful, wanton or gross negligence. Each such policy shall be issued by a
reputable insurance company or companies reasonably satisfactory to Landlord,
having an A.M. Best's rating of B+VIII or higher, authorized to do business in
the State of Kansas, be non-cancelable with respect to Landlord except upon at
least thirty (30) days' prior written notice to Landlord, and a certificate or
duplicate original thereof shall be delivered to Landlord. The minimum limits of
liability of such insurance shall be One Million Dollars ($1,000,000.00) in the
event of injury or death to any one person and not less than One Million Dollars
($1,000,000.00) in the event of injury or death arising by reason of one
occurrence, and Five Hundred Thousand Dollars ($500,000.00) with respect to
damage to property. Such policy shall also insure the performance by Tenant of
the indemnity agreement set forth in paragraph 13.01 above. A current
certificate of such insurance showing the coverage, notice time requirement, and
contractual liability required of Tenant under this paragraph 13.02 shall be
deposited with Landlord at all times during the Term of this Lease or any
extension thereof.
13.03. Tenant agrees to use and occupy the Premises and the
buildings and improvements thereon at its own risk and hereby releases to the
full extent permitted by law Landlord, its members, agents and employees, from
all claims and demands of every kind resulting from any accident, damage, death
or injury occurring therein other than for acts or omissions of Landlord or its
agents constituting willful, wanton or gross negligence. Landlord shall have no
responsibility or liability for any loss of or damage to the improvements,
equipment, fixtures or other personal property of Tenant or its invitees.
14. Casualty Insurance on Buildings and Improvements; Business
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Interruption Insurance.
- ----------------------
14.01. Commencing with the Commencement Date of this Lease and
continuing throughout the Term hereof, Landlord agrees to keep, at its expense,
the buildings and any and all
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improvements, additions and alterations made by Tenant, Landlord or anyone else
upon the Premises insured with a reputable insurance company or companies
reasonably satisfactory to Landlord, having an A.M. Best's rating of B+VIII or
higher, authorized to do business in Kansas, in an amount equal to one hundred
percent (100%) of their full replacement cost (by means of standard replacement
cost endorsement) for everything above the slab. Landlord shall annually review
and update such coverage. Any such policy shall contain a waiver of subrogation
clause and shall provide protection against loss or damage by fire and by other
perils commonly covered under the full standard extended coverage endorsement
then in use, together with vandalism and malicious mischief coverage, coverage
against damage caused by earthquake, and coverage against sprinkler damage.
Landlord shall furnish to Tenant at all times during the Term of this Lease, and
any extension thereof, a current certificate or duplicate copy of any such
insurance policy or policies. Subject to the rights of any of Landlord's lenders
under any mortgages affecting the Premises, where Landlord is obligated to
repair or restore the Premises or improvements thereon, the proceeds from the
above described insurance shall be used for the sole purpose of rebuilding and
repairing said Premises and improvements.
14.02. Tenant agrees that in the event that any of Tenant's fixtures
or personal property on the Premises is damaged or destroyed by fire or by any
cause which is insurable (whether or not actually insured), the right, if any,
of Tenant against Landlord to recover for such damage or destruction is hereby
waived and released.
14.03. Anything herein to the contrary notwithstanding, the parties
acknowledge that Landlord's lenders under any mortgages affecting the Premises
may have the right to take all insurance proceeds and apply them to indebtedness
thereon instead of permitting use for repair and such rights shall be paramount.
15. Damage or Destruction by Fire or Other Peril.
--------------------------------------------
15.01. In the event any building or other improvements on the
Premises, or any part thereof, shall be damaged by fire or other casualty so
that such building(s) temporarily cannot be reasonably and effectually occupied
and used by Tenant for the purposes for which this Lease is entered into, then
the Monthly Rent payable to Landlord shall nonetheless continue during such time
as said Premises are unfit for Tenant's occupancy.
15.02. Unless paragraph 15.04 below applies, in the event any
building(s) or improvements are destroyed or damaged by fire or other
unavoidable casualty, whether or not insured, Tenant shall immediately commence
to rebuild, repair, or replace, at its sole cost less any available insurance
proceeds, such building(s) and improvements in substantially as good condition
as they were prior to such fire or casualty, and shall complete such rebuilding,
repairing, or replacement within ninety (90) days from the date of said fire or
casualty. The Monthly Rent provided herein shall continue during the time of
such damage repair.
15.03. In any event, where Landlord is obligated to repair or
restore the Premises, whether wholly or partially damaged or destroyed, unless
paragraph 14.03 above is applicable, the proceeds from the above described
casualty insurance shall be used for the sole purpose of rebuilding and
repairing said improvements. In the event that the election to terminate this
Lease in paragraph 15.04 below is exercised, then all such insurance company
proceeds shall be paid to Landlord and the holder of any real estate mortgage,
as their interests may appear.
15.04. In the event any building(s) on the Premises are destroyed or
damaged by fire or other unavoidable casualty to the extent of fifty percent
(50%) or more, as reflected by the estimate of the adjuster for the insurance
company insuring the Premises, either Landlord or Tenant shall have the option
to declare this Lease ended and terminated, provided it gives notice of this
election to the other party within thirty (30) days of the loss or destruction.
If neither Tenant nor Landlord exercises its right to terminate this Lease, then
rebuilding or repairs will commence and be
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made as provided in paragraph 15.02 above.
15.05. It is further agreed that in no event shall the Term hereof
be extended as a result of any damage or destruction to the Premises.
16. Condemnation or Eminent Domain.
------------------------------
16.01. If all or any material portion of any building(s) on the
Premises is taken for any public or quasi-public use under any governmental law,
ordinance, or regulation or by right of eminent domain or by private purchase in
lieu thereof, and such taking renders any such building unsuitable for Tenant's
continuing use in the reasonable discretion of Landlord, this Lease, at the
option of Landlord or Tenant, shall terminate and the Monthly Rent shall abate
during the unexpired portion of this Lease, effective with the physical taking
of such portion of the Premises. Separate awards for damage to the respective
interests of Landlord and Tenant hereunder shall be made if permitted by law and
each shall be entitled to receive or retain such award as shall be made to it,
and the termination of this Lease shall not affect the rights of the respective
parties to the awards. If the law only provides one award, it shall be equitably
divided between Landlord and Tenant. Equitable division of condemnation proceeds
shall be made by taking into account each party's investment and interest in the
portion of the property and the improvements so taken, the economic effect on
the portion, if any, not taken, and said taken portion's economic value, giving
due consideration to the number of years which would have remained in the Term
of this Lease as it could have been extended.
16.02. If this Lease is not terminated subsequent to a taking for
any public or quasi-public use under any governmental law, ordinance, or
regulation, or by right of eminent domain, or by a private purchase in lieu
thereof, the Monthly Rent payable hereunder during the unexpired portion of this
Lease shall not be reduced. Separate awards shall be made in such event for
damages to the respective interests of Landlord and Tenant hereunder or, if the
law only permits one award, it shall be equitably divided as set forth above.
16.03. Landlord shall immediately notify Tenant of any notice which
Landlord may receive from any governmental authority concerning the temporary or
permanent requisition of any portion of the Premises. In the event of any
temporary requisition not requiring repairs or modifications to the Premises,
Tenant shall be entitled to negotiate for, receive and retain the entire amount
of the net award but Monthly Rent shall not abate.
17. Attornment and Subordination.
----------------------------
17.01. In the event of any sale or other transfer by Landlord of
the Premises, which sale or transfer involves the assignment and/or transfer of
Landlord's interest in this Lease, then Tenant shall attorn to such purchaser
and/or assignee or transferee upon any such sale or transfer and recognize such
purchaser, assignee or transferee as Landlord under this Lease.
17.02. Upon the request of any interested party, Tenant shall
execute, acknowledge and deliver an instrument, in form and substance
satisfactory to such party, evidencing the attornment provided for above.
17.03. Landlord reserves the right to subject and to subordinate
this Lease and any modification thereof at all times to the lien of any
mortgage, deed of trust or other security interest in or on the Premises.
Therefore, this Lease and any modification thereof shall be subject and
subordinate in law and equity to any existing or future mortgage, deed of trust,
security interest or other encumbrance placed by Landlord, its successors and
assigns, upon Landlord's interest in the Premises or upon any portion of the
Premises or which may be included with any adjoining premises; provided,
however, that in each such case Landlord shall cause the holder of any such
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mortgage or similar instrument to agree in writing that in the event of any sale
of the Premises under foreclosure proceedings instituted on said holder's
mortgage or deed of trust, or voluntary transfer in lieu thereof, this Lease
shall not be divested or in any way affected so long as Tenant shall not be in
default under the terms of this Lease. Tenant covenants and agrees to execute
and deliver upon demand such further instrument or instruments subordinating
this Lease to the lien of any such mortgage, deed of trust, security interest or
encumbrance as shall be requested by Landlord and/or any mortgagee or proposed
mortgagee.
17.04. Upon written demand by the holder of any mortgage, deed of
trust, security interest or other encumbrance covering any part of the Premises,
Tenant shall forthwith execute, acknowledge and deliver an agreement in favor of
and in the form customarily used by such encumbrance holder, by the terms of
which Tenant will agree to give prompt written notice to such encumbrance holder
in the event of any casualty damage to the Premises or in the event of any
default on the part of Landlord under this Lease, and will agree to allow such
encumbrance holder a reasonable length of time after notice to cure or cause the
curing of such default (including time to obtain possession of the Premises by
legal proceedings) before exercising Tenant's rights of self-help under this
Lease, if any, or terminating or declaring a default under this Lease.
18. Waste or Nuisance. Tenant shall not commit or suffer to be
-----------------
committed: (i) any waste in or upon the Premises or the buildings or
improvements thereon; (ii) any nuisance; or (iii) any use in violation of any
law or ordinance or regulation of any governmental authority. Tenant shall, at
Tenant's sole cost, comply with all of the requirements of all governmental
authorities (including without limitation those requiring replacements,
additions, repairs and alterations, structural or otherwise), and with all
directions, rules, regulations and recommendations of Tenant's hazard insurer or
insurers, now in force, or which may hereafter be in force, pertaining to the
maintenance, use and occupancy of the Premises.
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19. Defaults and Remedies.
---------------------
19.01. In the event (each of which events shall be sometimes
referred to as an "Event of Default"):
(i) The Monthly Rent (or any installment thereof), or any item
of additional Rent, shall be unpaid on the date payment is
required by the provisions hereof and shall remain so for a
period of fifteen (15) days after Landlord gives Tenant
written notice of such default; or
(ii) Subject to the provisions of the U.S. Bankruptcy Code, this
Lease, without the prior written consent of Landlord, or any
interest therein, or the Premises, or the buildings and
improvements thereon, or any part thereof, or any estate
hereby created, devolve upon or pass to any trustee,
receiver, trustee in bankruptcy, debtor in possession,
assignee, assignee for the benefit of creditors, appointee,
or to any other person or entity by operation of law or
otherwise; or
(iii) The Premises, or the buildings or other improvements
thereon, or any part thereof, shall be used in violation of
the provisions of paragraph 5 hereof; or
(iv) Tenant fails to observe or perform any of the other
covenants, terms or conditions set forth in this Lease and
such failure continues for a period of thirty (30) days
after written notice thereof is given by Landlord to Tenant
(unless such failure reasonably cannot be cured within such
30-day period and Tenant commences to cure such failure
within such 30-day period and continues diligently without
interruption to pursue the curing of the same until
completed); or
(v) Repetition of any failure to timely pay when due any Rent
and such failure is repeated for three (3) consecutive
months or a total of four (4) months in any period of twelve
(12) consecutive months regardless of prior cures; or
(vi) Repetition of any failure to observe or perform any of the
other covenants, terms or conditions set forth in this Lease
more than three (3) times, in the aggregate, in any period
of twelve (12) consecutive months regardless of prior cures;
THEN and upon the occurrence of any such Event of Default, Landlord shall have
the right at any time, at its option, without further notice, and with or
without process of law, and in addition to any and all other rights or remedies
Landlord may have hereunder or otherwise:
(a) To terminate this Lease and the Term hereof, and with or
without process of law, to re-enter the Premises and the
buildings and other improvements thereon, either by force or
otherwise, and without being in any manner liable therefor,
and to take possession thereof and to remove all persons
therefrom and Tenant shall have no further claim therein or
right hereunder; or
(b) Without terminating this Lease or the Term hereof, to re-
enter the Premises and the buildings and other improvements
thereon either by force or otherwise and to take possession
thereof without being in any manner liable therefor, and to
remove all persons therefrom, and to change the locks on the
doors and to exclude Tenant therefrom, and to make such
alterations and repairs as Landlord shall determine may be
necessary to relet the Premises, and to relet the same or
any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's
option be less than or exceed the period which may otherwise
have constituted the balance of the Term of this Lease and
upon such terms and conditions as Landlord in its sole
discretion may deem advisable (but in no event shall
Landlord be under any duty to relet the Premises other than
to use reasonable
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efforts under the circumstances to do so). Upon each
reletting all rentals received by Landlord from such
reletting shall be applied: first, to the payment of any
indebtedness other than Rent or other charges under this
Lease from Tenant to Landlord; second, to the payment of any
cost and expense of such reletting, including, brokerage
fees and attorneys' fees and costs of such alterations and
repairs; and third, to the payment of Rent and other charges
due and unpaid hereunder. In no event shall Tenant be
entitled to receive any surplus of any sums received by
Landlord on a reletting in excess of the Rent and other
charges payable hereunder. If such Rent and other charges
received from such reletting during any month are less than
those to be paid during that month by Tenant hereunder,
Tenant shall pay any such deficiency together with the costs
of reletting, if any, to Landlord (notwithstanding the fact
that Landlord may have received rental in excess of the
rental and other charges payable hereunder in previous or
subsequent months), such deficiency to be calculated and
payable monthly. During any period during which the Premises
are not relet, Tenant shall pay to Landlord any indebtedness
other than Rent or other charges due under this Lease from
Tenant to Landlord, the cost and expense of any attempted
reletting as defined above and the Rent and other charges
due and unpaid hereunder, such deficiency to be calculated
and paid monthly; or
(c) With or without re-entry into possession of the Premises but
without termination of this Lease, to bring suit for the
collection of Rent and for damages (including, without
limitation, reasonable attorneys' fees and the cost of
repairing and reletting the Premises as more specifically
set forth in (b) above). Commencement of any action by
Landlord for Rent and damages shall not be construed as an
election to terminate this Lease and shall not absolve or
discharge Tenant from any of its obligations or liabilities
for the remainder of the Term; or
(d) To retake possession of the Premises from Tenant by process
of law, summary proceedings, or otherwise. Commencement of
any action by Landlord for re-entry shall not be construed
as an election to terminate this Lease and shall not absolve
or discharge Tenant from any of its obligations or
liabilities for the remainder of the Term; or
(e) To terminate this Lease and all of Tenant's rights in or to
the Premises at any time after the Premises are relet, if
prior termination has not occurred.
19.02. It shall not be a default hereunder if Tenant shall vacate
the Premises but continues to pay Rent hereunder; provided, however, that Tenant
agrees to pay to Landlord on demand as additional Rent any increased insurance
premium or cost incurred by Landlord as a result of the Tenant vacating the
Premises.
19.03. No re-entry or taking possession of the Premises by Landlord,
as provided in clauses (b) or (d) of paragraph 19.01 above, shall be construed
as an election on Landlord's part to terminate this Lease until a notice of such
intention is given to Tenant (all other demands and notices of forfeiture or
other similar notices being hereby expressly waived by Tenant). Upon the service
of such notice of termination, the Term of this Lease shall automatically
terminate. Notwithstanding any reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach in
the manner herein provided.
19.04. Nothing herein contained shall be construed as obligating
Landlord to use other than best efforts under the circumstances to relet the
whole or any part of the Premises. In the event of any entry or taking
possession of the Premises and the buildings and improvements thereon, Landlord
shall have the right but not the obligation, to remove therefrom all or any part
of Tenant's personal property located therein and may place the same in public
or private storage at the expense and risk of Tenant.
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19.05. Should Landlord elect to terminate this Lease under the
provisions of subparagraphs (a) or (e) of paragraph 19.01 above, Landlord shall
thereupon, without waiting for the end of the Term of this Lease, be entitled to
recover from Tenant, for Tenant's failure to perform and observe Tenant's
covenants herein contained, the worth at the time of termination of the amount
of Rent reserved in this Lease for the balance of the Term hereof over the then
reasonable rental value of the Premises for the same period.
19.06. In the event of a breach or threatened breach of Tenant of
any of the covenants or provisions hereof, Landlord shall have the right of
injunction and the right to invoke any remedy allowed at law or in equity as if
re-entry, summary proceedings and other remedies were not herein provide for.
Mention in this Lease of any particular remedy shall not preclude Landlord from
any other remedy, in law or in equity.
19.07. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any lawful cause, or in the event of Landlord
lawfully obtaining possession of the Premises.
19.08. No receipt of monies by Landlord from or for the account of
Tenant or from anyone in possession or occupancy of the Premises after the
termination in any way of this Lease or after the giving of any notice of
termination, shall reinstate, continue or extend the Term of this Lease or
affect any notice given to Tenant prior to the receipt of such money, it being
agreed that after the service of notice of termination or the commencement of a
suit, or after final judgment for possession of the Premises, Landlord may
receive and collect any Rent or other amounts due Landlord and such payment
shall not in any respect reinstate this Lease and shall not waive, affect or
impair such notice, suit or judgment.
19.09. Landlord's rights and remedies shall be cumulative and may
be exercised and enforced concurrently. Any right or remedy conferred upon
Landlord under this Lease shall not be deemed to be exclusive of any other right
or remedy it may have.
