<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997
REGISTRATION NO. 333-38565
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRA INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<S> <C> <C>
DELAWARE 8731 54-1820933
(STATE OR OTHER JURISDICTION
OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZA-
TION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
----------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 DECEMBER 11, 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 this Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price will be between $10.00 and $12.00 per share. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price. Application has been made to have the Common Stock
listed on the Nasdaq Stock Market's 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>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSION(1) COMPANY(2)
- ------------------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------------------------------
</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 the Underwriters a 30-day option to purchase up
to 412,500 additional shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting". If such option is exercised in
full, the total Price to the 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 accepted by them and subject to
certain conditions. It is expected that certificates for 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
10001.
--------
SALOMON SMITH BARNEY
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 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 nine months ended September 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 $32.5 million. On September 30, 1997, the Company had 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 an
investigational affiliation in San Juan, Puerto Rico, and a data management
center in Swansea, Wales. The Company also plans to begin operations in the
London, England area in early 1998. In 1996, the Company derived 69% of its net
revenues from United States operations and 31% of its net revenues from
European operations. For the nine months ended September 30, 1997, the Company
derived 82% of its net revenues from United States operations, the increase
being largely due to two acquisitions in the United States, and 18% 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 significant 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 approximately 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
approximately 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 it has
established 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. To be a "preferred provider" in
4
<PAGE>
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.
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 September 30, 1997.
Excludes (i) 1,714,889 shares of Common Stock reserved for issuance upon
exercise of outstanding options at a weighted average exercise price of $4.73
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) 138,491 shares reserved for future grant under the Company's 1997 Stock
Option Plan, all as of September 30, 1997. See "Management--Stock Incentive
Plans" and Note 10 of Notes to Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $8,428 $11,324 $13,657 $27,480 $18,135 $34,469
Less reimbursed costs .. (468) (1,031) (1,273) (1,423) (5,970) (3,197) (4,962)
------ ------ ------- ------- ------- ------- -------
Net revenues........... 4,840 7,397 10,051 12,234 21,510 14,938 29,507
Operating costs and
expenses:
Direct costs........... 3,726 4,948 6,277 8,261 14,952 10,377 21,172
Selling, general and
administrative........ 1,402 2,754 2,853 3,334 4,161 2,900 6,320
Depreciation and
amortization.......... 259 354 282 258 447 286 1,173
Stock repurchase and
other equity -- -- -- -- 643 -- 33
compensation.......... ------ ------ ------- ------- ------- ------- -------
Total operating costs 5,387 8,056 9,412 11,853 20,203 13,563 28,698
and expenses.......... ------ ------ ------- ------- ------- ------- -------
Income (loss) from
operations............. (547) (659) 639 381 1,307 1,375 809
Other income (expense), (2) (56) 37 (248) (126) (235) (443)
net.................... ------ ------ ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (549) (715) 676 133 1,181 1,140 366
Provision (benefit) for 105 (288) 230 -- 416 401 220
income taxes........... ------ ------ ------- ------- ------- ------- -------
Net income (loss)...... (654) (427) 446 133 765 739 146
====== ====== ======= ======= ======= ======= =======
Preferred stock
dividends (3).......... -- -- -- -- (404) -- (1,312)
Accretion on common
stock warrants and
Series A Preferred -- -- -- (715) (1,897) (1,957) (83)
Stock (4).............. ------ ------ ------- ------- ------- ------- -------
Net income (loss)
available to common $ (654) $ (427) $ 446 $ (582) $(1,536) $(1,218) $(1,249)
stockholders........... ====== ====== ======= ======= ======= ======= =======
Pro forma net income $ (0.20) $ 0.02
(loss) per share (5)... ======= =======
Pro forma weighted
average shares
outstanding (5)........ 4,850 6,172
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------
ACTUAL AS ADJUSTED (6)
----------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 172 $16,998
Working capital.................................. 2,081 20,184
Total assets..................................... 36,347 53,173
Seller notes payable............................. 5,343 --
Long-term debt, including current portion........ 5,750 1,145
Redeemable Series A Preferred Stock and common
stock warrants.................................. 20,592 --
Stockholders' equity (deficit) .................. (6,510) 41,028
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
SUPPLEMENTARY FINANCIAL INFORMATION:(7)
Pro forma net income (loss) per share as
reported................................ $(0.20) $0.02
Impact on pro forma net income (loss) per
share of:
Accretion on common stock warrants....... 0.33 --
Stock repurchase and other equity
compensation............................ 0.11 --
Elimination of interest associated with
repayment of debt from the proceeds of
the Offering............................ 0.08 0.05
------ -----
Supplementary net income per share....... $ 0.32 $0.07
====== =====
</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,
non-cash stock repurchase and other equity compensation, and after
elimination of interest expense associated with the repayment of debt with
proceeds of the Offering.