19.10. Except as otherwise provided in this Lease, Landlord shall
be in default under this Lease if Landlord fails to perform any of its
obligations hereunder and said failure continues for a period of thirty (30)
days after receipt of written notice thereof from Tenant to Landlord (unless
such failure cannot reasonably be cured within thirty (30) days and Landlord
shall have commenced to cure said failure within said thirty (30) days and
thereafter continues diligently without unnecessary interruption to pursue the
curing of the same to completion). Upon such default by Landlord, Tenant may
exercise any remedies it may have at law or in equity but shall not set-off
against Rent due. Any recovery or judgment awarded against Landlord shall be
limited to its interest in the Premises as it may then be encumbered.
20. Notices.
-------
20.01. Whenever any notice, consent, approval or authorization
(hereafter referred to as "Notice") is required or permitted under this Lease,
the same shall be in writing, and any oral notice, consent, approval or
authorization shall be of no effect.
20.02. All Notices by Tenant to Landlord shall be delivered by hand
(which includes express courier delivery) or sent by registered mail or
certified mail, return receipt requested, postage prepaid, addressed to Landlord
as follows: Dockhorn Properties, L.L.C., 13000 Rosehill, Overland Park, Kansas
66213, or at such other address or addresses as may from time to time hereafter
be designated by Landlord to Tenant by like Notice.
20.03. Until Landlord is notified otherwise by Tenant, all Notices
from Landlord to Tenant shall be deemed to have been duly given if delivered by
hand or sent by registered mail or certified
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mail, return receipt requested, postage prepaid, addressed to Tenant as follows:
International Medical Technical Consultants, Inc., 16300 College Boulevard,
Lenexa, Kansas 66219 (with a copy to PRA International, Inc., American Center,
8300 Boone Blvd., Suite 310, Vienna, VA 22182), or at such other address or
addresses as may from time to time hereafter be designated by Tenant to Landlord
by like Notice.
20.04. All mailed Notices shall be effective upon being deposited
in the United States mail in the manner prescribed above. However, the time
period in which a response to any Notice must be given shall commence to run
from the date of receipt shown on the return receipt or a commercial delivery
service receipt of the Notice by the addressee thereof. Rejection or other
refusal to accept, or the inability to deliver because of changed address of
which no Notice was given, shall be deemed to be receipt of the Notice as of the
date of such rejection, refusal or inability to deliver.
20.05. If Landlord elects to send statements to Tenant for the Rent
and for other charges owing by Tenant hereunder and thereafter discontinues such
practice (which Landlord shall have the right to do), Tenant shall nevertheless
make the payments to Landlord required under this Lease on or before the dates
that the same become due.
21. Quiet Enjoyment. Tenant, subject to the terms and provisions
---------------
of this Lease, upon paying the Rent and other charges herein reserved and
observing, keeping and performing all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed, kept and performed, may peaceably
and quietly have, hold and enjoy the Premises during the Term hereof, subject,
nevertheless, to the terms of this Lease, and to any mortgages, agreements and
encumbrances to which this Lease is or may be subordinated.
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22. Miscellaneous.
-------------
22.01. In the event Tenant remains in possession of the Premises or
any part thereof after termination of this Lease for default or after this Lease
has ended by its terms or otherwise and without the execution of a new lease,
Tenant shall remain subject to all of the conditions, provisions and obligations
of this Lease insofar as same are applicable, and furthermore Tenant shall be
deemed to be holding the Premises in unlawful detainer and shall be liable,
until Tenant vacates the Premises, for the payment monthly to Landlord at the
rate of one hundred twenty-five percent (125%) of the amount of Monthly Rent
provided for in this Lease for such period, but such payment shall in no way
limit Landlord's remedies under this Lease or otherwise.
22.02. Any holding over after the expiration of the Term hereof,
provided, however, that Landlord shall have first consented in writing to any
such holding over, shall be construed to be a tenancy from month to month at the
Rents herein specified (prorated on a monthly basis) and shall otherwise be on
the terms and conditions herein specified so far as applicable.
22.03. A waiver by either party of any breach or breaches, default
or defaults, of the other party hereunder shall not be deemed or construed to be
a continuing waiver of such breach or default, nor as a waiver or permission,
express or implied, of any subsequent breach or default, unless such waiver be
in writing. Acceptance by Landlord of any installment of Rent subsequent to the
date the same should have been paid shall in no manner alter or affect the
covenant and obligation of Tenant to pay subsequent installments of Rent
promptly upon the due date. No receipt of money by Landlord after the
termination or expiration in any way of this Lease shall reinstate, continue or
extend the Term.
22.04. If any term, covenant, condition or provision of this Lease
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, all other provisions of this Lease, or the
application of such terms or provisions to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each and every other term, covenant, condition and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.
22.05. All rights and liabilities herein given to or imposed upon
the respective parties shall, except as may be otherwise herein restricted,
prohibited or provided, extend to and bind the several respective successors and
permitted assigns of the parties.
22.06. No payment by Tenant or receipt by Landlord of a lesser
amount than the Rent and other charges herein reserved shall be deemed to be
other than on account of the earliest stipulated Rent or other charges nor shall
any endorsement or statement on any check or in any letter accompanying any
check be deemed an accord and satisfaction.
22.07. In connection with the rights, obligations and performance
of this Lease, Landlord acting as such shall in no event be construed or held to
be a partner or associate of Tenant in the conduct of Tenant's business or
otherwise, or, as Landlord, a joint venturer or a member of a joint enterprise
with Tenant, nor shall Landlord as such be liable for any debts incurred by
Tenant in the conduct of Tenant's business, but it is understood and agreed that
the relationship between the parties hereto is and at all times shall remain
that of Landlord and Tenant.
22.08. In the event either party shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reason of fire,
catastrophe, acts of God or the public enemy, government prohibitions, strikes,
lockouts, civil commotions, inability to obtain materials or labor by reason of
governmental regulations or prohibitions, failure of power or other utilities,
or other reason of a like nature not the fault of the party delayed in
performing work or doing acts required under the terms of this Lease, then
performance of such act shall be excused for the period of the delay, and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay. The provisions of this paragraph 19.08
shall not (a)
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operate to excuse Tenant from prompt payment of Rent nor any other
payment or charge required by the terms of this Lease, nor (b) be applicable to
delays resulting from the inability of a party to obtain financing to proceed
with its obligations under this Lease because of a lack of funds.
22.09. This Lease shall be governed exclusively by the provisions
hereof and by the laws of the State of Kansas, as the same may from time to time
exist.
22.10. Tenant represents and warrants that it is a validly existing
Kansas corporation fully qualified to do business in Kansas and that the person
or persons executing this Lease on behalf of Tenant are duly authorized to sign
and execute this Lease.
22.11. The captions, paragraph numbers and any index or table of
contents appearing in this Lease in no way define, limit, construe or describe
the scope or intent of such paragraphs of this Lease. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning, and not strictly for nor against either Landlord or Tenant, and should
a court be called upon to interpret any provision(s) hereof no weight shall be
given to, nor shall any construction or interpretation be influenced by, any
presumption of preparation of a lease by Landlord or by Tenant.
22.12. Each term and each provision of this Lease to be performed
by Tenant shall be construed to be both a covenant and a condition.
22.13. The submission of this Lease by Landlord to Tenant for
examination shall not be deemed to constitute an offer by Landlord or a
reservation to Tenant of an option to lease, and this Lease shall become
effective as a binding instrument only upon the execution and delivery thereof
by both Landlord and Tenant.
22.14. All obligations of Tenant which by their nature involve
performance, in any particular, after the end of the Term, or which cannot be
ascertained to have been fully performed until after the end of the Term, shall
survive the expiration or sooner termination of the Term of this Lease.
22.15. This Lease and any Exhibits attached hereto and forming a
part hereof, set forth all the covenants, promises, agreements, conditions and
understandings between Landlord and Tenant concerning the Premises. There are no
oral agreements or understandings between the parties hereto affecting this
Lease, and this Lease supersedes and cancels any and all previous negotiations,
arrangements, agreements and understandings, if any between the parties hereto
with respect to the subject matters hereof, including the prior lease between
the parties described in the Recitals to this Lease, and none thereof shall be
used to interpret or construe this Lease. Except as herein otherwise expressly
provided, no subsequent alteration, amendment, change or addition to this Lease
shall be binding upon Landlord or Tenant unless reduced to writing and signed by
them.
22.16. Time is of the essence with respect to the performance of
the respective obligations of Landlord and Tenant set forth in this Lease.
22.17. When liquidated damages are specified anywhere in this
Lease, it is understood and agreed that said sum is to be paid because actual
damages will be difficult or impossible to ascertain with accuracy. In any
action or proceeding by Landlord against Tenant to enforce any of the provisions
of this Lease or to recover payment of any claim under or to recover damages for
the default or breach of any provisions hereof, Landlord shall be entitled to
recover from Tenant all costs and expenses in any such action, including
reasonable attorneys' fees and costs, whether before or at trial or on appeal.
23. Tenant Finish Allowance. Landlord and Tenant agree that in
-----------------------
lieu of Landlord constructing certain improvements to the Premises to induce
Tenant to enter into this Lease with
20
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Landlord, Landlord shall grant to Tenant an allowance of Seven and 50/100ths
Dollars ($7.50) per square foot for the entire Premises to construct
improvements to the Premises. Such allowance shall be granted by Landlord to
Tenant on annual basis, pro rated over the original Term of the Lease. Subject
to paragraph 10 hereof, any improvements or modifications to the Premises
proposed by Tenant shall be subject to the prior written consent and approval of
Landlord; provided, however that such consent and approval shall not be
unreasonably withheld.
24. Guaranty. Landlord and Tenant agree that this Lease is
--------
conditioned upon Landlord receiving the guaranty of PRA International, Inc.,
Tenant's parent corporation, of all of Tenant's obligations and duties
hereunder. At the execution of this Lease, Tenant shall deliver to Landlord a
guaranty executed by PRA International, Inc. in the form attached hereto as
Exhibit C.
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed by their respective duly authorized officers or representatives in
multiple counterpart copies, each of which shall be deemed an original but
constitute one and the same instrument, as of the date first set forth above.
THIS LEASE CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
LANDLORD: TENANT:
DOCKHORN PROPERTIES, L.L.C. INTERNATIONAL MEDICAL TECHNICAL
CONSULTANTS, INC.
By: /s/ Douglas R. Dockhorn By: /s/ P.K. Donnelly
------------------------------ ------------------------------
Printed Name: Douglas R. Dockhorn Printed Name: Patrick K. Donnelly
-------------------- --------------------
Title: Member Title: Executive Vice President
---------------------------
22
<PAGE>
EXHIBIT A
Legal Description of Premises
TRACT 1:
All of that part of the Southwest Quarter of Section 8, Township 13, Range
24, in the City of Lenexa, Johnson County, Kansas, more particularly
described as follows:
Commencing at the Southwest corner of said Southwest Quarter; thence
North 88 degrees 02' 50" East along the South line of said Southwest
Quarter, 1078.93 feet; thence North 02(Degree) 21' 02" West, 85.0 feet to
a point on the East right-of-way line of Eicher Drive, as now established,
and the Point of Beginning; thence continuing North 02(Degree) 21' 02"
West along said right-of-way line, 439.97 feet; thence North 42(Degree)
38' 52" East along the Southeast right-of-way line of the intersection of
Eicher Drive and 110th Street, 42.13 feet, to a point on the South right-
of-way line of said 110th Street, as now established; thence North
88(Degree) 02' 50" East along said right-of-way line, 320.69 feet; thence
South 02(Degree) 13' 25" East, 499.97 feet, to a point on the North right-
of-way line of College Boulevard, as now established; thence South
88(Degree) 02' 50" West along said right-of-way line, 319.37 feet; thence
North 47(Degree) 09' 06" West along the Northeast right-of-way line of the
intersection of College Boulevard and Eicher Drive, 42.57 feet, to the
Point of Beginning
TRACT 2:
All of that part of the Southwest Quarter of Section 8, Township 13, Range
24, in the City of Lenexa, Johnson County, Kansas, more particularly
described as follows:
Commencing at the Southwest corner of the Southwest Quarter of said
Section 8; thence North 88(Degree) 02' 50" East along the South line of
the Southwest Quarter of said Section 8, a distance of 586.36 feet; thence
North 01(Degree) 57' 10" West, perpendicular to said South line, a
distance of 55.0 feet, to a point on the North right-of-way line of
College Boulevard, as now established, and to the Point of Beginning;
thence continuing North 01(Degree) 57' 10" West, a distance of 526.78
feet; thence North 87(Degree) 38' 58" East, a distance of 427.80 feet, to
a point on the West right-of-way line of Eicher Drive, as now established;
thence South 02(Degree) 21' 02" East, along the West right-of-way line of
said Eicher Drive, a distance of 499.76 feet; thence South 42(Degree) 38'
58" West, continuing along said West right-of-way line, a distance of
42.13 feet, to a point on the North right-of-way line of said College
Boulevard; thence South 88(Degree) 02' 50" West, along said North
right-of-way line, a distance of 401.67 feet, to the Point of Beginning
<PAGE>
EXHIBIT B
Operating Expenses
The term "Operating Expenses" shall include the total costs and expenses
incurred in operating and maintaining the Premises, including, but not limited
to, the cost and expense of the following:
(i) real estate taxes and special assessments (but specifically
excluding any penalties or fines);
(ii) fire and casualty insurance for the Premises; and
(iii) repairs and maintenance of the Premises, including, but not limited
to, snow removal, gardening, landscaping, planting, replanting, and
replacing flowers and shrubbery; cleaning, striping and resurfacing
and repair of parking areas, electricity, water, gas and other
utilities (including all capital expenditures reasonably expected
to reduce the cost of any utilities, but not to include local and
long distance telephone service); maintenance and replacement of
fixtures and bulbs; elevators and service contracts thereon;
parking operating systems; sanitary control, extermination, removal
of rubbish, garbage and other refuse; security systems and policing
of the Building; sewer charges; machinery and equipment used in the
operation and inspection of the Building and depreciation thereof;
replacement of paving, curbs and walkways and drainage facilities;
music program services and loud speaker systems; heating,
ventilating and air conditioning and maintenance and repair of the
systems and fixtures not chargeable to a particular tenant;
cleaning and janitorial services and cleaning supplies; maintenance
of decorations, lavatories and elevators; maintenance and repair of
building roof and exterior walls and glass; landscaping and fire
sprinkler systems; licenses, permits and inspection fees.
Operating Expense Base:
16300 College - $6.87 per square foot
11011 Eicher - $4.83 per square foot
16400 College - $4.83 per square foot
2
<PAGE>
EXHIBIT C
Guaranty
See attached.
3
<PAGE>
GUARANTY
--------
THIS GUARANTY is given by PRA INTERNATIONAL, INC., a Delaware
corporation ("Guarantor"), to DOCKHORN PROPERTIES, L.L.C. ("Landlord") to induce
Landlord to enter into a lease of certain office buildings located at 16300
College Blvd., 16400 College Blvd. and 11011 Eicher, Lenexa, Kansas (the
"Lease") with INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC., a Kansas
corporation (the "Tenant").
NOW, THEREFORE, in consideration of the substantial benefits to be
derived by Guarantor therefrom and as an inducement to Landlord to enter into
the Lease with Tenant, Guarantor hereby agrees as follows:
1. Guarantor directly, absolutely independently, primarily,
unconditionally and continually, irrevocably guarantees to Landlord, its
successors and assigns, the full and punctual payment and performance by Tenant
when due of all obligations and duties of Tenant to Landlord arising under or in
connection with the Lease (collectively referred to herein as the "Tenant
Obligations"). If, at any time, default shall be made by Tenant in the
performance or observance of the Tenant Obligations, Guarantor will pay, keep,
perform and observe the same, as the case may be, in the place and stead of
Tenant.
2. Any act of Landlord, its agents, successors or assigns,
consisting of a waiver of any of the terms or conditions of the Tenant
Obligations, or the giving of any consent to any manner or thing relating
thereto, or the granting of any indulgences or extensions of time to Tenant, or
to the release of any collateral providing security for the full performance of
the Tenant Obligations, or the failure of Landlord to resort to any remedy
provided at law or in equity, may be done and taken without notice to Guarantor
and without releasing the obligations of Guarantor hereunder and Guarantor
hereby expressly waives any notice of non-payment, non-performance or
non-observance, or proof of notice or demand, in order for Landlord to claim
under this Guaranty.
3. The obligations of Guarantor hereunder shall not be released by
Landlord's receipt, application or release of security given for the performance
and observance of the Tenant Obligations, nor by any modification of any
agreement between Landlord and Tenant, but in case of any such modification the
liability of Guarantor shall be deemed modified in accordance with the terms of
any such modification.
4. The liability of Guarantor hereunder shall in no way be affected
by: any lack of validity or enforceability of the Lease, the release or
discharge of Tenant in any creditors' receivership, bankruptcy or other
proceedings; the impairment, limitation or modification of Tenant or the estate
of Tenant in bankruptcy, or of any remedy for the enforcement of the Tenant
Obligations resulting from the operation of any present or future provision of
the bankruptcy laws or other statute or from the decision in any court; the
rejection or disaverment of any Tenant Obligation in any such proceedings; the
assignment or transfer of any Tenant Obligation; any disability or other defense
of Tenant; the cessation from any cause whatsoever of the liability of Tenant;
or the impairment or release of any collateral securing the full performance of
the Tenant Obligations.
5. This Guaranty shall apply to all of the Tenant Obligations, and
any modification, extension or renewal thereof and substitutions therefor.
6. This Guaranty may not be changed, modified, discharged or
terminated orally or in any manner other than by an agreement in writing signed
by Landlord and Guarantor.
7. To the extent allowed by applicable law, Guarantor shall pay all
costs incurred including reasonable attorneys' fees in the event collection or
enforcement efforts are commenced
<PAGE>
against Guarantor by the placement of this Guaranty into the hands of an
attorney, such costs and reasonable attorneys' fees to be paid whether or not
action or actions are commenced or continued to judgment.
8. Guarantor's liability herein is primary, direct, absolute,
continual and unconditional and is independent of the obligations of Tenant or
any other guarantor. A separate action may be brought and the obligations of
Guarantor may be immediately enforced without necessity of any action against
Tenant or collateral or the resort by Landlord to any remedy at law or in equity
and a separate action may be prosecuted against Guarantor whether or not action
or actions are brought against Tenant and whether or not Tenant is joined in any
such action and Guarantor hereby waives the benefit of any enforcement thereof.
9. This Guaranty shall inure to the benefit of Landlord, and its
successors and assigns.
10. This Guaranty shall be binding on Guarantor, and its successors
and assigns.
11. This Guaranty shall be governed by and construed under the laws
of the State of Kansas.
12. Upon making any payment to Landlord hereunder, Guarantor shall
be subrogated to the rights of Landlord against Tenant with respect to such
payment; provided that Guarantor shall not enforce payment by way of subrogation
until all amounts payable by Tenant to Landlord under the Lease have been paid
in full.
13. This Guaranty has been duly authorized, executed and delivered
by Guarantor and constitutes a legal, valid and binding obligation of Guarantor
enforceable in accordance with its terms. The execution and delivery of this
Guaranty and the consummation of the transactions contemplated hereby will not
conflict with or constitute a breach , or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Guarantor pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which Guarantor is a party or by
which it may be bound , or to which any of its property or assets may be
subject, nor will such action result in any violation of the provisions of the
certificate or articles of incorporation or other organizing documents or bylaws
of Guarantor, or any applicable law, administrative regulation or administrative
or court decree known to it after reasonable investigation.
IN WITNESS WHEREOF, Guarantor has executed and delivered this
Guaranty to Landlord as of the 1st day of April, 1997.
PRA INTERNATIONAL, INC.
"Guarantor"
By: /s/ P.K. Donnelly
---------------------------------
Name: P.K. Donnelly
-------------------------------
Title: Executive Vice President
------------------------------
2
<PAGE>
Exhibit 10.7
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
1st day of April, 1997, by and between BEVERLY W. DOCKHORN, Trustee of the
BEVERLY W. DOCKHORN REVOCABLE TRUST, dated January 5, 1984 (the "Landlord"), and
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC., a Kansas corporation (the
"Tenant"), with respect to the following facts and objectives.
RECITALS:
--------
A. Landlord owns that certain tract of real property described as set
forth on Exhibit A, attached hereto and incorporated herein by this reference,
upon which is located a building containing approximately 8,000 square feet of
gross leasable area, commonly known and numbered as 5300 West 94/th/ Terrace,
Prairie Village, Kansas (collectively referred to herein as the "Premises").
B. Landlord and Tenant desire to enter into this Lease to evidence
their agreements with respect to Tenant's occupancy of the Premises from and
after the Commencement Date of this Lease.
NOW, THEREFORE, in consideration of the Rent herein reserved and the
mutual promises and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
1. Grant of Lease; Reservations.
----------------------------
1.01. Landlord hereby leases and lets the Premises to Tenant, and
Tenant hereby accepts and leases the Premises from Landlord, upon and subject to
the terms, conditions, covenants and provisions of this Lease.
1.02. Landlord excepts and reserves the right to place, install,
maintain, carry through, repair and replace such utility lines, pipes, wires,
tunneling and the like in, over and upon the Premises as may be reasonably
necessary or advisable for the servicing of the Premises or of other tracts or
parcels of land owned by Landlord adjacent to, near or around the Premises, but
this provision shall in no way limit or otherwise modify Tenant's
responsibilities set forth elsewhere in this Lease including, without
limitation, those requiring maintenance and repair by Tenant. Landlord agrees
that if any such installation results in damage to any of Tenant's property or
improvements, Landlord will restore said improvements to substantially the same
condition as existed prior to said installation, all at Landlord's expense. Any
such work shall be done at such time so as to minimize any inconvenience to
Tenant and its business invitees.
2. Term; Memorandum of Lease.
-------------------------
2.01. The term of this Lease (the "Term") shall commence on the date
of this Lease (sometimes herein called the "Commencement Date") and shall
continue for a period of ninety (90) months expiring at midnight on September
30, 2004. The term "Lease Year" whenever used in this Lease shall mean the
twelve (12) consecutive calendar months commencing April 1st and ending on the
next succeeding March 31st.
2.02. Upon the request of either of them, Landlord and Tenant agree to
execute an instrument in recordable form setting forth the Commencement Date and
expiration date of the
<PAGE>
Term of this Lease and such other matters as may be mutually agreed upon. Said
instrument may be recorded by either party at its cost, but this Lease shall not
be recorded.
2.03. Tenant shall have the option to renew the Term of this Lease for
one (1) renewal term of ninety (90) months (the "Renewal Term"). This renewal
option shall be exercised by written notice from Tenant to Landlord at least six
(6) months prior to the end of the initial Term. If Tenant exercises its renewal
option, this Lease shall continue unchanged for the Renewal Term, except that:
(i) there shall not be any further renewal or extension options upon expiration
of the Renewal Term; and (ii) the Rent payable by Tenant during the Renewal Term
shall continue to be adjusted on annual basis as set forth in paragraph 3.02
hereof. Even if Tenant exercises this renewal option, the renewal shall not be
effective unless Tenant has materially performed all of its obligations under
this Lease which have accrued as of the date that Tenant exercises this renewal
option and as of the date on which the Renewal Term commences. If the renewal is
not effective as set forth above, Landlord shall be entitled to lease the
Premises to any third party free and clear of any claim or interest of Tenant.
3. Rent and Late Charges.
---------------------
3.01. Tenant agrees to pay for the use and occupancy of the Premises
during the entire Term of this Lease, at the times and in the manner herein
provided, the Monthly Rent (as adjusted) described below. As used in this
Lease, the term "Rent" means, collectively, the Monthly Rent (as adjusted) and
any other charges, sums or amounts to be paid by Tenant described in this Lease.
3.02. Tenant shall pay to Landlord for the first Lease Year annual
rent in the amount of Sixteen Dollars ($16.00) per square foot, payable in
monthly installments of Ten Thousand Six Hundred Sixty-Six and 67/100ths Dollars
($10,666.67) each, in advance, on the first day of each calendar month
commencing on the Commencement Date (the "Monthly Rent"). Thereafter, during
the Term and any Renewal Term, the amount of the Monthly Rent shall be adjusted
annually commencing with the 1st day of the second Lease Year (April 1, 1998)
after the Commencement Date and on each one-year anniversary thereof (each an
"Adjustment Date"). On each Adjustment Date, the Monthly Rent shall be
increased by two and two/thirds percent (2.66%). Each Adjustment Date, Landlord
shall give Tenant written notice of the adjusted Monthly Rent and the amount of
the monthly payments of same
3.03. Rent payable by Tenant under this Lease shall be paid when due
without notice or prior demand and shall be paid by Tenant to Landlord at13000
Rosehill, Overland Park, Kansas 66213, or at such other place as may be
designated from time to time by notice from Landlord to Tenant. Rent shall be
payable without notice, demand or set-off.
3.04. Any Rent unpaid for more than fifteen (15) days after the date
when due and/or received and accepted more than fifteen (15) days after the due
date shall be subject to a late charge of Two Thousand Five Hundred Dollars
($2,500.00). Late charges shall be due from Tenant on or before the next due
date for the purpose of defraying Landlord's administrative expenses incident to
the handling of such overdue payments. Any default in the payment of Rent shall
not be considered cured unless and until said late charges are paid by Tenant.
In the event of a default in payment of late charges, Landlord shall have the
same remedies as upon default in the payment of Rent. Late charges shall be in
addition to any other rights or remedies provided to Landlord by this Lease or
as allowed by law. In the event Rent (including Monthly Rent or late charges)
are not paid within thirty (30) days following the due date thereof, such sums
shall bear interest at a rate equal to two percentage points (2%) above the then
publicly announced prime interest rate as set forth in the Wall Street Journal.
-------------------
Interest shall be due from Tenant on or before the next rental due date and
shall accrue from the date that such Rent becomes due and payable hereunder.
Interest shall continue to accrue up to and including the date Rent is paid. Any
default in the payment of Rent shall not be considered cured unless and until
actually paid by Tenant. Upon default in the payment any applicable interest,
Landlord shall have the same remedies as upon default in payment
2
<PAGE>
of Rent. Interest shall be in addition to any other rights or remedies provided
to Landlord by this Lease or as allowed by law.
3.05. Landlord and Tenant agree that Monthly Rent shall include all
operating expenses of the Premises, including, but not limited to, those
expenses set forth on Exhibit B attached hereto; provided, however, that in no
event shall Landlord's cost of operating the Premises in any Lease Year exceed
that amount set forth on Exhibit B, which is the actual operating expenses of
the Premises for calendar year 1996 on a per-square-foot ("Operating Expense
Base"). The parties agree that commencing with the second Lease Year (April 1,
1998), the Operating Expense Base shall be increased by two and two-thirds
percent (2.66%) per Lease Year. In the event Landlord's cost per square foot in
any Lease Year for the items set forth on Exhibit B exceeds the Operating
Expense Base, then Tenant shall be liable for any overage at its sole cost.
Landlord shall provide Tenant with an itemized statement detailing such overage,
and Tenant shall pay the amount of such overage to Landlord as additional rent
within thirty (30) days of receipt of such statement
4. Condition of Premises; Zoning; ADA; Estoppel Certificate.
--------------------------------------------------------
4.01. Landlord agrees to cause the Premises to be inspected by a
recognized architect within thirty (30) days after the Commencement Date to
measure the square footage of the Premises and to insure that the Premises
structural and mechanical condition complies with BOMA standards. The cost of
such architect shall be divided evenly between Landlord and Tenant. After any
adjustments agreed to by Landlord and Tenant arising from such inspection,
Tenant agrees to accept the Premises in its then present condition as delivered
by Landlord to Tenant hereunder. Thereafter, Landlord shall make no warranties,
expressed or implied, concerning the physical or other condition of the Premises
or the buildings or improvements thereon or their suitability for Tenant's
purposes, other than as expressly set forth herein.
4.02. Landlord represents and warrants to Tenant that: (i) the
Premises are presently zoned to permit Tenant's use of the Premises as
contemplated by this Lease; and (ii) the Premises as delivered to Tenant on the
Commencement Date are in compliance with the Americans with Disabilities Act (42
U.S.C. (S) 12101 et seq.), and all regulations, guidelines and interpretations
promulgated thereunder from time to time (collectively, as the same may be
amended or supplemented from time to time, and together with any successors
thereto, the "ADA"). Landlord and Tenant agree that any modifications or repairs
required to the Premises due to an amendment to the ADA shall be at Landlord's
sole expense, and any modifications or repairs required to the interior of the
Premises due to an amendment to the ADA shall be at Tenant's sole expense. The
parties further agree that any modifications or repairs required to the Premises
under the ADA due to improvements of or modifications to the Premises made by
Tenant shall be at Tenant's sole expense, and subject to Landlord's prior
written review and approval.
4.03. From time to time during the Term of this Lease, as it may be
extended, Tenant agrees that it will, at the request of Landlord or any lender
or Landlord, promptly, and in any event within seven (7) days after written
request, execute, acknowledge and deliver, in a form satisfactory to Landlord or
its lender, an estoppel certificate in the form requested, addressing the same
to whomsoever Landlord or its lender designates. Such estoppel certificate shall
state, among other things: whether this Lease is in full force and effect;
whether this Lease has been modified or amended, and, if so, identifying and
describing any such modification or amendment; the date to which Rent and any
other charges have been paid; whether Tenant knows of any default on the part of
Landlord or has any claim against Landlord and, if so, specifying the nature of
such default or claim; and stating such other facts or providing such other
information as reasonably may be requested.
5. Use of Premises; Compliance With Laws.
-------------------------------------
3
<PAGE>
5.01. Tenant agrees to occupy and use the Premises (and the buildings
and improvements thereon) only for office, light warehouse, medical testing,
laboratory and related uses as presently being conducted by Tenant in its normal
course of business and Tenant shall not use or occupy the buildings or other
improvements on the Premises, or any portion thereof, for any other purpose or
purposes without the prior written consent of Landlord first obtained, which
consent shall not be unreasonably withheld.
5.02. Tenant agrees to comply with all laws, ordinances, orders, rules
and regulations now or hereafter in force affecting the Premises and/or the
buildings or other improvements thereon, or the use thereof, and not to conduct
in, or permit the use of, the Premises or any part thereof for any illegal or
improper purpose or use.
6. Environmental Matters. Tenant agrees that it shall: not cause
---------------------
or permit any hazardous substances or hazardous materials to be brought on,
used, stored, generated or exposed or released on or in the Premises except in
strict accordance and compliance with all applicable environmental laws; not
discharge, dispose of or emit, or permit to be discharged, disposed of, leaked
or emitted, any hazardous substances or hazardous materials in the air,
atmosphere, ground, water supply or sewer systems except only as may be
permitted by applicable environmental laws and then only in strict accordance
and compliance therewith; disclose to Landlord the names and approximate amounts
of hazardous materials and hazardous substances, if any, that Tenant stores,
uses, generates or disposes of on or in the Premises; not place, construct,
erect or install or permit to be used in or on the Premises any above ground or
underground storage tanks, whether for fuel, chemicals or any other substances,
or fluids or materials except with the prior written consent of Landlord; obtain
and maintain in existence all permits, licenses or similar authorizations
required of Tenant by all applicable environmental laws (and provide Landlord
with copies thereof); and provide Landlord with true copies of all notices or
other communications received by Tenant from any governmental authority alleging
or claiming any violation of any applicable environmental law by Tenant with
respect to the Premises or Tenant's operations thereon together with Tenant's
proposed response thereto including any remedial actions to be undertaken.
Tenant agrees to and shall indemnify, defend and hold Landlord and its members
harmless from and against any and all claims, damages, fines, judgments,
settlements, penalties, costs or losses (including, without limitation, any
decrease in the value of the Premises) arising, during or after the Term of this
Lease, directly or indirectly from any breach or default by Tenant, its
employees, agents, contractors or invitees, of any of the foregoing provisions
including, without limitation, any injury or damage to persons or property of
Landlord, other persons on or around the Premises or properties adjacent
thereto, arising from any spill, seepage, leakage, release, discharge, emission,
generation, storage or disposal of hazardous substances or hazardous materials
which results in damage or contamination. This indemnification includes, without
limitation, any and all costs incurred in or because of any investigation of the
Premises or Tenant's use of or operations or activities therein or thereon and
any clean-up, removal, restoration or remediation mandated by any governmental
authority or reasonably required by Landlord's environmental consultants.
Without limiting the foregoing, in the event of any spill, seepage, leakage,
release, emission, generation, or disposal of hazardous substances or hazardous
materials in or upon the Premises caused or permitted by Tenant, its employees,
agents, contractors or invitees that results in damage or contamination, Tenant
shall promptly upon discovery or notification thereof, whether during or after
the Term of this Lease, at its sole cost and expense, take any and all actions
to return the Premises to substantially the same condition as existed prior to
the presence of any such hazardous substances or hazardous materials thereon or
therein. Tenant shall obtain Landlord's approval for any such remedial actions,
which approval shall not be unreasonably withheld or delayed. If known prior to
the expiration of the Term of this Lease and if any remediation or clean has not
been fully completed by such expiration date, Landlord shall have and is hereby
granted the unilateral right (but not the obligation) to extend the Term of this
Lease on a month-to-month basis (and on all of the same terms and conditions as
then prevail) until such remediation or clean-up is completed by giving written
notice of extension to Tenant. The provisions of the indemnity contained herein
shall survive the expiration or sooner termination of this Lease and shall inure
to the benefit of and be
4
<PAGE>
enforceable by any person or entity which purchases the Premises from Landlord
or by any lender of or to Landlord which forecloses any mortgage, deed of trust
or other security interest it may have in the Premises. For all purposes hereof,
the terms "hazardous materials" and "hazardous substances" shall mean all
materials, substances, or wastes defined as such under all applicable
environmental laws together with any oil, petroleum, petroleum products or by-
products, medical or infectious wastes, explosives, asbestos, nuclear or
radioactive materials, and polychlorobiphenyls. For all purposes of this Lease,
the phrase "applicable environmental laws" means common law and all statutes,
laws, ordinances, acts, rules, regulations (temporary, interim or final),
decrees, orders and rulings of all federal, state, county or municipal
governments and any political subdivisions, agents, departments, commissions,
boards, bureaus or instrumentalities of any of them which have jurisdiction of
or over the Premises and which relates or pertains to health, the environment,
oil, chemicals, petroleum products, explosives, underground or above ground
storage tanks, hazardous substances, hazardous materials, solid, medical,
infectious or other wastes, radioactive materials, air quality or water quality,
including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended (by, among others, the
Superfund Amendments and Reauthorization Act), the Resource Conservation and
Recovery Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as
amended, the Toxic Substances Control Act, as amended, the Safe Drinking Water
Act, as amended, the Federal Insecticide, Fungicide and Rodenticide Act, as
amended, and the environmental control laws of the State of Kansas, as amended.