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"), which currently has no
assets or operations.
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.
In November 1996, Virginia Capital, L.P. purchased 26,534 shares of Series A
Preferred Stock and a related warrant agreement for an aggregate purchase
price of approximately $310,000. 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.
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 two 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 and Crucible, the Company acquired
investigational site management operations. The Company expects that through
its site management organization ("SMO") business, which consists of the
Company providing the necessary patient recruitment, scheduling, management,
training and other support functions for the establishment and support of
clinical investigational sites, the Company will provide site management
services to sponsors directly and to both the Company's clinical trials
management business and other CROs. The Company's trials management business
consists of its performance of the following functions on an as-needed basis:
designing study protocols, selecting and recruiting investigators to conduct
studies, managing the study process, collecting and analyzing the data
obtained from studies and compiling the results for regulatory submission. 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.
9
<PAGE>
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 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 nine-month period ended September 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 Company has employment agreements with each of the
foregoing individuals. 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
10
<PAGE>
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 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. The Company believes that the amount of its liability insurance
coverage is adequate. 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."
GOODWILL
In connection with recent acquisitions, the Company has recorded significant
goodwill. See "The Company." The Company reviews the amount of its goodwill
whenever events or changes in circumstances indicate that the carrying amount
of the goodwill may not be fully recoverable. To determine recoverability, the
Company evaluates the probability that future undiscounted cash flows, without
interest charges, will be less than the carrying amount of the assets. There
is a possibility that the carrying amount of the goodwill could be impaired if
the acquisitions are not successful, in which case an additional charge to
earnings would become necessary.
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,
11
<PAGE>
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."
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
12
<PAGE>
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."
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 $7.51 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 65% of the outstanding shares of Common Stock (or 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). In addition, a single stockholder will beneficially own
approximately 41% of the outstanding shares of Common Stock (or 33% of the
shares of Common Stock on a fully diluted basis). 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 (the
"Credit Facility") 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
13
<PAGE>
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.
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 $27.1 million
($31.4 million 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 and
approximately $10.9 million will be used for the repayment of certain
indebtedness anticipated to be outstanding at the time of the Offering. This
amount includes $10.1 million outstanding as of September 30, 1997 (including
approximately $200,000 in unamortized debt discount) and an estimated $0.8
million of additional borrowings after September 30, 1997. The balance of such
net proceeds of approximately $12.2 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 $1.0 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) approximately $3.6 million
(estimated as of the closing of the Offering) outstanding under the Company's
current $7.5 million secured revolving credit facility with First Union
National Bank. The outstanding balance of that facility matures on June 30,
1999 and bears interest at LIBOR plus 2%. See Note 6 to Notes to Consolidated
Financial Statements of the Company and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity."
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
September 30, 1997, (i) on an actual basis and (ii) on an 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 certain indebtedness of the Company, which on
September 30, 1997 was approximately $10.1 million (including approximately
$200,000 in unamortized debt discount) (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>
SEPTEMBER 30, 1997
-----------------------------
ACTUAL AS ADJUSTED
------------ ---------------
(IN THOUSANDS EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
Cash and cash equivalents......................... $ 172 $16,998
============ ============
Current maturities of long-term obligations:
Related party notes payable...................... 1,105 --
Long-term debt................................... 232 232
------------ ------------
1,337 232
------------ ------------
Long-term obligations, net of current portion:
Related party notes payable...................... 4,238 --
Long-term debt................................... 5,518 913
------------ ------------
9,756 913
------------ ------------
Total long-term obligations.................... 11,093 1,145
------------ ------------
Series A Redeemable Convertible Preferred Stock,
$.01 par value; 3,800,000 shares authorized;
1,658,082 shares issued and outstanding (no 20,592 --
shares issued and outstanding, as adjusted)...... ------------ ------------
Stockholders' equity (deficit):
Preferred stock, 5,000,000 authorized, none is-
sued and outstanding -- --
Common Stock, $.01 par value 25,000,000 shares
authorized on an actual and as adjusted basis;
3,282,172 shares issued on an actual basis and
9,298,594 shares issued on an as adjusted basis
(1).............................................. 33 93
Capital in excess of par value................... 3,999 51,663
Deferred compensation (2)........................ (133) --
1,545,540 shares of common stock in treasury, at
cost............................................. (8,539) (8,539)
Retained equity (deficit) (2).................... (1,714) (2,033)
Cumulative foreign exchange adjustment........... (156) (156)
------------ ------------
Total stockholder's equity (deficit) .......... (6,510) 41,028
------------ ------------
Total capitalization....................... $ 25,175 $ 42,173
============ ============
</TABLE>
- --------
(1) Excludes (i) 1,714,889 shares of Common Stock reserved for issuance upon
exercise of outstanding options at an average exercise price of $4.73 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) 138,491 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.