7. Services. During the term of the Lease, Landlord shall furnish
--------
heat, water, electricity, air-conditioning, security, janitor and cleaning
services which, in Landlord's judgment, are necessary for the comfortable
occupation and use of the Premises as permitted under paragraph 5.01 of this
Lease. Tenant shall be responsible, at its sole expense, for obtaining and
maintaining local and long distance telephone service. Landlord shall maintain
the Premises, including permanent building components such as heating, air-
conditioning and ventilating systems and the like, and the associated off-street
parking facilities in good condition and repair. Landlord's failure to furnish
the services provided for in this paragraph shall not render Landlord liable in
any respect for damages to either person or property, nor shall it affect any of
Tenant's obligations under this Lease. Landlord's sole liability shall be to use
diligent prosecution in furnishing the services referred to in this paragraph.
Tenant shall have no claim for rebate of rent or damages on account of any
interruption in those services. Tenant's sole remedy in the event of
interruption of any service would be to compel Landlord to exercise diligent
prosecution in furnishing the service, if Landlord is not doing so; provided,
however, that if such services are interrupted for a period of five (5)
consecutive business days or more such that all or any portion of the Premises
are rendered unusable, then Tenant shall be entitled to an abatement of Rent for
such portion of the Premises from the time of such interruption until such
services are resumed.
8. Maintenance and Repair of the Premises.
--------------------------------------
8.01. Subject to the provisions of Section 3.05 of this Lease,
Landlord shall be responsible, at Landlord's sole expense, for all repairs and
maintenance of the interior and exterior of the Premises caused by normal wear
and tear in the use and occupancy of the Premises by Tenant. This shall include,
without limiting the generality of the foregoing, all utility meters, pipes and
conduits, roofs, foundations, structures, parking lot surfaces and markings,
curbs, sidewalks, driveways, docks, landscaped and planted areas, exterior and
interior portions of all doors, windows, plate glass, interior and exterior
lighting fixtures and lamps, heating, ventilating and air conditioning units and
systems, all plumbing and sewage facilities, all electrical installations,
systems and equipment, exterior and interior walls, partitions, floors, floor
covering, ceilings, all interior painting and all interior and exterior building
appliances and similar equipment or fixtures originally installed or thereafter
placed in said buildings and improvements.
8.02. Any repairs or maintenance required to the Premises by Tenant's
use which cannot
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be reasonably characterized as "normal wear and tear" shall be the
responsibility of Tenant, and performed at Tenant's sole expense. In the event
Tenant fails to make those repairs or replacements and to do that work provided
herein as Tenant's obligation within ninety (90) days after written notice or
demand given by Landlord or, if such repairs and work are of a character that
the same cannot be completed within thirty days, Tenant fails to commence the
diligent prosecution of such repairs or work within at least ninety 90)days
after written notice from Landlord of the need therefor and diligently continues
to prosecute the same, without interruption, to completion, Landlord may, at its
option, perform the same, and any and all expenses incurred by Landlord in such
connection shall be payable by Tenant to Landlord immediately upon demand. If
Tenant disputes or desires to contest Landlord's notice of repairs or work to be
done, then within thirty (30) days after Landlord's written notice, Tenant may
submit the matter to arbitration as provided for in this paragraph. If Tenant
fails to submit any such matter to arbitration or cure or commence cure within
such 30 day period, Landlord may proceed to make such repairs. Nothing herein
shall imply any duty upon the part of Landlord to do any such work which under
the provisions of this Lease Tenant is required to perform, and the performance
thereof by Landlord shall not constitute a waiver of Tenant's default for
failure to perform the same. Landlord shall not be liable in any event for
inconvenience, annoyance, disturbance, loss of business or other damage by
Tenant by reason of making such repairs or the performance of any such work in
the Premises or the buildings or improvements thereon. Tenant shall also have
the right to submit to arbitration any dispute as to the amount of any repairs
made by Landlord in the event Tenant fails to make the same if commenced within
ten (10) days after Landlord's written demand for reimbursement.
If it becomes necessary under the immediately preceding paragraph to
arbitrate a matter, then Landlord and Tenant shall mutually agree upon an
arbitrator within ten (10) days after the earlier of (a) expiration of Tenant's
period for payment or cure or (b) Tenant's notice to Landlord disputing the
repairs and requesting arbitration. If they shall be unable to agree within
such ten (10) day period, then each shall have five (5) days to select an
arbitrator and notify the other party to this Lease of their selection. If
either Landlord Tenant does not select an arbitrator and so notify within such
five (5) day period, then the arbitrator selected by the other party shall have
the sole right to arbitrate this matter. The two arbitrators selected shall
have ten (10) days after the selection of the last one of them to mutually agree
upon a third arbitrator. Thereafter, the three arbitrators shall have thirty
(30) days to consider any evidence presented by Landlord and Tenant and render a
decision by majority. If such decision requires payment of any sum by Tenant or
Landlord, such sum shall be paid in full to Landlord or Tenant, as the case may
be, within ten (10) days after the decision is rendered. If it is not paid
within such ten (10) day period, such sum shall be deemed to be Rent and
Landlord may immediately, without waiting an additional ten (10) days or
providing additional written notice, exercise its rights for Tenant's default
set forth below in this Lease. The majority decision of the arbitrators shall
be final and conclusive and enforceable under the Kansas Uniform Arbitration
Act.
9. Landlord's Right of Entry.
-------------------------
9.01. Landlord, its agents, employees, contractors and designees shall
have the right, during the Term of this Lease, as it may be extended, to enter
upon the Premises (and the buildings or any of the other improvements located
thereon) for all lawful purposes and to whatever extent necessary or appropriate
to enable Landlord to exercise all of its rights under this Lease, including,
without limiting the generality of the foregoing, the right to enter for the
following purposes:
(i) To perform certain provisions of this lease on Tenant's behalf
as set forth elsewhere herein;
(ii) To inspect the Premises (and the buildings and all other
improvements thereon) for the purpose of ascertaining the
condition of the same and in order to ascertain that the same
are being maintained by Tenant as required under the provisions
of this Lease; and
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(iii) To exhibit the Premises and the buildings and other
improvements thereon to others.
Tenant shall make no claim for damages or inconvenience caused by any
such entry. Landlord and Tenant agree that, except in the cases of emergency,
Landlord shall use its best efforts to notify Tenant prior to any entry, and
enter upon the Premises only during normal business hours.
9.02. The exercise by Landlord of its right of entry herein granted
shall not constitute an eviction of Tenant, and the Rent payable under this
Lease shall not abate by reason thereof.
10. Changes or Additions to Buildings; Surrender at Termination.
-----------------------------------------------------------
10.01. Tenant agrees not to alter, revise, change, add to or remove
any part or portion of the buildings or the other improvements or erect any
other improvements of any nature on the Premises without the prior written
consent of Landlord which will not be unreasonably withheld or delayed. Nothing
herein contained shall prohibit Tenant from making interior, non-structural
changes or renovations to the buildings not exceeding $10,000 in the aggregate
(excluding expenditures for a security system) over the Term of this Lease
without Landlord's consent; provided, however, that (I) Tenant shall be required
to obtain Landlord's consent, not to be unreasonably withheld, prior to any
installation of a security system, and (ii) in no event shall Tenant be required
to obtain the consent of Landlord to an upgrading of the Premises' existing
wiring. Landlord may condition its consent on, among other things, the delivery
of completion and/or performance bonds or other security to insure completion of
the work lien free.
10.02. Tenant may install in or upon the Premises such trade fixtures
and equipment as Tenant considers essential or desirable for the conduct of
business therein. Such items shall be considered removable business property and
referred to in this Lease as "Tenant's Property". Tenant shall have the right to
remove any of Tenant's Property at any time. Landlord shall have no right to
assert any lien or equitable charge against any of Tenant's Property, inventory
or other personal property. Any damage caused to the Premises by the removal of
Tenant's Property shall be repaired by Tenant at its sole cost and expense,
whether before or after the expiration or termination of this Lease.
10.03. On the last day of the Term of this Lease, as it may be
extended, or on the sooner termination thereof, all improvements not otherwise
already vested in Landlord and located on the Premises shall be deemed to be a
part of the Premises, title thereto shall be vested in Landlord, and Tenant
shall (i) peaceably surrender to Landlord the Premises, together with the
buildings and all improvements thereon as a part thereof, without disturbance,
molestation, injury or any further claim thereto by Tenant; and (ii) deliver the
Premises (together with the buildings and all improvements thereon) to Landlord
in good order, condition and repair (normal wear and tear and damage by insured
casualty excluded); and (iii) remove from the Premises, at the sole expense of
Tenant, Tenant's Property (and any of Tenant's Property not so removed prior to
the termination of this Lease, may, at the option of Landlord and without
limiting Landlord's right to compel removal thereof, be deemed abandoned); and
(iv) deliver any and all keys to the buildings and improvements on the Premises,
which Tenant may possess, to Landlord at the place designated by Landlord for
the payment of Rent. Surrender of keys by Tenant prior to or at the expiration
or termination of this Lease and receipt of same by Landlord shall not release
Tenant from any obligations, liabilities or conditions to be performed by Tenant
pursuant to the provisions of this Lease. Any damage to the Premises or the
buildings or improvements thereon caused by Tenant in the removal of Tenant's
Property shall be repaired by and at Tenant's sole expense promptly following
removal.
11. Assignment and/or Subletting.
----------------------------
11.01. Tenant shall not sublet or license all or any portion of the
Premises nor assign its
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interest under this Lease to any person without the prior written consent of
Landlord, which Landlord shall not unreasonably withhold. No sublease, license
or assignment consented to by Landlord shall relieve Tenant of primary liability
for all of Tenant's obligations hereunder including, without limitation, Rent
obligations. For purposes hereof assignment shall include transfer by merger,
consolidation, reorganization or operation of law, a transfer of more than fifty
percent (50%) of Tenant's stock, or the sale of substantially all of Tenant's
assets.
11.02. Landlord may freely assign its interest in this Lease to a
third party.
12. Mechanics' and Other Liens.
--------------------------
12.01. Tenant shall not suffer any mechanic's or materialmen's lien to
be filed against the Premises, or any part thereof, by reason of work, labor,
services or materials performed by or furnished to Tenant or anyone holding any
part of the Premises under Tenant. If any such lien shall at any time be filed,
Tenant shall, within thirty (30) days after the filing thereof, cause such lien
to be discharged of record by payment, or by bond, or by order of a court of
competent jurisdiction, or otherwise or shall commence the contest of said lien
and provide Landlord with reasonably adequate security against such contested
claim. In the event of Tenant's failure to discharge or commence contest of any
such lien within such period, Landlord shall have the right and privilege, at
Landlord's option, of removing said lien by paying the full amount thereof or by
bonding or in any other manner Landlord deems appropriate, without investigating
the validity thereof and irrespective of the fact that Tenant may contest the
propriety or the amount thereof, and any amount so paid, including any
attorneys' fees and all expenses connected therewith and interest at the rate
set forth in paragraph 3.04 on any sums paid or advanced shall be deemed to be
additional Rent due from Tenant to Landlord and shall be repaid to Landlord
immediately on rendition to Tenant of a statement therefor. Tenant will defend,
indemnify and save harmless Landlord from and against all loss, claims, damages,
costs or expenses suffered by Landlord by reason of any repairs, installations
or improvements made by Tenant.
12.02. Nothing in this Lease shall be construed to authorize Tenant,
or any person dealing with or under Tenant, to charge the Rents of the Premises,
or the interest of Landlord in the estate of the Premises, or the interest of
Landlord in the Premises or any part thereof, with a mechanics' or materialmen's
lien or with any other lien of similar kind whatsoever, and under no
circumstances shall Tenant be construed to be the agent, employee or
representative of Landlord in the making of any alterations to or improvements
on the Premises, but on the contrary, the right or power to charge or impose any
lien or claim of any kind whatsoever against Landlord's Rents or against the
Premises or against any part thereof is hereby denied.
12.03. Tenant shall not create or suffer to be created or imposed a
security interest, encumbrance, mortgage or any other lien of any kind
whatsoever against or on the Premises or against or on any improvements,
additions or other construction made by Tenant on or to the Premises or against
or on any equipment or fixtures installed by Tenant therein (other than Tenant's
Property as defined above, its inventory and its interest in this Lease), and
should any security interest or lien be created or imposed in breach of the
foregoing provisions, Landlord shall be entitled to discharge the same by
exercising the rights and remedies afforded it under paragraph 12.01.
13. Indemnification of Landlord; Liability Insurance.
------------------------------------------------
13.01. Tenant covenants and agrees that it will protect, indemnify,
save harmless and defend Landlord, its members, agents and employees, from and
against any and all loss, cost, damage, expense, and claims for damage, death or
injury of any kind whatsoever to any person or any property howsoever occurring
in, upon or about the Premises or the buildings or other improvements thereon,
or arising from any accident, injury, death or damage occurring outside the
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Premises where such accident, damage, death or injury results or is claimed to
have resulted from an act or omission on the part of Tenant or Tenant's
contractors, subtenants, licensees, concessionaires, agents, representatives,
servants or employees, other than and excluding any acts or omissions of
Landlord and/or its agents constituting willful, wanton or gross negligence.
This indemnity and hold harmless agreement shall include indemnity arising from
any accident, injury, death or damage to the person and property of Tenant, its
employees and all persons on the Premises or the buildings and other
improvements thereon, at Tenant's invitation or sufferance, and shall include
indemnity against all costs, claims, expenses, penalties, liens, attorneys' fees
and liabilities incurred in or in connection with any claim or proceeding
brought thereon, and the defense thereof. If any action or proceeding is brought
against Landlord, its members, agents or employees, by reason of any of the
aforementioned causes, Tenant, upon receiving notice thereof from Landlord,
agrees to defend such action or proceeding by competent counsel at Tenant's sole
expense.
13.02. Tenant agrees to maintain at its expense in full force, during
the entire Term of this Lease, as it may be extended, comprehensive general
public liability insurance under which Landlord, its lenders, if any, and Tenant
are named as insureds, and under which the insurer agrees to defend and
indemnify Landlord and hold it harmless from and against all cost, loss,
damages, expense and/or liability arising out of or based upon any and all
accidents, death, injuries and/or damages of any kind whatsoever to any person
or any property howsoever occurring and claimed to have been suffered upon the
Premises, the buildings and improvements thereon (including parking lots), or
the sidewalks, driveways or approaches immediately adjoining the same other than
and excluding any acts or omissions of Landlord and/or its agents constituting
willful, wanton or gross negligence. Each such policy shall be issued by a
reputable insurance company or companies reasonably satisfactory to Landlord,
having an A.M. Best's rating of B+VIII or higher, authorized to do business in
the State of Kansas, be non-cancelable with respect to Landlord except upon at
least thirty (30) days' prior written notice to Landlord, and a certificate or
duplicate original thereof shall be delivered to Landlord. The minimum limits of
liability of such insurance shall be One Million Dollars ($1,000,000.00) in the
event of injury or death to any one person and not less than One Million Dollars
($1,000,000.00) in the event of injury or death arising by reason of one
occurrence, and Five Hundred Thousand Dollars ($500,000.00) with respect to
damage to property. Such policy shall also insure the performance by Tenant of
the indemnity agreement set forth in paragraph 13.01 above. A current
certificate of such insurance showing the coverage, notice time requirement, and
contractual liability required of Tenant under this paragraph 13.02 shall be
deposited with Landlord at all times during the Term of this Lease or any
extension thereof.
13.03. Tenant agrees to use and occupy the Premises and the buildings
and improvements thereon at its own risk and hereby releases to the full extent
permitted by law Landlord, its members, agents and employees, from all claims
and demands of every kind resulting from any accident, damage, death or injury
occurring therein other than for acts or omissions of Landlord or its agents
constituting willful, wanton or gross negligence. Landlord shall have no
responsibility or liability for any loss of or damage to the improvements,
equipment, fixtures or other personal property of Tenant or its invitees.
14. Casualty Insurance on Buildings and Improvements; Insurance.
-----------------------------------------------------------
14.01. Commencing with the Commencement Date of this Lease and
continuing throughout the Term hereof, Landlord agrees to keep, at its expense,
the buildings and any and all improvements, additions and alterations made by
Tenant, Landlord or anyone else upon the Premises insured with a reputable
insurance company or companies reasonably satisfactory to Landlord, having an
A.M. Best's rating of B+VIII or higher, authorized to do business in Kansas, in
an amount equal to one hundred percent (100%) of their full replacement cost (by
means of standard replacement cost endorsement) for everything above the slab.
Landlord shall annually review and update such coverage. Any such policy shall
contain a waiver of subrogation clause and shall provide protection against loss
or damage by fire and by other perils commonly covered under the full standard
extended coverage endorsement then in use, together with vandalism and
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malicious mischief coverage, coverage against damage caused by earthquake, and
coverage against sprinkler damage. Landlord shall furnish to Tenant at all times
during the Term of this Lease, and any extension thereof, a current certificate
or duplicate copy of any such insurance policy or policies. Subject to the
rights of any of Landlord's lenders under any mortgages affecting the Premises,
where Landlord is obligated to repair or restore the Premises or improvements
thereon, the proceeds from the above described insurance shall be used for the
sole purpose of rebuilding and repairing said Premises and improvements.
14.02. Tenant agrees that in the event that any of Tenant's fixtures
or personal property on the Premises is damaged or destroyed by fire or by any
cause which is insurable (whether or not actually insured), the right, if any,
of Tenant against Landlord to recover for such damage or destruction is hereby
waived and released.
14.03. Anything herein to the contrary notwithstanding, the parties
acknowledge that Landlord's lenders under any mortgages affecting the Premises
may have the right to take all insurance proceeds and apply them to indebtedness
thereon instead of permitting use for repair and such rights shall be paramount.
15. Damage or Destruction by Fire or Other Peril.
--------------------------------------------
15.01. In the event the buildings or any other improvements on the
Premises, or any part thereof, shall be damaged by fire or other casualty so
that such buildings temporarily cannot be reasonably and effectually occupied
and used by Tenant for the purposes for which this Lease is entered into, then
the Monthly Rent payable to Landlord shall nonetheless continue during such time
as said Premises are unfit for Tenant's occupancy.
15.02. Unless paragraph 15.04 below applies, in the event any
buildings or improvements are destroyed or damaged by fire or other unavoidable
casualty, whether or not insured, Tenant shall immediately commence to rebuild,
repair, or replace, at its sole cost less any available insurance proceeds, such
buildings and improvements in substantially as good condition as they were prior
to such fire or casualty, and shall complete such rebuilding, repairing, or
replacement within ninety (90) days from the date of said fire or casualty. The
Monthly Rent provided herein shall continue during the time of such damage
repair.
15.03. In any event, where Landlord is obligated to repair or restore
the Premises, whether wholly or partially damaged or destroyed, unless paragraph
14.03 above is applicable, the proceeds from the above described casualty
insurance shall be used for the sole purpose of rebuilding and repairing said
improvements. In the event that the election to terminate this Lease in
paragraph 15.04 below is exercised, then all such insurance company proceeds
shall be paid to Landlord and the holder of any real estate mortgage, as their
interests may appear.
15.04. In the event said buildings or other improvements on the
Premises are destroyed or damaged by fire or other unavoidable casualty to the
extent of fifty percent (50%) or more, as reflected by the estimate of the
adjuster for the insurance company insuring the Premises, either Landlord or
Tenant shall have the option to declare this Lease ended and terminated,
provided it gives notice of this election to the other party within thirty (30)
days of the loss or destruction. If neither Tenant nor Landlord exercises its
right to terminate this Lease, then rebuilding or repairs will commence and be
made as provided in paragraph 15.02 above.
15.05. It is further agreed that in no event shall the Term hereof be
extended as a result of any damage or destruction to the buildings or any
improvements.
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16. Condemnation or Eminent Domain.
------------------------------
16.01. If all or any material portion of the Premises is taken for any
public or quasi-public use under any governmental law, ordinance, or regulation
or by right of eminent domain or by private purchase in lieu thereof, and such
taking renders the Premises unsuitable for Tenant's continuing use in the
reasonable discretion of Landlord, this Lease, at the option of Landlord or
Tenant, shall terminate and the Monthly Rent shall abate during the unexpired
portion of this Lease, effective with the physical taking of the Premises.
Separate awards for damage to the respective interests of Landlord and Tenant
hereunder shall be made if permitted by law and each shall be entitled to
receive or retain such award as shall be made to it, and the termination of this
Lease shall not affect the rights of the respective parties to the awards. If
the law only provides one award, it shall be equitably divided between Landlord
and Tenant. Equitable division of condemnation proceeds shall be made by taking
into account each party's investment and interest in the portion of the property
and the improvements so taken, the economic effect on the portion, if any, not
taken, and said taken portion's economic value, giving due consideration to the
number of years which would have remained in the Term of this Lease as it could
have been extended.
16.02. If this Lease is not terminated subsequent to a taking for any
public or quasi-public use under any governmental law, ordinance, or regulation,
or by right of eminent domain, or by a private purchase in lieu thereof, the
Monthly Rent payable hereunder during the unexpired portion of this Lease shall
not be reduced. Separate awards shall be made in such event for damages to the
respective interests of Landlord and Tenant hereunder or, if the law only
permits one award, it shall be equitably divided as set forth above.
16.03. Landlord shall immediately notify Tenant of any notice which
Landlord may receive from any governmental authority concerning the temporary or
permanent requisition of the Premises. In the event of any temporary
requisition not requiring repairs or modifications to the Premises, Tenant shall
be entitled to negotiate for, receive and retain the entire amount of the net
award but Monthly Rent shall not abate.
17. Attornment and Subordination.
----------------------------
17.01. In the event of any sale or other transfer by Landlord of the
Premises, which sale or transfer involves the assignment and/or transfer of
Landlord's interest in this Lease, then Tenant shall attorn to such purchaser
and/or assignee or transferee upon any such sale or transfer and recognize such
purchaser, assignee or transferee as Landlord under this Lease.
17.02. Upon the request of any interested party, Tenant shall execute,
acknowledge and deliver an instrument, in form and substance satisfactory to
such party, evidencing the attornment provided for above.
17.03. Landlord reserves the right to subject and to subordinate this
Lease and any modification thereof at all times to the lien of any mortgage,
deed of trust or other security interest in or on the Premises. Therefore, this
Lease and any modification thereof shall be subject and subordinate in law and
equity to any existing or future mortgage, deed of trust, security interest or
other encumbrance placed by Landlord, its successors and assigns, upon
Landlord's interest in the Premises or upon any portion of the Premises or which
may be included with any adjoining premises; provided, however, that in each
such case Landlord shall cause the holder of any such mortgage or similar
instrument to agree in writing that in the event of any sale of the Premises
under foreclosure proceedings instituted on said holder's mortgage or deed of
trust, or voluntary transfer in lieu thereof, this Lease shall not be divested
or in any way affected so long as Tenant shall not be in default under the terms
of this Lease. Tenant covenants and agrees to execute and deliver upon demand
such further instrument or instruments subordinating this Lease to the lien of
any such mortgage, deed of trust, security interest or encumbrance as shall be
requested by Landlord and/or any mortgagee or proposed mortgagee.
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17.04. Upon written demand by the holder of any mortgage, deed of
trust, security interest or other encumbrance covering any part of the Premises,
Tenant shall forthwith execute, acknowledge and deliver an agreement in favor of
and in the form customarily used by such encumbrance holder, by the terms of
which Tenant will agree to give prompt written notice to such encumbrance holder
in the event of any casualty damage to the Premises or in the event of any
default on the part of Landlord under this Lease, and will agree to allow such
encumbrance holder a reasonable length of time after notice to cure or cause the
curing of such default (including time to obtain possession of the Premises by
legal proceedings) before exercising Tenant's rights of self-help under this
Lease, if any, or terminating or declaring a default under this Lease.
18. Waste or Nuisance. Tenant shall not commit or suffer to be
-----------------
committed: (i) any waste in or upon the Premises or the buildings or
improvements thereon; (ii) any nuisance; or (iii) any use in violation of any
law or ordinance or regulation of any governmental authority. Tenant shall, at
Tenant's sole cost, comply with all of the requirements of all governmental
authorities (including without limitation those requiring replacements,
additions, repairs and alterations, structural or otherwise), and with all
directions, rules, regulations and recommendations of Tenant's hazard insurer or
insurers, now in force, or which may hereafter be in force, pertaining to the
maintenance, use and occupancy of the Premises.
19. Defaults and Remedies.
---------------------
19.01. In the event (each of which events shall be sometimes referred
to as an "Event of Default"):
(i) The Monthly Rent (or any installment thereof), or any item of
additional Rent, shall be unpaid on the date payment is
required by the provisions hereof and shall remain so for a
period of fifteen (15) days after Landlord gives Tenant written
notice of such default; or
(ii) Subject to the provisions of the U.S. Bankruptcy Code, this
Lease, without the prior written consent of Landlord, or any
interest therein, or the Premises, or the buildings and
improvements thereon, or any part thereof, or any estate hereby
created, devolve upon or pass to any trustee, receiver, trustee
in bankruptcy, debtor in possession, assignee, assignee for the
benefit of creditors, appointee, or to any other person or
entity by operation of law or otherwise; or
(iii) The Premises, or the buildings or other improvements thereon,
or any part thereof, shall be used in violation of the
provisions of paragraph 5 hereof; or
(iv) Tenant fails to observe or perform any of the other covenants,
terms or conditions set forth in this Lease and such failure
continues for a period of thirty (30) days after written notice
thereof is given by Landlord to Tenant (unless such failure
reasonably cannot be cured within such 30-day period and Tenant
commences to cure such failure within such 30-day period and
continues diligently without interruption to pursue the curing
of the same until completed); or
(v) Repetition of any failure to timely pay when due any Rent and
such failure is repeated for three (3) consecutive months or a
total of four (4) months in any period of twelve (12)
consecutive months regardless of prior cures; or
(vi) Repetition of any failure to observe or perform any of the
other covenants, terms or conditions set forth in this Lease
more than three (3) times, in the aggregate, in any period of
twelve (12) consecutive months regardless of prior cures;
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THEN and upon the occurrence of any such Event of Default, Landlord shall have
the right at any time, at its option, without further notice, and with or
without process of law, and in addition to any and all other rights or remedies
Landlord may have hereunder or otherwise:
(a) To terminate this Lease and the Term hereof, and with or without
process of law, to re-enter the Premises and the buildings and other
improvements thereon, either by force or otherwise, and without being
in any manner liable therefor, and to take possession thereof and to
remove all persons therefrom and Tenant shall have no further claim
therein or right hereunder; or
(b) Without terminating this Lease or the Term hereof, to re-enter the
Premises and the buildings and other improvements thereon either by
force or otherwise and to take possession thereof without being in any
manner liable therefor, and to remove all persons therefrom, and to
change the locks on the doors and to exclude Tenant therefrom, and to
make such alterations and repairs as Landlord shall determine may be
necessary to relet the Premises, and to relet the same or any part or
parts thereof, either in the name of Landlord or otherwise, for a term
or terms which may at Landlord's option be less than or exceed the
period which may otherwise have constituted the balance of the Term of
this Lease and upon such terms and conditions as Landlord in its sole
discretion may deem advisable (but in no event shall Landlord be under
any duty to relet the Premises other than to use reasonable efforts
under the circumstances to do so). Upon each reletting all rentals
received by Landlord from such reletting shall be applied: first, to
the payment of any indebtedness other than Rent or other charges under
this Lease from Tenant to Landlord; second, to the payment of any cost
and expense of such reletting, including, brokerage fees and
attorneys' fees and costs of such alterations and repairs; and third,
to the payment of Rent and other charges due and unpaid hereunder. In
no event shall Tenant be entitled to receive any surplus of any sums
received by Landlord on a reletting in excess of the Rent and other
charges payable hereunder. If such Rent and other charges received
from such reletting during any month are less than those to be paid
during that month by Tenant hereunder, Tenant shall pay any such
deficiency together with the costs of reletting, if any, to Landlord
(notwithstanding the fact that Landlord may have received rental in
excess of the rental and other charges payable hereunder in previous
or subsequent months), such deficiency to be calculated and payable
monthly. During any period during which the Premises are not relet,
Tenant shall pay to Landlord any indebtedness other than Rent or other
charges due under this Lease from Tenant to Landlord, the cost and
expense of any attempted reletting as defined above and the Rent and
other charges due and unpaid hereunder, such deficiency to be
calculated and paid monthly; or
(c) With or without re-entry into possession of the Premises but without
termination of this Lease, to bring suit for the collection of Rent
and for damages (including, without limitation, reasonable attorneys'
fees and the cost of repairing and reletting the Premises as more
specifically set forth in (b) above). Commencement of any action by
Landlord for Rent and damages shall not be construed as an election to
terminate this Lease and shall not absolve or discharge Tenant from
any of its obligations or liabilities for the remainder of the Term;
or
(d) To retake possession of the Premises from Tenant by process of law,
summary proceedings, or otherwise. Commencement of any action by
Landlord for re-entry shall not be construed as an election to
terminate this Lease and shall not absolve or discharge Tenant from
any of its obligations or liabilities for the remainder of the Term;
or
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(e) To terminate this Lease and all of Tenant's rights in or to the
Premises at any time after the Premises are relet, if prior
termination has not occurred.
19.02. It shall not a default hereunder if Tenant shall vacate the Premises
but continues to pay Rent hereunder; provided, however, that Tenant agrees to
pay to Landlord on demand as additional Rent any increased insurance premium or
cost incurred by Landlord as a result of the Tenant vacating the Premises.
19.03. No re-entry or taking possession of the Premises by Landlord, as
provided in clauses (b) or (d) of paragraph 19.01 above, shall be construed as
an election on Landlord's part to terminate this Lease until a notice of such
intention is given to Tenant (all other demands and notices of forfeiture or
other similar notices being hereby expressly waived by Tenant). Upon the
service of such notice of termination, the Term of this Lease shall
automatically terminate. Notwithstanding any reletting without termination,
Landlord may at any time thereafter elect to terminate this Lease for such
previous breach in the manner herein provided.
19.04. Nothing herein contained shall be construed as obligating Landlord
to use other than best efforts under the circumstances to relet the whole or any
part of the Premises. In the event of any entry or taking possession of the
Premises and the buildings and improvements thereon, Landlord shall have the
right but not the obligation, to remove therefrom all or any part of Tenant's
personal property located therein and may place the same in public or private
storage at the expense and risk of Tenant.
19.05. Should Landlord elect to terminate this Lease under the provisions
of subparagraphs (a) or (e) of paragraph 19.01 above, Landlord shall thereupon,
without waiting for the end of the Term of this Lease, be entitled to recover
from Tenant, for Tenant's failure to perform and observe Tenant's covenants
herein contained, the worth at the time of termination of the amount of Rent
reserved in this Lease for the balance of the Term hereof over the then
reasonable rental value of the Premises for the same period.
19.06. In the event of a breach or threatened breach of Tenant of any of
the covenants or provisions hereof, Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provide for. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy, in law or in equity.
19.07. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any lawful cause, or in the event of Landlord
lawfully obtaining possession of the Premises.
19.08. No receipt of monies by Landlord from or for the account of Tenant
or from anyone in possession or occupancy of the Premises after the termination
in any way of this Lease or after the giving of any notice of termination, shall
reinstate, continue or extend the Term of this Lease or affect any notice given
to Tenant prior to the receipt of such money, it being agreed that after the
service of notice of termination or the commencement of a suit, or after final
judgment for possession of the Premises, Landlord may receive and collect any
Rent or other amounts due Landlord and such payment shall not in any respect
reinstate this Lease and shall not waive, affect or impair such notice, suit or
judgment.
19.09. Landlord's rights and remedies shall be cumulative and may be
exercised and enforced concurrently. Any right or remedy conferred upon
Landlord under this Lease shall not be deemed to be exclusive of any other right
or remedy it may have.
19.10. Except as otherwise provided in this Lease, Landlord shall be in
default under this Lease if Landlord fails to perform any of its obligations
hereunder and said failure continues for a period of thirty (30) days after
receipt of written notice thereof from Tenant to Landlord (unless
14
<PAGE>
such failure cannot reasonably be cured within thirty (30) days and Landlord
shall have commenced to cure said failure within said thirty (30) days and
thereafter continues diligently without unnecessary interruption to pursue the
curing of the same to completion). Upon such default by Landlord, Tenant may
exercise any remedies it may have at law or in equity but shall not set-off
against Rent due. Any recovery or judgment awarded against Landlord shall be
limited to its interest in the Premises as it may then be encumbered.
20. Notices.
-------
20.01. Whenever any notice, consent, approval or authorization (hereafter
referred to as "Notice") is required or permitted under this Lease, the same
shall be in writing, and any oral notice, consent, approval or authorization
shall be of no effect.
20.02. All Notices by Tenant to Landlord shall be delivered by hand (which
includes express courier delivery) or sent by registered mail or certified mail,
return receipt requested, postage prepaid, addressed to Landlord as follows:
Beverly W. Dockhorn, Trustee of the Beverly W. Dockhorn Revocable Trust, 13000
Rosehill, Overland Park, Kansas 66213, or at such other address or addresses as
may from time to time hereafter be designated by Landlord to Tenant by like
Notice.
20.03. Until Landlord is notified otherwise by Tenant, all Notices from
Landlord to Tenant shall be deemed to have been duly given if delivered by hand
or sent by registered mail or certified mail, return receipt requested, postage
prepaid, addressed to Tenant as follows: International Medical Technical
Consultants, Inc., 16300 College Boulevard, Lenexa, Kansas 66219 (with a copy to
PRA International, Inc., American Center, 8300 Boone Blvd., Suite 310, Vienna,
VA 22182), or at such other address or addresses as may from time to time
hereafter be designated by Tenant to Landlord by like Notice.
20.04. All mailed Notices shall be effective upon being deposited in the
United States mail in the manner prescribed above. However, the time period in
which a response to any Notice must be given shall commence to run from the date
of receipt shown on the return receipt or a commercial delivery service receipt
of the Notice by the addressee thereof. Rejection or other refusal to accept,
or the inability to deliver because of changed address of which no Notice was
given, shall be deemed to be receipt of the Notice as of the date of such
rejection, refusal or inability to deliver.
20.05. If Landlord elects to send statements to Tenant for the Rent and
for other charges owing by Tenant hereunder and thereafter discontinues such
practice (which Landlord shall have the right to do), Tenant shall nevertheless
make the payments to Landlord required under this Lease on or before the dates
that the same become due.
21. Quiet Enjoyment. Tenant, subject to the terms and provisions of
---------------
this Lease, upon paying the Rent and other charges herein reserved and
observing, keeping and performing all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed, kept and performed, may peaceably
and quietly have, hold and enjoy the Premises during the Term hereof, subject,
nevertheless, to the terms of this Lease, and to any mortgages, agreements and
encumbrances to which this Lease is or may be subordinated.