(2) 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 September 30, 1997, the Company had a deficit in pro forma net tangible
book value of approximately $50,511, or $0.01 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. 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
September 30, 1997, would have been $27.1 million or $3.49 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $3.50 per share to existing stockholders and an immediate dilution of
$7.51 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................................................... $(0.01)
Increase per share attributable to new investors .............. 3.50
------
Pro forma net tangible book value per share after the Offering.. 3.49
------
Dilution per share to new investors............................. $ 7.51
======
</TABLE>
The following table summarizes on a pro forma basis as of September 30, 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 September 30, 1997 or the exercise of the Underwriters' over-
allotment option. As of September 30, 1997, there were 1,951,025 shares of
Common Stock reserved for issuance upon exercise of outstanding options and
warrants at a weighted average exercise price of $4.29 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
for the year then ended, 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 September 30, 1996 and 1997, and
for the year and the nine-month periods 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 nine-month
period ended September 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>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------- ---------------------
1992 (1) 1993 (1) 1994 (1) 1995 (1) 1996 (1) 1996 (1) 1997 (2)
----------- -------- -------- -------- -------- --------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERA-
TIONS DATA:
Professional fee reve-
nues................... $ 5,308 $ 8,428 $11,324 $13,657 $27,480 $ 18,135 $ 34,469
Less reimbursed costs... (468) (1,031) (1,273) (1,423) (5,970) (3,197) (4,962)
------- ------- ------- ------- ------- --------- ---------
Net revenues........... 4,840 7,397 10,051 12,234 21,510 14,938 29,507
Operating costs and ex-
penses:
Direct costs........... 3,726 4,948 6,277 8,261 14,952 10,377 21,172
Selling, general and
administrative........ 1,402 2,754 2,853 3,334 4,161 2,900 6,320
Depreciation and
amortization.......... 259 354 282 258 446 286 1,173
Stock repurchase and
other equity -- -- -- -- 644 -- 33
compensation.......... ------- ------- ------- ------- ------- --------- ---------
Total operating costs 5,387 8,056 9,412 11,853 20,203 13,563 28,698
and expenses.......... ------- ------- ------- ------- ------- --------- ---------
Income (loss) from
operations............. (547) (659) 639 381 1,307 1,375 809
Other income (expense), (2) (56) 37 (248) (126) (235) (443)
net.................... ------- ------- ------- ------- ------- --------- ---------
Income (loss) before
income taxes........... (549) (715) 676 133 1,181 1,140 366
Provision (benefit) for 105 (288) 230 -- 416 401 220
income taxes........... ------- ------- ------- ------- ------- --------- ---------
Net income (loss)....... (654) (427) 446 133 765 739 146
======= ======= ======= ======= ======= ========= =========
Preferred stock divi-
dends (3).............. -- -- -- -- (404) -- (1,312)
Accretion on common
stock warrants and
Series A Preferred -- -- -- (715) (1,897) (1,957) (83)
Stock (4).............. ------- ------- ------- ------- ------- --------- ---------
Net income (loss) avail-
able to common stock- $ (654) $ (427) $ 446 $ (582) $(1,536) $ (1,218) $ (1,249)
holders................ ======= ======= ======= ======= ======= ========= =========
Pro forma net income
(loss) per common and $ (0.20) $ 0.02
equivalent share (5)... ======= =========
Pro forma weighted
average shares
outstanding (5)........ 4,850 6,172
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
----------- -------- --------- --------- --------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 153 $ 368 $ 1,232 $ 2,474 $ 15,118 $ 172
Working capital ........ (1,402) (1,838) (184) 1,835 10,797 2,081
Total assets............ 2,346 3,132 4,260 9,400 26,624 36,347
Seller notes payable.... -- -- -- -- -- 5,343
Long-term debt, includ-
ing current portion.... 415 167 811 2,500 2,547 5,750
Redeemable Series A
Preferred Stock and
common stock warrants.. -- -- 250 1,294 19,197 20,592
Stockholders' deficit... (775) (1,027) (491) (694) (7,447) (6,510)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
SUPPLEMENTARY FINANCIAL INFORMATION:(6)
Pro forma net income (loss) per share as
reported............................... $(0.20) $ 0.02
Impact on pro forma net income (loss)
per share of:
Accretion on common stock warrants...... 0.33 --
Stock repurchase and other equity
compensation........................... 0.11 --
Elimination of interest expense
associated with the repayment of debt
with proceeds from the Offering........ 0.08 0.05
------ -------
Supplementary net income per share...... $ 0.32 $ 0.07
====== =======
</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, non-cash stock repurchase and other equity compensation, and
after elimination of interest expense associated with the repayment of
debt with proceeds of the Offering.
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 two notes and
$2.0 million was paid in the form of shares of Common Stock. A $4.3 million
note is due on April 1, 2001 and principal is repayable in quarterly
installments. A $1.0 million note is due on April 1, 2000 and principal is
repayable in three equal annual installments. Both of the notes accrue
interest at the rate of 8.33% per annum, which is payable quarterly, except
that interest accruing on the $4.3 million note during the first year is added
to the outstanding principal amount of the Note. 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 for $300,000 in cash.
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 $45.4 million, as compared to
$29.0 million at September 30, 1996, a 56.6% 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 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, in most cases upon the achievement of specified
milestones. Most of the Company's contracts are terminable upon 30 to 60 days'
notice by the client. Clients terminate or delay contracts for a variety of
reasons, including, among others, the failure of the product being tested to
satisfy safety requirements, unexpected or undesired clinical research results
of the product, the client's decision to forego a particular study,
insufficient patient enrollment or investigator recruitment or production
problems resulting in shortages of the drug. Although the Company typically is
entitled to receive certain fees for winding down a study which is terminated
or delayed and, in some cases, a termination fee, the loss or delay of a large
contract or the loss or delay of multiple contracts could have a material
adverse effect on the Company.
The Company has historically had very few receivables that it was unable to
collect due to credit or other problems. The Company regularly reviews its
billed and unbilled receivable balances and provides estimated reserves for
potential credit losses.
20
<PAGE>
Revenues from contracts are generally recognized on a percentage of
completion basis as work is performed, measured by the total costs incurred as
a percentage of estimated total costs for each contract. The Company uses this
method because management considers total costs incurred to be the best
available measure of progress on these contracts. The estimated total costs of
contracts are reviewed and revised periodically throughout the lives of the
contracts with adjustments to revenue resulting from such revisions being
recorded on a cumulative basis in the period in which the revisions are made. A
significant portion of the Company's contracts undergo scope modification over
the contract period. Revenues related to contract modifications are recognized
when realization is assured and the amounts are reasonably determinable. 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.
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 September
30, 1997 and for the period commencing on January 1, 1997 was not material.
Stock repurchase and other equity compensation consists of the repurchase of
certain shares immediately succeeding the exercise of employee stock options
and the amortization associated with stock options issued with an exercise
price less than the fair market value of the stock at the date of grant.
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
------------------------------------------------------------
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------- --------------------- ------- ------- ------- -------
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <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 69.5 71.8
Selling, general and
administrative......... 28.4 27.3 19.3 19.4 21.4
Depreciation and
amortization........... 2.8 2.1 2.1 1.9 4.0
Stock repurchase and
other equity
compensation........... -- -- 3.0 -- 0.1
------- ------- ------- --------- ---------
Income from operations ... 6.3 3.1 6.1 9.2 2.7
Other income (expense),
net.................... 0.4 (2.0) (0.6) (1.6) (1.5)
Provision for income
taxes.................. 2.3 -- 1.9 2.7 0.7
------- ------- ------- --------- ---------
Net income ............. 4.4% 1.1% 3.6% 4.9% 0.5%
======= ======= ======= ========= =========
</TABLE>
21
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net revenues for the nine months ended September 30, 1997 were $29.5
million, an increase of $14.6 million, or 97.5%, from $14.9 million for the
nine-month period ended September 30, 1996; $7.9 million of this growth was
from the Company's existing operations. This represents internal revenue
growth of 53.0% for the nine-month period ended September 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; $6.7 million of this growth was from the
acquisitions of IMTCI and Crucible.