22. Miscellaneous.
-------------
22.01. In the event Tenant remains in possession of the Premises or any
part thereof after termination of this Lease for default or after this Lease has
ended by its terms or otherwise and without the execution of a new lease, Tenant
shall remain subject to all of the conditions,
15
<PAGE>
provisions and obligations of this Lease insofar as same are applicable, and
furthermore Tenant shall be deemed to be holding the Premises in unlawful
detainer and shall be liable, until Tenant vacates the Premises, for the payment
monthly to Landlord at the rate of one hundred twenty-five percent (125%) of the
amount of Monthly Rent provided for in this Lease for such period, but such
payment shall in no way limit Landlord's remedies under this Lease or otherwise.
22.02. Any holding over after the expiration of the Term hereof, provided,
however, that Landlord shall have first consented in writing to any such holding
over, shall be construed to be a tenancy from month to month at the Rents herein
specified (prorated on a monthly basis) and shall otherwise be on the terms and
conditions herein specified so far as applicable.
22.03. A waiver by either party of any breach or breaches, default or
defaults, of the other party hereunder shall not be deemed or construed to be a
continuing waiver of such breach or default, nor as a waiver or permission,
express or implied, of any subsequent breach or default, unless such waiver be
in writing. Acceptance by Landlord of any installment of Rent subsequent to the
date the same should have been paid shall in no manner alter or affect the
covenant and obligation of Tenant to pay subsequent installments of Rent
promptly upon the due date. No receipt of money by Landlord after the
termination or expiration in any way of this Lease shall reinstate, continue or
extend the Term.
22.04. If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, all other provisions of this Lease, or the application
of such terms or provisions to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each and every other term, covenant, condition and provision of this Lease shall
be valid and be enforced to the fullest extent permitted by law.
22.05. All rights and liabilities herein given to or imposed upon the
respective parties shall, except as may be otherwise herein restricted,
prohibited or provided, extend to and bind the several respective successors and
permitted assigns of the parties.
22.06. No payment by Tenant or receipt by Landlord of a lesser amount than
the Rent and other charges herein reserved shall be deemed to be other than on
account of the earliest stipulated Rent or other charges nor shall any
endorsement or statement on any check or in any letter accompanying any check be
deemed an accord and satisfaction.
22.07. In connection with the rights, obligations and performance of this
Lease, Landlord acting as such shall in no event be construed or held to be a
partner or associate of Tenant in the conduct of Tenant's business or otherwise,
or, as Landlord, a joint venturer or a member of a joint enterprise with Tenant,
nor shall Landlord as such be liable for any debts incurred by Tenant in the
conduct of Tenant's business, but it is understood and agreed that the
relationship between the parties hereto is and at all times shall remain that of
Landlord and Tenant.
22.08. In the event either party shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reason of fire,
catastrophe, acts of God or the public enemy, government prohibitions, strikes,
lockouts, civil commotions, inability to obtain materials or labor by reason of
governmental regulations or prohibitions, failure of power or other utilities,
or other reason of a like nature not the fault of the party delayed in
performing work or doing acts required under the terms of this Lease, then
performance of such act shall be excused for the period of the delay, and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay. The provisions of this paragraph 19.08
shall not (a) operate to excuse Tenant from prompt payment of Rent nor any other
payment or charge required by the terms of this Lease, nor (b) be applicable to
delays resulting from the inability of a party to obtain financing to proceed
with its obligations under this Lease because of a lack of funds.
16
<PAGE>
22.09. This Lease shall be governed exclusively by the provisions hereof
and by the laws of the State of Kansas, as the same may from time to time exist.
22.10. Tenant represents and warrants that it is a validly existing Kansas
corporation fully qualified to do business in Kansas and that the person or
persons executing this Lease on behalf of Tenant are duly authorized to sign and
execute this Lease.
22.11. The captions, paragraph numbers and any index or table of contents
appearing in this Lease in no way define, limit, construe or describe the scope
or intent of such paragraphs of this Lease. The language in all parts of this
Lease shall in all cases be construed as a whole according to its fair meaning,
and not strictly for nor against either Landlord or Tenant, and should a court
be called upon to interpret any provision(s) hereof no weight shall be given to,
nor shall any construction or interpretation be influenced by, any presumption
of preparation of a lease by Landlord or by Tenant.
22.12. Each term and each provision of this Lease to be performed by
Tenant shall be construed to be both a covenant and a condition.
22.13. The submission of this Lease by Landlord to Tenant for examination
shall not be deemed to constitute an offer by Landlord or a reservation to
Tenant of an option to lease, and this Lease shall become effective as a binding
instrument only upon the execution and delivery thereof by both Landlord and
Tenant.
22.14. All obligations of Tenant which by their nature involve
performance, in any particular, after the end of the Term, or which cannot be
ascertained to have been fully performed until after the end of the Term, shall
survive the expiration or sooner termination of the Term of this Lease.
22.15. This Lease and any Exhibits attached hereto and forming a part
hereof, set forth all the covenants, promises, agreements, conditions and
understandings between Landlord and Tenant concerning the Premises. There are
no oral agreements or understandings between the parties hereto affecting this
Lease, and this Lease supersedes and cancels any and all previous negotiations,
arrangements, agreements and understandings, if any between the parties hereto
with respect to the subject matters hereof, including the prior lease between
the parties described in the Recitals to this Lease, and none thereof shall be
used to interpret or construe this Lease. Except as herein otherwise expressly
provided, no subsequent alteration, amendment, change or addition to this Lease
shall be binding upon Landlord or Tenant unless reduced to writing and signed by
them.
22.16. Time is of the essence with respect to the performance of the
respective obligations of Landlord and Tenant set forth in this Lease.
22.17. When liquidated damages are specified anywhere in this Lease, it is
understood and agreed that said sum is to be paid because actual damages will be
difficult or impossible to ascertain with accuracy. In any action or proceeding
by Landlord against Tenant to enforce any of the provisions of this Lease or to
recover payment of any claim under or to recover damages for the default or
breach of any provisions hereof, Landlord shall be entitled to recover from
Tenant all costs and expenses in any such action, including reasonable
attorneys' fees and costs, whether before or at trial or on appeal.
23. Tenant Finish Allowance. Landlord and Tenant agree that in lieu of
-----------------------
Landlord constructing certain improvements to the Premises to induce Tenant to
enter into this Lease with Landlord, Landlord shall grant to Tenant an allowance
of Seven and 50/100ths Dollars ($7.50) per square foot for the entire Premises
to construct improvements to the Premises. Such allowance shall be granted by
Landlord to Tenant on annual basis, pro rated over the original Term of the
Lease. Subject to paragraph 10 hereof, any improvements or modifications to the
Premises
17
<PAGE>
proposed by Tenant shall be subject to the prior written consent and approval of
Landlord; provided, however that such consent and approval shall not be
unreasonably withheld.
24. Guaranty. Landlord and Tenant agree that this Lease is conditioned
--------
upon Landlord receiving the guaranty of PRA International, Inc., Tenant's parent
corporation, of all of Tenant's obligations and duties hereunder. At the
execution of this Lease, Tenant shall deliver to Landlord a guaranty executed by
PRA International, Inc. in the form attached hereto as Exhibit C.
18
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed by their respective duly authorized officers or representatives in
multiple counterpart copies, each of which shall be deemed an original but
constitute one and the same instrument, as of the date first set forth above.
THIS LEASE CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
LANDLORD: TENANT:
INTERNATIONAL MEDICAL TECHNICAL
CONSULTANT, INC.
By: /s/ Beverly W. Dockhorn By: /s/ P.K. Donnelly
------------------------------------ ------------------------------
Beverly W. Dockhorn, Trustee of the
Beverly W. Dockhorn Revocable Trust Printed Name: Patrick K. Donnelly
dated January 5, 1984 ---------------------
Title: Executive Vice President
---------------------------
19
<PAGE>
EXHIBIT A
Legal Description of Premises
All that part of the Southwest Quarter of Section 33, Township 12 South,
Range 25 East, Johnson County, Kansas, being more particularly described as
follows:
Commencing at the Southwest corner of said Southwest Quarter, said point
also being the centerline intersection of 95/th/ Street, as now
established, and Nall Avenue, as now established; thence due North along
the West line of said Southwest Quarter a distance of 696.76 feet; thence
due East a distance of 30.0 feet to a point on the East right-of-way line
of said Nall Avenue; thence South 83(Degrees) 50' 00" East a distance of
360.0 feet to the true point of beginning; thence continuing South
83(Degrees) 50' 00" East a distance of 256.0 feet; thence South 0(Degree)
10' 00" West a distance of 180.0 feet to a point on the North right-of-way
line of 94/th/ Terrace as now established; thence North 83(Degrees) 50' 00"
West along said North right-of-way line a distance of 256.0 feet; thence
North 06(Degrees) 10' 00" East a distance of 180.0 feet to the true point
of beginning.
Subject to mortgages, easements, covenants, liens, encumbrances, reservations
and restrictions of record.
20
<PAGE>
EXHIBIT B
Operating Expenses
The term "Operating Expenses" shall include the total costs and
expenses incurred in operating and maintaining the Premises, including, but not
limited to, the cost and expense of the following:
(i) real estate taxes and special assessments (but specifically
excluding any penalties or fines);
(ii) fire and casualty insurance for the Premises; and
(iii) repairs and maintenance of the Premises, including, but not
limited to, snow removal, gardening, landscaping, planting,
replanting, and replacing flowers and shrubbery; cleaning,
striping and resurfacing and repair of parking areas,
electricity, water, gas and other utilities (including all
capital expenditures reasonably expected to reduce the cost of
any utilities, but not to include local and long distance
telephone service); maintenance and replacement of fixtures and
bulbs; elevators and service contracts thereon; parking
operating systems; sanitary control, extermination, removal of
rubbish, garbage and other refuse; security systems and policing
of the Building; sewer charges; machinery and equipment used in
the operation and inspection of the Building and depreciation
thereof; replacement of paving, curbs and walkways and drainage
facilities; music program services and loud speaker systems;
heating, ventilating and air conditioning and maintenance and
repair of the systems and fixtures not chargeable to a
particular tenant; cleaning and janitorial services and cleaning
supplies; maintenance of decorations, lavatories and elevators;
maintenance and repair of building roof and exterior walls and
glass; landscaping and fire sprinkler systems; licenses, permits
and inspection fees.
Operating Expense Base - $5.50 per square foot
21
<PAGE>
EXHIBIT C
Guaranty
See attached.
22
<PAGE>
GUARANTY
--------
THIS GUARANTY is given by PRA INTERNATIONAL, INC., a Delaware
corporation ("Guarantor"), to BEVERLY W. DOCKHORN, Trustee of the BEVERLY W.
DOCKHORN REVOCABLE TRUST, dated January 5, 1984 ("Landlord") to induce Landlord
to enter into a lease of certain office buildings located at 5300 West 94/th/
Terrace, Prairie Village, Kansas (the "Lease") with INTERNATIONAL MEDICAL
TECHNICAL CONSULTANTS, INC., a Kansas corporation (the "Tenant").
NOW, THEREFORE, in consideration of the substantial benefits to be
derived by Guarantor therefrom and as an inducement to Landlord to enter into
the Lease with Tenant, Guarantor hereby agrees as follows:
1. Guarantor directly, absolutely independently, primarily,
unconditionally and continually guarantees to Landlord, its successors and
assigns, the full and punctual payment and performance by Tenant when due of all
obligations and duties of Tenant to Landlord arising under or in connection with
the Lease (collectively referred to herein as the "Tenant Obligations"). If, at
any time, default shall be made by Tenant in the performance or observance of
the Tenant Obligations, Guarantor will pay, keep, perform and observe the same,
as the case may be, in the place and stead of Tenant.
2. Any act of Landlord, its agents, successors or assigns,
consisting of a waiver of any of the terms or conditions of the Tenant
Obligations, or the giving of any consent to any manner or thing relating
thereto, or the granting of any indulgences or extensions of time to Tenant, or
to the release of any collateral providing security for the full performance of
the Tenant Obligations, or the failure of Landlord to resort to any remedy
provided at law or in equity, may be done and taken without notice to Guarantor
and without releasing the obligations of Guarantor hereunder and Guarantor
hereby expressly waives any notice of non-payment, non-performance or non-
observance, or proof of notice or demand, in order for Landlord to claim under
this Guaranty.
3. The obligations of Guarantor hereunder shall not be released by
Landlord's receipt, application or release of security given for the performance
and observance of the Tenant Obligations, nor by any modification of any
agreement between Landlord and Tenant, but in case of any such modification the
liability of Guarantor shall be deemed modified in accordance with the terms of
any such modification.
4. The liability of Guarantor hereunder shall in no way be affected
by: the release or discharge of Tenant in any creditors' receivership,
bankruptcy or other proceedings; the impairment, limitation or modification of
Tenant or the estate of Tenant in bankruptcy, or of any remedy for the
enforcement of the Tenant Obligations resulting from the operation of any
present or future provision of the bankruptcy laws or other statute or from the
decision in any court; the rejection or disaverment of any Tenant Obligation in
any such proceedings; the assignment or transfer of any Tenant Obligation; any
disability or other defense of Tenant; the cessation from any cause whatsoever
of the liability of Tenant; or the impairment or release of any collateral
securing the full performance of the Tenant Obligations.
5. This Guaranty shall apply to all of the Tenant Obligations, and
any modification, extension or renewal thereof and substitutions therefor.
6. This Guaranty may not be changed, modified, discharged or
terminated orally or in any manner other than by an agreement in writing signed
by Landlord and Guarantor.
7. To the extent allowed by applicable law, Guarantor shall pay all
costs incurred including reasonable attorneys' fees in the event collection or
enforcement efforts are commenced against Guarantor by the placement of this
Guaranty into the hands of an attorney, such costs and
23
<PAGE>
reasonable attorneys' fees to be paid whether or not action or actions are
commenced or continued to judgment.
8. Guarantor's liability herein is primary, direct, absolute,
continual and unconditional and is independent of the obligations of Tenant or
any other guarantor. A separate action may be brought and the obligations of
Guarantor may be immediately enforced without necessity of any action against
Tenant or collateral or the resort by Landlord to any remedy at law or in equity
and a separate action may be prosecuted against Guarantor whether or not action
or actions are brought against Tenant and whether or not Tenant is joined in any
such action and Guarantor hereby waives the benefit of any enforcement thereof.
9. This Guaranty shall inure to the benefit of Landlord, and its
successors and assigns.
10. This Guaranty shall be binding on Guarantor, and its successors
and assigns.
11. This Guaranty shall be governed by and construed under the laws
of the State of Kansas.
12. Upon making any payment to Landlord hereunder, Guarantor shall
be subrogated to the rights of Landlord against Tenant with respect to such
payment; provided that Guarantor shall not enforce payment by way of subrogation
until all amounts payable by Tenant to Landlord under the Lease have been paid
in full.
13. This Guaranty has been duly authorized, executed and delivered
by Guarantor and constitutes a legal, valid and binding obligation of Guarantor
enforceable in accordance with its terms. The execution and delivery of this
Guaranty and the consummation of the transactions contemplated hereby will not
conflict with or constitute a breach , or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Guarantor pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which Guarantor is a party or by
which it may be bound , or to which any of its property or assets may be
subject, nor will such action result in any violation of the provisions of the
certificate or articles of incorporation or other organizing documents or bylaws
of Guarantor, or any applicable law, administrative regulation or administrative
or court decree known to it after reasonable investigation.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty
to Landlord as of the 1st day of April, 1997.
PRA INTERNATIONAL, INC.
"Guarantor"
By: /s/ P.K. Donnelly
-----------------------------------
Name: Patrick K. Donnelly
---------------------------------
Title: Executive Vice President
--------------------------------
24
<PAGE>
Exhibit 10.20
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
1. Purpose of the Plan. Under this Amended and Restated 1993 Stock Option
------- -- --- ----
Plan (the "Plan") of PRA International, Inc. (the "Company") options may be
granted to eligible employees to purchase shares of the Company's capital stock.
The Plan is designed to enable the Company and its subsidiaries to attract,
retain and motivate their employees by providing for or increasing the
proprietary interests of such employees in the Company. The Plan provides for
options which qualify as incentive stock options ("Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options which do not so qualify.
2. Stock Subject to Plan. The maximum number of shares of stock for which
----- ------- -- ----
options granted hereunder may be exercised shall be 1,500,000 shares of Common
Stock, subject to the adjustments provided in Sections 6 and 11; provided,
however, that in no event shall any optionee be granted in any calendar year
options to purchase more than 500,000 shares. Shares of stock subject to the
unexercised portions of any options granted under this Plan which expire or
terminate or are cancelled may again be subject to options under the Plan.
However, if stock appreciation rights are granted with respect to any options
under this Plan, the total number of shares of stock for which further options
may be granted under this Plan shall be irrevocably reduced not only when there
is an exercise of an option granted under this Plan, but also when such option
is surrendered upon an exercise of a stock appreciation right granted under this
Plan, in either case by the number of shares covered by the portion of such
option which is exercised or surrendered.
3. Eligible Employees. The employees eligible to be considered for the
-------- ---------
grant of options hereunder are all persons regularly employed by the Company or
its subsidiaries on a full-time basis.
4. Minimum Exercise Price. The exercise price for each option granted
------- -------- -----
hereunder shall be not less than 100% of the fair market value of the stock at
the date of the grant of the option.
5. Nontransferability. Any option granted under this Plan shall by its
------------------
terms be nontransferable by the optionee other than by will or the laws of
descent and distribution and is exercisable during the optionee's lifetime only
by him or by his guardian or legal representative.