Direct costs for the nine-month period ended September 30, 1997 increased
approximately $10.8 million to $21.2 million from $10.4 million for the
similar period ended September 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 151.6% from 244 to 614 full time equivalent
employees at September 30, 1996 and September 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 modifications, and the previously mentioned acquisitions. This
increase also is due to the start-up of operations in San Francisco,
California and Lenexa, Kansas. In addition, the Company incurred a one-time
charge of approximately $150,000 in the nine-month period ended September 30,
1997 for the conversion of the Company to a more flexible benefits program for
its staff.
For the nine months ended September 30, 1997, selling, general and
administrative ("SG&A") expenses were $6.3 million, an increase of $3.4
million, from $2.9 million for the nine months ended September 30, 1996. The
Company's SG&A expenses increased due to costs associated with the businesses
it acquired during the nine-month period ended September 30, 1997.
Additionally, 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.
Depreciation and amortization increased $887,000 or 310.2% to approximately
$1.2 million for the nine-month period ended September 30, 1997 from $286,000
for the nine months ended September 30, 1996. This increase also was due to
the Company's geographic expansion with the opening of new trials management
centers and approximately $3.9 million of fixed asset purchases during the
nine-month period ended September 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 $185,000.
For the nine months ended September 30, 1997, stock repurchase and other
equity compensation totaling $33,000 consisted of amortization associated with
stock options issued with an exercise price less than the fair market value of
the stock at the date of grant. These options will vest upon the effectiveness
of the Offering. At that time, all remaining unamortized compensation expense
will be charged to earnings.
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.
22
<PAGE>
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 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.
23
<PAGE>
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 September 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------
JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Professional fee
revenues .............. $3,184 $3,410 $4,088 $4,861 $6,621 $6,653 $9,345 $8,386 $12,951 $13,132
Less reimbursed costs... (320) (340) (508) (666) (1,422) (1,108) (2,774) (1,607) (1,683) (1,672)
------ ------ ------ ------ ------- ------- ------- ------- ------- -------
Net revenues............ 2,864 3,070 3,580 4,195 5,199 5,545 6,571 6,779 11,268 11,460
Operating costs and
expenses:
Direct costs............ 2,038 2,054 2,248 2,894 3,559 3,924 4,575 4,755 8,277 8,140
Selling, general and
administrative......... 811 806 869 842 1,070 988 1,261 1,434 2,562 2,324
Depreciation and
amortization........... 65 64 65 87 93 105 161 204 436 533
Stock repurchase -- -- -- -- -- -- 644 -- 22 11
compensation........... ------ ------ ------ ------ ------- ------- ------- ------- ------- -------
Total operating costs
and expenses........... 2,914 2,924 3,182 3,823 4,722 5,017 6,641 6,393 11,297 11,008
------ ------ ------ ------ ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (50) 146 398 372 477 528 (70) 386 (29) 452
Interest expense........ (73) (89) (167) (114) (114) (117) (117) (124) (245) (300)
Interest income......... 8 17 20 35 64 68 189 181 63 31
Other income (expense) 1 (25) (22) (32) (25) -- 37 (33) (9) (7)
net.................... ------ ------ ------ ------ ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (114) 49 229 261 402 479 39 410 (220) 176
Provision for (benefit -- -- -- 92 141 169 14 195 (104) 129
from) income taxes..... ------ ------ ------ ------ ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (114) $ 49 $ 229 $ 169 $ 261 $ 310 $ 25 $ 215 $ (116) $ 47
====== ====== ====== ====== ======= ======= ======= ======= ======= =======
</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."
24
<PAGE>
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/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."
Total capital expenditures were approximately $182,000, $506,000 and $2.5
million in 1994, 1995 and 1996, respectively, and have amounted to
approximately $3.9 million in the nine months ended September 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 $3.1 million has already
been spent over the nine-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. Unbilled receivables have
increased $4.3 million from December 31, 1996 to September 30, 1997. A large
part of the increase is attributable to the increase in the Company's
revenues. Unbilled receivables were 11% of net revenues for the twelve months
ended December 31, 1996. For the twelve months ended September 30, 1997,
unbilled receivables were 16% of net revenues (as restated to include revenues
from IMTCI for the full twelve-month period). A portion of this increase is
attributable to the Company's newly acquired site management business.
Industry practice in this area has been not to collect funds in advance of
doing the work and, as a result, unbilled receivables are more significant.
For the twelve months ended September 30, 1997, unbilled receivables for the
site management business were 21% of related net revenues. The Company
historically has had no material difficulties in collecting amounts associated
with its unbilled receivables balance and expects to collect the full balance.
The Company recently established the Credit Facility, which is a $7.5
million secured revolving credit facility with First Union National Bank
("First Union") 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
increase the Credit Facility to $17.5 million and First Union has committed to
make such increase subject to the satisfaction of certain conditions. PRA GmbH
has a 1.0 million German mark (approximately $568,000) 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
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equity or debt securities. The Company believes that available cash, together
with cash flow from operations, borrowings under the Credit Facility and other
lines of credit and net proceeds from the Offering, will be sufficient to fund
the Company's current operations for at least the next twenty-four months.
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 nine
months ended September 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 $32.4 million and,
on September 30, 1997, it had 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 an
investigational affiliation in San Juan, Puerto Rico, and a data management
center in Swansea, Wales. The Company also plans to begin operations in the
London, England area in early 1998. 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 nine months ended September 30, 1997, it
derived 82% of its net revenues from United States operations, the increase
being largely due to two acquisitions in the United States, and 18% 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 significant
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 approximately 614 employees includes an extensive roster of
senior level
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scientific, regulatory and clinical experts providing direction and oversight
to clinical development projects and day-to-day operations, including
approximately 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 it has established 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 ("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 an investigational affiliation 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 nine-month period ended
September 30, 1997, two different clients accounted for approximately 15% and
10% of the Company's net revenues. The client that represented the largest
percentage of IMTCI's revenues (33% for the six months ended March 31, 1997
and 22% for the year ended September 30, 1996) was also a sizable client of
the Company prior to the IMTCI acquisition. The Company previously had an
ongoing relationship with this client (a large pharmaceutical company) and
believes that its relationship with this client will be maintained and that it
may be strengthened with the additional breadth of services offered by, and
resources available from, the expanded Company. IMTCI's other significant
client (also a large pharmaceutical company) represented 18% of net revenues
for the year ended September 30, 1996 but represented less than 10% during the
six months ended March 31, 1997. The Company believes that the acquisition
will have no impact on its relationship with these clients. Due to the nature
of the Company's business, it is not unusual for the revenue from a current
significant customer in one period to be a smaller percentage of total revenue
in another period. The Company does not have any other type of relationship
with any of its significant clients.
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 nine-
month period ended September 30, 1997, the Company invested approximately $3.1
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
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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 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.
In order to address any potential Year 2000 issues, the Company has either
obtained new software or modified existing software and intends to replace any
potentially problematic software during 1998. The Company has budgeted for the
costs of such replacement.
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.
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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 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. Scope
modifications 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. When, during the course of performing the services as provided for
pursuant to the contract, a scope modification is identified, the Company will
begin negotiating a change in the contract value, generally on terms that are
consistent with the original contract value in relation to the change in scope
of work to be performed. 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
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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 $45.4 million, as compared to $29.0 million at September 30,
1996.
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
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.
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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.
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
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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.
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.
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
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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.
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 614 employees, approximately 54 of
whom hold Ph.D., M.D. or Pharm.D. degrees and approximately 74 of whom hold
other master's or other post-graduate degrees. None of
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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; and Atlanta, GA.
In November 1997, the Company and the University of Virginia Real Estate
Foundation entered into a lease of a four-story building comprising
approximately 76,000 square feet for the Company's Charlottesville, VA
operations. The lease has a fifteen-year term, renewable for up to two
additional five-year terms, with a base rental rate of $19.95 per square foot
for the first five years. The Company's occupancy of the building, which has
yet to be constructed, is scheduled to occur in the first quarter of 1999.