6. Adjustments. If the outstanding shares of stock of the class then
-----------
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends (including, without
<PAGE>
-2-
limitation, the stock dividend contemplated in connection with the Company's
proposed initial public offering) or the like, appropriate adjustments shall be
made in the number and/or kind of shares or securities for which options may
thereafter be granted under this Plan. Like adjustments shall also be made in
the number and/or kind of shares or securities for which, and the exercise price
per share at which, options then outstanding under this Plan may thereafter be
exercised. Any such adjustment in outstanding options shall be made without
changing the aggregate exercise price applicable to the unexercised portions of
such options.
7. Maximum Option Term. No option granted under this Plan may be
------- ------ ----
exercised in whole or in part more than ten years after its date of grant. In
the case of an option not otherwise immediately exercisable in full, the Board
or the Committee may accelerate the exercisability of such option in whole or in
part at any time, provided the acceleration of the exercisability of any
Incentive Option would not cause the option to fail to comply with the
provisions of Section 422 of the Code.
8. Plan Duration. Options may not be granted under this Plan more than
---- --------
ten years after the date of the adoption of this Plan, or of shareholder
approval thereof, whichever is earlier.
9. Payment. Payment for stock purchased upon any exercise of an option
-------
granted under this Plan shall be made in full in cash concurrently with such
exercise.
10. Administration. The Plan shall be administered by the Company's board
--------------
of directors (the "Board") or, at the discretion of the Board, by a committee
(the "Committee") of not less than two members each of whom shall not be an
officer or employee of the Company.
The interpretation and construction by the Committee of any term or
provision of the Plan or of any option granted under it shall be final, unless
otherwise determined by the Board in which event such determination by the Board
shall be final. The Committee may from time to time adopt rules and regulations
for carrying out this Plan and, subject to the provisions of this Plan, may
prescribe the form or forms of the instruments evidencing any option granted
under this Plan.
Subject to the provisions of this Plan, the Board or, by delegation from
the Board, the Committee, shall have full and final authority in its discretion
to select the employees to be granted options, to grant such options and to
determine the number of shares to be subject thereto, the exercise prices, the
terms of exercise, expiration dates and other pertinent provisions thereof.
11. Accelerated Vesting in the Event of a Change in Control. All
----------- ------- -- --- ----- -- - ------ -- -------
outstanding options held by employees shall Accelerate upon the occurrence of a
Change in Control of the Company. Any options Accelerated in connection with a
Change in Control shall
<PAGE>
-3-
remain fully exercisable until the expiration or sooner termination of the
Option period. For purposes of this Section 11, the following definitions shall
be applicable:
(a) Accelerate, Accelerated and Acceleration, when used with respect
---------- ----------- ------------
to an option, mean that as of the relevant time of reference, such option
shall become fully exercisable with respect to the total number of shares
of stock subject to such option and may be exercised for all or any portion
of such shares;
(b) Beneficial Ownership means beneficial ownership determined
---------- ---------
pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended; and
(c) Change in Control means a change in ownership or control of the
------ -- -------
Company effected through either of the following transactions:
(i) any person or related group of persons (other than the Company
or a person that directly or indirectly controls, is controlled by, or
is under common control with the Company) directly or indirectly
acquires Beneficial Ownership of securities possessing more than 50%
of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders that the Board does not recommend such
stockholders to accept, or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have been
Board members continuously since the beginning of such period, or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
the preceding clause (A) who were still in office at the time such
election or nomination was approved by the Board.
12. Corporate Reorganizations. Upon the dissolution or liquidation of the
--------- ---------------
Company, or upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class then subject to options
hereunder are changed into or exchanged for cash or property or securities not
of the Company's issue, or any combination thereof, or upon a sale of
substantially all the property of the Company to, or the acquisition of stock
representing more than eighty percent (80%) of the voting power of the stock of
the Company then outstanding by, another corporation or person, the Plan shall
terminate, and all options theretofore granted hereunder shall terminate, unless
provision be made in writing in connection with such transaction for the
continuance of the Plan and/or for the assumption of options theretofore
granted, or the
<PAGE>
-4-
substitution for such options of options covering the stock of a successor
employer corporation, or a parent or a subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices, in which event the
Plan and options theretofore granted shall continue in the manner and under the
terms so provided. If the Plan and unexercised options shall terminate pursuant
to the foregoing sentence, all persons entitled to exercise any unexercised
portions of options then outstanding, including, without limitation, as the
result of any Acceleration of options in accordance with Section 11 hereof,
shall have the right, at such time prior to the consummation of the transaction
causing such termination as the Company shall designate, to exercise the
unexercised portions of their options, including the portions thereof which
would, but for this paragraph entitled "Corporate Reorganization," not yet be
exercisable. The instrument evidencing any option may also provide for such
acceleration of otherwise unexercisable portions of the option upon other
specified events or occurrences, such as involuntary terminations of the
optionee's employment following certain changes in the control of the Company.
13. Stock Appreciation Rights. If the instrument evidencing the option so
----- ------------ ------
provides, an option granted under this Plan (herein sometimes called the
"corresponding option") may include the right (a "Stock Appreciation Right") to
receive an amount equal to some or all of the excess of the fair market value
(determined in a manner specified in the instrument evidencing the corresponding
option) of the shares subject to unexercised portions of the corresponding
option over the aggregate exercise price for such shares under the corresponding
option as of the date the Stock Appreciation Right is exercised. The amount
payable upon exercise of a Stock Appreciation Right may be paid in cash or in
shares of the class then subject to the corresponding option (valued on the
basis of their fair market value, determined as specified with respect to the
measurement of the amount payable as aforesaid), or in a combination of cash and
such shares so valued. No Stock Appreciation Right may be exercised in whole or
in part (a) other than in connection with the contemporaneous surrender without
exercise of such corresponding option, or the portion thereof that corresponds
to the portion of the Stock Appreciation Right being exercised, or (b) except to
the extent that the corresponding option or such portion thereof is exercisable
on the date of exercise of the Stock Appreciation Right by the person exercising
the Stock Appreciation Right, or (c) unless the class of stock then subject to
the corresponding option is not then "publicly traded." For this purpose, a
class of stock is "publicly traded" if it is listed or admitted to unlisted
trading privileges on a national securities exchange or if sales or bid and
offer quotations therefor are reported on the automated quotation system
("NASDAQ") operated by the National Association of Securities Dealers, Inc. or
on any then operative successor to the NASDAQ system.
14. Restricted Stock. Unless waived by the Company, shares of stock
---------- -----
issued on exercise of an option granted under this Plan shall upon issuance be
subject to the following restrictions (and, as used herein, "restricted stock"
means shares issued on exercise of options granted under this Plan which are
still subject to restrictions imposed under this Section 13 that have not yet
expired or terminated):
<PAGE>
-5-
(a) shares of restricted stock may not be sold or otherwise
transferred or hypothecated;
(b) if the employment of the holder of shares of restricted stock with
the Company or a subsidiary is terminated for any reason other than his
death, normal or early retirement in accordance with his employer's
established retirement policies or practices, or total disability, the
Company (or any subsidiary designated by it) shall have the option for
sixty (60) days after such termination of employment to purchase for cash
all or any part of his restricted stock at the lesser of (i) the price paid
therefor by the holder, or (ii) the fair market value of the restricted
stock on the date of such termination of employment (determined in a manner
specified in the instrument evidencing the option); and
(c) as to the shares of stock affected thereby, any additional
restrictions that may be imposed on particular shares of' restricted stock
as specified in the instrument evidencing the option. The Company may cause
an appropriate legend to be imprinted on the stock certificates evidencing
shares so issued.
The restrictions imposed under this Section 14 shall apply as well to all
shares of other securities issued in respect of restricted stock in connection
with any stock split, reverse stock split, stock dividend, recapitalization,
reclassification, spin-off, split-off, merger, consolidation or reorganization,
but such restrictions shall expire or terminate at such time or times as shall
be specified therefor in the instrument evidencing the option which provides for
the restrictions.
15. Financial Assistance. The Company is vested with authority under this
--------- ----------
Plan to assist any employee to whom an option is granted hereunder (including
any director or officer of the Company or any of its subsidiaries who is also an
employee) in the payment of the purchase price payable on exercise of that
option, by lending the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security (or unsecured) as
shall have been authorized by or under authority of the Board.
16. No Preemptive or Registration Rights. Shares of stock purchased upon
-- ---------- -- ------------ ------
exercise of an option granted under this Plan shall provide the holder with no
preemptive or registration rights to demand sale to such holder of additional
shares of the Company or the inclusion of any of the shares so purchased in any
registration or other qualification by the Company for sale of shares or other
securities.
17. Amendment and Termination. The Board may alter, amend, suspend or
--------- --- -----------
terminate this Plan, provided that no such action shall deprive an optionee,
without his consent, of any option granted to the optionee pursuant to this Plan
or of any of his rights under such option. Except as herein provided, no such
action of the Board, unless taken with the approval of the shareholders of the
Company, may:
<PAGE>
-6-
(a) increase the maximum number of shares for which options granted
under this plan may be exercised;
(b) reduce the minimum permissible exercise price;
(c) extend the ten-year duration of this Plan set forth herein; or
(d) alter the class of employees eligible to receive options under the
Plan.
18. Effective Date. The Company's 1993 Stock Option Plan was initially
--------- ----
adopted by the Board of Directors and approved by the stockholders of
Pharmaceutical Research Associates, Inc. ("Associates"), a wholly-owned
subsidiary of the Company, on August 10, 1993. In connection with the
effectiveness on October 10, 1996 of the Articles of Share Exchange of
Associates and the Company, the Company adopted the 1993 Stock Option Plan, as
contemplated by the Board meeting held on September 13, 1996 and as more
formally ratified and confirmed by the Board on July 24, 1997 and approved by
the stockholders of the Company effective October 6, 1997. The Amended and
Restated 1997 Stock Option Plan was adopted by the Board and approved by the
stockholders of the Company on October 15, 1997 and shall be effective upon the
consummation of the Company's initial public offering of its common stock.
<PAGE>
Exhibit 10.21
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
1. Definitions. As used in this Amended and Restated 1997 Stock Option
-----------
Plan of PRA International, Inc., the following terms shall have the following
meanings:
1.1. Accelerate, Accelerated and Acceleration, when used with respect
---------- ----------- ------------
to an Option, mean that as of the relevant time of reference, such Option
shall become fully exercisable with respect to the total number of shares
of Common Stock subject to such Option and may be exercised for all or any
portion of such shares.
1.2. Beneficial Ownership means beneficial ownership determined
---------- ---------
pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended.
1.3. Board means the Company's Board of Directors.
-----
1.4. Change in Control means a change in ownership or control of the
------ -- -------
Company effected through either of the following transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is
controlled by, or is under common control with the Company) directly
or indirectly acquires Beneficial Ownership of securities possessing
more than 50% of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders that the Board does not
recommend such stockholders to accept, or
(b) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (i) have been
Board members continuously since the beginning of such period, or (ii)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
the preceding clause (i) who were still in office at the time such
election or nomination was approved by the Board.
1.5. Code means the federal Internal Revenue Code of 1986, as
----
amended.
1.6. Committee means a committee comprised of two or more Nonemployee
---------
Directors, appointed by the Board, responsible for the administration of
the Plan, as
<PAGE>
-2-
provided in Section 5; provided, that the Board itself may at any time, in
--------
its sole discretion, exercise any or all functions and authority of the
Committee. In the event that no Committee is in existence at any time, any
discretion or authority granted to the Committee under this Plan shall be
exercised, if at all, by the Board.
1.7. Company means PRA International, Inc., a Delaware corporation.
-------
1.8. Consulting Agreement means a consulting agreement, if any,
---------- ---------
between the Company and an Optionee, setting forth, inter alia, conditions
----- ----
and restrictions upon the transfer of shares of Stock.
1.9. Employment Agreement means an employment agreement, if any,
---------- ---------
between the Company and an Optionee, setting forth, inter alia, conditions
----- ----
and restrictions upon the transfer of shares of Stock.
1.10. Fair Market Value means the value of a share of Stock on any
---- ------ -----
date as determined by the Committee.
1.11. Grant Date means the date as of which an Option is granted, as
----- ----
determined under Section 7.
1.12. Immediate Family Member means, with respect to any Optionee,
--------- ------ ------
such Optionee's spouse and lineal descendants or any trust for the benefit
of, or the legal representative of, any of the preceding persons.
1.13. Incentive Option means an Option which by its terms is to be
--------- ------
treated as an "incentive stock option" within the meaning of Section 422 of
the Code.
1.14. Nonemployee Director means a director of the Company who is not
----------- --------
an officer or employee of the Company.
1.15. Non-statutory Option means any Option that is not an Incentive
------------- ------
Option.
1.16. Option means an option to purchase shares of Stock granted
------
under the Plan.
1.17. Option Agreement means an agreement between the Company and an
------ ---------
Optionee, setting forth the terms and conditions of an Option.
1.18. Option Price means the price paid by an Optionee for a share of
------ -----
Stock upon exercise of an Option.
1.19. Optionee means a person eligible to receive an Option, as
--------
provided in Section 6 of the Plan, to whom an Option shall have been
granted under the Plan.
<PAGE>
-3-
1.20. Plan means this Amended and Restated 1997 Stock Option Plan of
----
the Company, as amended from time to time.
1.21. Stock means Common Stock, par value $0.01 per share, of the
-----
Company.
1.22. Stock Restriction Agreement means a Stock Restriction Agreement
----- ----------- ---------
entered into by the Company and an Optionee pursuant to Section 5 hereof.
1.23. Ten Percent Owner means a person who owns, or is deemed within
--- ------- -----
the meaning of Section 422(b)(6) of the Code to own, stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company (or its parent or subsidiary corporations). Whether a
person is a Ten Percent Owner shall be determined with respect to each
Option based on the facts existing immediately prior to the Grant Date of
such Option.
1.24. Vesting Year for any portion of any Incentive Option means the
------- ----
calendar year in which that portion of the Option first becomes
exercisable.
2. Purpose. This Plan is intended to encourage ownership of Stock by
-------
employees and consultants of the Company and its subsidiaries and to provide
additional incentives for them to promote the success of the Company's business.
The Plan is intended to be an incentive stock option plan within the meaning of
Section 422 of the Code but not all Options granted hereunder are required to be
Incentive Options.
3. Term of the Plan. Options may be granted hereunder at any time during
---- -- --- ----
the period commencing upon the approval of the Plan by the Board and ending
January 31, 2007.
4. Stock Subject to the Plan. At no time shall the number of shares of
----- ------- -- --- ----
Stock then outstanding which are attributable to the exercise of Options granted
under the Plan, plus the number of shares then issuable upon exercise of
outstanding Options granted under the Plan, exceed one hundred thousand
(100,000) shares (prior to giving effect to the Company's proposed stock split),
subject, however, to the provisions of Section 18 of the Plan. Shares to be
- ------- -------
issued upon the exercise of Options granted under the Plan may be either
authorized but unissued shares or shares held by the Company in its treasury. If
any Option expires or terminates for any reason without having been exercised in
full, the shares not purchased thereunder shall again be available for Options
thereafter to be granted.
5. Administration. The Plan shall be administered by the Committee.
--------------
Subject to the provisions of the Plan, the Committee shall have complete
authority, in its discretion, to make or to select the manner of making the
following determinations with respect to each Option to be granted by the
Company: (a) the employee or consultant to receive the Option; (b) whether the
Option (if granted to an employee) will be an Incentive Option or Non-statutory
Option; (c) the time of granting the Option; (d) the number of shares subject to
the Option provided; however, that in no event shall any Optionee be granted in
any calendar year Options to purchase more than fifty thousand (50,000) shares;
(e) the Option Price; (f) the Option period; (g) the Option exercise
<PAGE>
-4-
date or dates or, if the Option is immediately exercisable in full on its Grant
Date, the vesting schedule, if any, applicable to the shares of Stock issuable
upon the exercise of the Option; and (h) the effect of termination of
employment, consulting or association with the Company on the subsequent
exercisability of the Option. In making such determinations, the Committee may
take into account the nature of the services rendered by the respective
employees and consultants, their present and potential contributions to the
success of the Company and its subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the provisions of
the Plan, the Committee shall also have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective Option Agreements (which
need not be identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee shall also have
complete authority in its discretion to require that, as a condition precedent
to the grant or exercise of any Option, the Optionee shall enter into a Stock
Restriction Agreement with the Company, containing such terms, provisions and
conditions as the Committee shall determine in its absolute discretion,
including, without limitation, provisions relating to the vesting of shares of
Stock issuable upon exercise of an Option and provisions imposing restrictions
upon the transferability of any and all shares of Stock or other capital stock
of the Company owned of record or beneficially by the Optionee party thereto.
The Committee's determinations on the matters referred to in this Section 5
shall be conclusive.
6. Eligibility. An Option shall be granted only to an employee or
-----------
consultant of one or more of the Company or any subsidiary thereof. A director
of one or more of the Company and any subsidiary who is not also an employee or
consultant of one or more of the Company or a subsidiary shall not be eligible
to receive an Option except as otherwise provided in Section 11 hereof.
7. Time of Granting Options. The granting of an Option shall take place
---- -- -------- -------
at the time specified in the Option Agreement. Only if expressly so provided in
the Option Agreement, shall the Grant Date be the date on which an Option
Agreement shall have been duly executed and delivered by the Company and the
Optionee.
8. Option Price. The Option Price under each Incentive Option shall be
------ -----
not less than 100% of the Fair Market Value of Stock on the Grant Date, or not
less than 110% of the Fair Market Value of Stock on the Grant Date if the
Optionee is a Ten Percent Owner. The Option Price under each Non-statutory
Option shall not be so limited solely by reason of this Section 8.