Upon the Company's occupancy of this building, the University of Virginia Real
Estate Foundation has agreed to assume the principal existing real estate
lease of the Company in Charlottesville.
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, Ph.D. (1), (4).. 50 Director
Daniel A. D'Aniello .................. 51 Director
David W. Dupree (1), (2), (3)......... 44 Director
Peter M. Manos (2), (4)............... 31 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Executive Committee
(3) Member of Acquisition and Investment 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, was named Chief Executive Officer
in August 1996 and was elected Chairman of the Board of Directors in October
1997. 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
43
<PAGE>
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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<PAGE>
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, Ph.D. 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, Ph.D. 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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<PAGE>
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 and Investment 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, Dupree and Manos. The Acquisition and Investment Committee
considers possible acquisitions and investments for the Company and makes
recommendations to the Board of Directors with regard to the terms and
conditions on which acquisitions and investments favorable to the Company may
be undertaken. The members of the Company's Acquisition and Investment
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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<PAGE>
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"):
47
<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........... $185,676 $44,761 109,827 $ 14,412(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) $8,693 paid by the Company in respect of life
insurance premiums.
STOCK OPTION GRANTS
The following tables contain certain information concerning the grant of
stock options under the Company's Stock Option Plans during the year ended
December 31, 1996, and the number and value of options held at December 31,
1996 by each of the Named Executive Officers. Except as noted, these options
are currently or will become exercisable upon the completion of the Offering.
48
<PAGE>
OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
-------------------------------------------- ------------------------------
PERCENT OF
NUMBER TOTAL
OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED(2) YEAR PER SHARE DATE 5% ($) 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 $2.92 per
share awarded to Mr. Donnelly as a Director prior to employment, which
options were fully vested on the grant date, the Company believes that the
options were granted at prices equal to or in excess of the then fair
market value of the Common Stock. With respect to the options to purchase
109,827 shares of Common Stock granted to each of Messrs. Martin, Powers,
Vollmar and Donnelly, options in respect of 27,457 shares vest 25% per
year on the anniversary of the date of grant, and options in respect to
82,370 shares will vest in connection with the Offering.
(3) Represents potential realizable value on the date of grant calculated
based on the difference between the exercise price and fair market value
on the date of grant.
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<PAGE>
STOCK OPTIONS EXERCISED DURING FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1996 and outstanding stock options held at the
end of fiscal 1996 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN 1996 FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
NAME (#) ($)
---- -------------------------------- -------------------------
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.
50
<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 1,538,179
shares of Common Stock were outstanding as of September 30, 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 58,509 shares of Common Stock at an exercise price of $13.96
per share were outstanding as of September 30, 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.
In October 1996, the Company granted to Patrick K. Donnelly options to
purchase 118,200 shares of Common Stock at an exercise price of $2.92 per
share that was less than the then fair market value of the Common Stock. These
unqualified options were granted outside of the 1993 Plan in connection with
Mr. Donnelly's past service as a Director of the Company and commencement of
employment with the Company.
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
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<PAGE>
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 issued pursuant to each of the Plans shall become
immediately exercisable in the event of a "change of control" as therein
defined and may, in the discretion of the Committee, become immediately
exercisable for any or no reason. 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 September 30, 1997, the option holders have outstanding options to
purchase up to 1,596,689 shares of Common Stock granted under the Plans and
the Company has reserved 138,491 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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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."
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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 236,136 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.
On February 7, 1996, Associates made a personal loan to Associates' founder,
Raymond J. Rugloski, in the amount of $500,000. This loan was financed from
the proceeds of its sale in December 1995/January 1996 of 76,830 shares of
Class F Preferred Stock of Associates at a price per share of $6.5080,
representing, in the event of their conversion into common stock of
Associates, 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.)
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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 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.
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 $1.3 million
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.
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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, Ph.D. ................ 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.
(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.
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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 September 30, 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
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<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
58
<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.
59
<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 one-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
60
<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."
61
<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.
62
<PAGE>
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
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.