9. Option Period. No Incentive Option may be exercised later than the
------ ------
tenth anniversary of the Grant Date, but in any case not later than the fifth
anniversary of the Grant Date if the Optionee is a Ten Percent Owner. The
option period under each Non-statutory Option shall not be so limited solely by
reason of this Section 9. An Option may become exercisable in such
installments, cumulative or non-cumulative, as the Committee may determine. In
the case of an Option not otherwise immediately exercisable in full, the
Committee may accelerate the exercisability of such Option in whole or in part
at any time, provided the acceleration of the exercisability of any Incentive
Option would not cause the Option to fail to comply with the provisions of
Section 422 of the Code. Furthermore, all outstanding Options
<PAGE>
-5-
held by employees shall Accelerate upon the occurrence of a Change in Control of
the Company. Any Options Accelerated in connection with a Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
Option period.
10. Limit on Incentive Option Characterization. No Incentive Option shall
----- -- --------- ------ ----------------
be considered an Incentive Option to the extent that pursuant to its terms it
would permit the Optionee to purchase for the first time in any Vesting Year
under that Incentive Option more than the number of shares of Stock calculated
by dividing the current limit by the Option Price. The current limit for any
Optionee for any Vesting Year shall be $100,000 minus the aggregate Fair Market
Value at the date of grant of the number of shares of Stock available for
purchase for the first time in the Vesting Year under each other Incentive
Option granted to the Optionee under the Plan and each other incentive stock
option granted to the Optionee under any other incentive stock option plan of
the Company (and any parent and subsidiary corporations).
11. Formula Awards.
------- ------
11.1. Automatic Grants. Upon the initial election to the Board of an
--------- ------
unaffiliated Non-Employee Director (an "Unaffiliated Director"), such
Unaffiliated Director shall receive a Non-statutory Option to purchase five
thousand (5,000) shares (after giving effect to the Company's proposed
stock split) and such Unaffiliated Director shall receive a Non-statutory
Option to purchase one thousand (1,000) shares (post-split) on each
anniversary of such initial election so long as such Unaffiliated Director
continues to be an Unaffiliated Director. Options granted pursuant to this
Section 11 shall have an exercise price equal to (a) in the case of the
initial grants to Mr. Penner and Ms. Hemberger, the initial public offering
price and (b) in all other cases, the average closing price of the
Company's common stock for the thirty (30) days immediately preceding the
applicable Grant Date.
11.2. Term and Vesting. Each Option granted under this Section 11
---- --- -------
shall expire at the earlier of (i) 90 days after such Unaffiliated Director
no longer serves as a director of the Company or (ii) the end of ten years
and one day after the Grant Date. Each Option shall be fully exercisable
on the Grant Date.
11.3. Option Pool. There is hereby reserved out of the Option pool
------ ----
of one hundred thousand (100,000) shares (prior to giving effect to the
Company's proposed stock split), an Option pool of ten thousand (10,000)
shares (pre-split) to be used exclusively for Options to be granted
pursuant to this Section 11.
12. Exercise of Option. An Option may be exercised by the Optionee giving
-------- -- ------
written notice, in the manner provided in Section 22, specifying the number of
shares with respect to which the Option is then being exercised. The notice
shall be accompanied by payment in the form of cash, or certified or bank check
payable to the order of the Company, in an amount equal to the aggregate Option
Price of the shares to be purchased. Receipt by the Company of such notice and
payment, and, if applicable, the Optionee's executed counterpart of any Stock
Restriction Agreement required by the Committee pursuant to Section 5 hereof,
shall constitute
<PAGE>
-6-
the exercise of the Option. Within ten (10) days thereafter but subject to the
remaining provisions of the Plan, the Company shall deliver or cause to be
delivered to the Optionee or his agent a certificate or certificates for the
number of shares then being purchased. Such shares shall be fully paid and
nonassessable.
13. Restrictions on Issue of Shares.
------------ -- ----- -- ------
(a) Notwithstanding any other provision of the Plan, if, at any time,
in the reasonable opinion of the Company, the issuance of shares of Stock
covered by the exercise of any Option may constitute a violation of law, then
the Company may delay such issuance and the delivery of a certificate for such
shares until (i) approval shall have been obtained from such governmental
agencies, other than the Securities and Exchange Commission, as may be required
under any applicable law, rule, or regulation; and (ii) in the case where such
issuance would constitute a violation of a law administered by or a regulation
of the Securities and Exchange Commission, one of the following conditions shall
have been satisfied:
(1) the shares with respect to which such Option has been exercised
are at the time of the issue of such shares effectively registered under
the Securities Act of 1933, as amended (the "Securities Act"); or
(2) a no-action letter in form and substance reasonably satisfactory
to the Company and its counsel with respect to the issuance of such shares
shall have been obtained by the Company from the Securities and Exchange
Commission.
The Company shall make all reasonable efforts to bring about the occurrence of
said events.
(b) Each certificate representing shares issued upon the exercise of
an Option will bear restrictive legends which may refer to this Plan and to
applicable restrictions under any Employment Agreement, Consulting Agreement or
Stock Restriction Agreement, as applicable.
14. Purchase for Investment; Subsequent Registration.
-------- --- ---------- ---------- ------------
(a) Without limiting the generality of Section 13 hereof, if the
shares to be issued upon exercise of an Option granted under the Plan have not
been effectively registered under the Securities Act, the Company shall be under
no obligation to issue any shares covered by any Option unless the person who
exercises such Option, in whole or in part, shall give a written representation
to the Company which is satisfactory in form and substance to its counsel and
upon which the Company may reasonably rely, that he or she is acquiring the
shares issued pursuant to such exercise of the Option as an investment and not
with a view to, or for sale in connection with, the distribution of any such
shares.
(b) Each certificate representing shares of Stock issued pursuant to
the exercise of an Option granted pursuant to this Plan may bear a reference to
the investment representation made in accordance with this Section 14 and to the
fact that no registration statement has been filed with the Securities and
Exchange Commission in respect of said Stock.
<PAGE>
-7-
(c) If the Company shall deem it necessary or desirable to register
under the Securities Act or other applicable statutes any shares with respect to
which an Option shall have been granted, or to qualify any such shares for
exemption from the Securities Act or other applicable statutes, then the Company
shall take such action at its own expense. The Company may require from each
Option holder, or each holder of shares of Stock acquired pursuant to the Plan,
such information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors from such holder against all losses, claims, damage and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
15. Withholding; Notice of Disposition of Stock Prior to Expiration of
----------- ------ -- ----------- -- ----- ----- -- ---------- --
Specified Holding Period.
--------- ------- ------
(a) Whenever shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the Optionee to
remit to the Company an amount sufficient to satisfy federal, state, local or
other withholding tax requirements if and to the extent required by law (whether
so required to secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for such
shares.
(b) The Company may require as a condition to the issuance of shares
covered by any Incentive Option that the party exercising such Option give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that he
or she will report to the Company any disposition of such shares prior to the
expiration of the holding periods specified by Section 422(a)(1) of the Code.
If and to the extent that the realization of income in such a disposition
imposes upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company shall have the right to require
that the recipient remit to the Company an amount sufficient to satisfy those
requirements; and the Company may require as a condition to the issuance of
shares covered by an Incentive Option that the party exercising such option give
a satisfactory written representation promising to make such a remittance.
16. Termination of Association with the Company.
----------- -- ----------- ---- --- -------
(a) Termination of Options. If the Optionee's employment, consulting
----------- -- -------
or other association or relationship with the Company or one of its subsidiaries
is terminated, whether voluntarily or otherwise, (i) all unvested Options shall
automatically terminate and (ii) the Option, to the extent the Option is
exercisable on the date of termination, may continue to be exercised by the
Optionee in accordance with its terms for a period of thirty (30) days after
such termination date. Notwithstanding the foregoing, in the event that the
applicable Option Agreement with respect to an Option shall contain specific
provisions governing the effect that any such
<PAGE>
-8-
termination shall have on the exercisability of such Option, such provisions
shall, to the extent that they are inconsistent with the provisions of this
Section 16, control and be deemed to supersede the provisions of this Section
16. For purposes of this Section 16, military or sick leave shall not be deemed
a termination of employment, provided that it does not exceed the longer of 30
--------
days or the period during which the absent Optionee's reemployment rights, if
any, are guaranteed by statute or by contract.
(b) Buy-Back Provisions. The Options of any Optionee shall be subject
-------- ----------
to the terms of any buy-back provisions contained in any related Option
Agreement, Stock Restriction Agreement, Employment Agreement or Consulting
Agreement to which such Optionee is a party.
17. Transferability of Options. Options shall not be transferable,
--------------- -- -------
otherwise than by will or the laws of descent and distribution, and may be
exercised during the life of the Optionee only by the Optionee; provided,
--------
however, that this Section shall not bar a transfer, assignment or sale of Non-
- -------
statutory Options by an Optionee to, or for the benefit of, such Optionee's
Immediate Family Members, who shall take and be entitled to exercise such Non-
statutory Options subject to all the limitations set forth in this Plan, the
applicable Option Agreement and the applicable Stock Restriction Agreement.
Notwithstanding anything in this Section 17 to the contrary, the Company shall
not recognize any transfer, assignment or sale by the Optionee of Non-statutory
Options to an Immediate Family Member, and any such Non-statutory Options
transferred, assigned or sold shall be deemed to be owned and held by such
Optionee rather than by the transferee, unless prior to any such transfer,
assignment or sale such transferee shall execute an Instrument of Adherence to
the applicable Option Agreement and to the applicable Stock Restriction
Agreement, and such Instrument of Adherence is in form and substance
satisfactory to the Company. Notwithstanding the foregoing, the Committee
reserves the right in its sole and absolute discretion to approve or disapprove
any proposed transfer of Options otherwise permitted pursuant to the foregoing
provisions of this Section 17.
18. Adjustment of Number of Option Shares. In the event of any stock
---------- -- ------ -- ------ ------
dividend payable in Stock or any split-up or contraction in the number of shares
of Stock after the date of an Option Agreement and prior to the exercise in full
of the Option, the number of shares subject to such Option Agreement and the
price to be paid for each share subject to the Option shall be proportionately
adjusted. In the event of any reclassification or change of outstanding shares
of Stock or in case of any consolidation or merger of the Company with or into
another company or in case of any sale or conveyance to another company or
entity of the property of the Company as a whole or substantially as a whole,
shares of stock or other securities equivalent in kind and value to those shares
an Optionee would have received if he or she had held the full number of shares
of Stock subject to the Option immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and had continued to hold
those shares (together with all other shares, stock and securities thereafter
issued in respect thereof) to the time of the exercise of the
Option shall thereupon be subject to the Option. Upon dissolution or
liquidation of the Company, the Option shall terminate, but the Optionee (if at
the time in the employ of or retained as a consultant to the Company or any of
its subsidiaries) shall have the right, immediately prior to such dissolution or
liquidation, to exercise the Option to the extent exercisable on the date of
such dissolution or liquidation. No fraction of a share shall be purchasable or
deliverable upon
<PAGE>
-9-
exercise, but in the event any adjustment hereunder of the number of shares
covered by the Option shall cause such number to include a fraction of a share,
such number of shares shall be adjusted to the nearest smaller whole number of
shares. In the event of changes in the outstanding Stock by reason of any stock
dividend, split-up, contraction, reclassification, or change of outstanding
shares of Stock of the nature contemplated by this Section 18, the number of
shares of Stock available for the purpose of the Plan as stated in Section 4
hereof shall be correspondingly adjusted.
19. Reservation of Stock. The Company shall at all times during the term
----------- -- -----
of the Options reserve or otherwise keep available such number of shares of
Stock as will be sufficient to satisfy the requirements of the Plan (if then in
effect) and such Options shall pay all fees and expenses necessarily incurred by
the Company in connection therewith.
20. Limitation of Rights in Stock; No Special Employment or Other Rights.
---------- -- ------ -- ----- -- ------- ---------- -- ----- ------
The Optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the shares of Stock covered by an Option, except
to the extent that the Option shall have been exercised with respect thereto
and, in addition, a certificate shall have been issued therefor and delivered to
the Optionee or his agent. Any Stock issued pursuant to the Option shall be
subject to all restrictions upon the transfer thereof which may be now or
hereafter imposed by the Certificate of Incorporation or the By-laws of the
Company or by any applicable Employment Agreement, Consulting Agreement or Stock
Restriction Agreement. Nothing contained in the Plan or in any Option shall
confer upon any Optionee any right with respect to the continuation of his or
her employment with, or retention as a consultant by, the Company (or any
subsidiary), or interfere in any way with the right of the Company (or any
subsidiary), subject to the terms of any separate employment or consulting
agreement or provision of law or corporate articles or by-laws to the contrary,
at any time to terminate such employment or consulting agreement or to increase
or decrease the compensation of the Optionee from the rate in existence at the
time of the grant of an Option.
21. Termination and Amendment of the Plan. The Board may at any time
----------- --- --------- -- --- ----
terminate the Plan or make such modifications of the Plan as it shall deem
advisable. No termination or amendment of the Plan may, without the consent of
the Optionee to whom any Option shall theretofore have been granted, adversely
affect the rights of such Optionee under such Option.
22. Notices and Other Communications. All notices and other
------- --- ----- --------------
communications required or permitted under the Plan shall be effective if in
writing and if delivered or sent by certified or registered mail, return receipt
requested (a) if to the Optionee, at his or her residence address last filed
with the Company, and (b) if to the Company, at PRA International, Inc.,
American Center, 8300 Boone Boulevard, Suite 310, Vienna, Virginia 22182,
Attention: President, or to such other persons or addresses as the Optionee or
the Company may specify by a written notice to the other from time to time.
23. Effective Date. The Company's 1997 Stock Option Plan was initially
--------- ----
adopted by the Board on July 24, 1997 and the Amended and Restated 1997 Stock
Option Plan was adopted by the Board on October 15, 1997. Both the 1997 Stock
Option Plan and the Amended and
<PAGE>
-10-
Restated 1997 Stock Option Plan were approved by the stockholders of the Company
effective October 15, 1997. The Company's Amended and Restated 1997 Stock Option
Plan shall be effective upon the consummation of the Company's initial public
offering of its common stock.
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS (LOSSES) PER SHARE
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE SIX
FOR THE YEAR MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Weighted average common shares outstanding............ 1,285,263 1,219,477
Common stock equivalents:
Conversion of Series A preferred stock.............. 3,266,422 3,266,422
Cheap stock options................................. 298,443 298,443
Stock options and warrants.......................... -- 1,324,226
Assumed common stock issuance for repayment of long-
term debt and seller notes payable................. 868,729 868,729
--------- ---------
Weighted average common and common equivalent shares
outstanding.......................................... 5,718,857 6,977,297
========= =========
</TABLE>
<PAGE>
Exhibit 16.1
October 22, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the caption "Change In Accountants" of Form S-1 dated October 23,
1997, of PRA International, Inc. and are in agreement with the statements
contained in the first and second paragraphs on page 25 therein. We have no
basis to agree or disagree with the statements in the third paragraph of the
Form S-1 of PRA International, Inc. contained therein.
/s/ Ernst & Young LLP
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
1. Pharmaceutical Research Associates, Inc. ("Associates") is a wholly owned
subsidiary of Registrant and is incorporated under the laws of the
Commonwealth of Virginia.
2. International Medical Technical Consultants, Inc. ("IMTCI") is a wholly
owned subsidiary of Registrant and is incorporated under the laws of the
State of Kansas.
3. The Crucible Group, Inc. is a wholly owned subsidiary of IMTCI and is
incorporated under the laws of the State of Georgia.
4. Pharmaceutical Research Associates, GmbH is a wholly owned subsidiary of
Associates and is incorporated under the laws of Germany.
5. Pharm. Research Associates (UK) Limited is a wholly owned subsidiary of
Associates and is incorporated under the laws of the United Kingdom.
6. IMTCI (UK) Limited is a wholly owned subsidiary of IMTCI and is
incorporated under the laws of the United Kingdom.
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Washington D.C.
October 22, 1997
<PAGE>
Exhibit 23.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Consolidated Financial Data" and under the caption "Experts" and to the use of
our reports dated March 8, 1996, in the Registration Statement (Form S-1 No.
333- ) and related Prospectus of PRA International, Inc. for the
registration of 2,750,000 shares of its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
October 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 15,117,801 2,355,846
<SECURITIES> 0 0
<RECEIVABLES> 8,325,029 12,355,479
<ALLOWANCES> 132,098 77,232
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,516,159 15,102,837
<PP&E> 5,124,468 10,532,891
<DEPRECIATION> 2,228,739 3,908,793
<TOTAL-ASSETS> 26,624,293 36,374,777
<CURRENT-LIABILITIES> 12,719,182 13,454,216
<BONDS> 0 0
19,196,922 20,128,894
0 0
<COMMON> 26,717 30,460
<OTHER-SE> (7,473,303) (6,362,336)
<TOTAL-LIABILITY-AND-EQUITY> 26,624,293 36,374,777
<SALES> 0 0
<TOTAL-REVENUES> 21,509,740 18,047,234
<CGS> 14,951,791 13,032,130
<TOTAL-COSTS> 20,203,159 17,690,144
<OTHER-EXPENSES> 20,317 42,411
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 461,732 369,192
<INCOME-PRETAX> 1,180,513 190,356
<INCOME-TAX> 415,652 90,499
<INCOME-CONTINUING> 764,861 99,857
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 764,861 99,857
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (0.12) 0.04
</TABLE>