63
<PAGE>
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.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Condensed Consolidated Statements of Income................... F-2
Pro Forma Condensed Consolidated Statements of Income for the year ended
December 31, 1996...................................................... F-3
Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1997 ....................................... F-4
Notes to Pro Forma Condensed Consolidated Financial Statements.......... F-5
COMPANY CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants............................... F-6
Consolidated Balance Sheets as of December 31, 1995 and 1996, and
September 30, 1997 (Unaudited)......................................... F-8
Consolidated Statements of Income for the years ended December 31, 1994,
1995, and 1996, and for the nine months ended September 30, 1996 and
1997................................................................... F-10
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1994, 1995, and 1996 and for the nine months ended
September 30, 1997..................................................... F-12
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995, and 1996, and for the nine months ended September 30, 1996
and 1997............................................................... F-14
Notes to Consolidated Financial Statements.............................. F-15
IMTCI FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-32
Balance Sheets as of September 30, 1995 and 1996, and March 31, 1997.... F-33
Statements of Income for the years ended September 30, 1995 and 1996,
and for the six months ended March 31, 1996 and 1997................... F-34
Statements of Stockholders' Equity for the years ended September 30,
1995 and 1996, and for the six months ended March 31, 1997............. F-35
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-36
Notes to Financial Statements........................................... F-37
COMPANY CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-42
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997... F-43
Consolidated Statements of Income for the six months ended June 30, 1996
and 1997............................................................... F-45
Consolidated Statement of Stockholders' Deficit for the six months ended
June 30, 1997.......................................................... F-46
Consolidated Statements of Cash Flows for the six months ended June 30,
1996 and 1997.......................................................... F-48
Notes to Consolidated Financial Statements.............................. F-49
</TABLE>
F-1
<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 143,272 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-2
<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-3
<PAGE>
PRA INTERNATIONAL, INC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------
PRO FORMA PRO FORMA
PRA(4) IMTCI(5) ADJUSTMENTS CONSOLIDATED
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues............ $ 29,506,764 $2,924,449 $ -- $ 32,431,213
Direct costs............ 21,172,372 1,791,378 -- 22,963,750
Selling, general and
administrative......... 6,319,510 1,029,297 -- 7,348,807
Depreciation and
amortization........... 1,172,654 75,367 84,856 (A) 1,332,877
Stock repurchase and
other equity
compensation........... 33,156 -- -- 33,156
------------ ---------- ---------- ------------
Income from operations.. 809,072 28,407 (84,856) 752,623
Interest expense........ (669,621) (8,873) (110,989)(B) (789,483)
Interest income......... 275,574 -- (224,217)(C) 51,357
Other income (expense).. (49,242) (11,607) -- (60,849)
------------ ---------- ---------- ------------
Income before income
taxes.................. 365,783 7,927 (420,062) (46,352)
Provision (benefit) for
income taxes........... 219,883 3,308 (117,322) 105,869
------------ ---------- ---------- ------------
Net income (loss)..... 145,900 4,619 (302,740) (152,221)
------------ ---------- ---------- ------------
Accretion and
dividends(2)........... (1,394,829) -- -- (1,394,829)
Net income (loss)
available to common
stockholders........... $ (1,248,929) $ 4,619 $ (302,740) $ (1,547,050)
============ ========== ========== ============
Pro forma net income per
share(3)............... $ 0.07 $ --
============ ============
Pro forma weighted
average shares
outstanding(3)......... 7,112,355 107,552 (D) 7,219,907
</TABLE>
F-4
<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) Pro forma net income (loss) per share is computed assuming conversion of
the Series A Preferred Stock upon effectiveness of the Offering as discussed
in Note 3 in Notes to Consolidated Financial Statements, adjusted for the
elimination of interest expense associated with long-term debt the Company
expects to repay with proceeds from the offering, as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
Pro forma net income (loss) as
reported............................. $ (0.20) $ 0.02
Adjustment for the elimination of
interest expense..................... 0.08 0.05
Pro forma net income (loss) as
adjusted............................. $ (0.12) $ 0.07
</TABLE>
For purposes of computing pro forma net income (loss) per share, as
adjusted, weighted average shares outstanding, as reported, has been adjusted
by 868,729 and 940,433 shares for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively to reflect the issuance of
a sufficient number of additional shares to repay such debt.
(4) Reflects the consolidated results of PRA International, including IMTCI
for the period from the acquisition of IMTCI on April 1, 1997 through
September 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
recorded on the IMTCI acquisition as if the acquisition had occurred as of the
beginning of the period. In connection with the acquisition, the Company
recorded approximately $13.6 million in goodwill which is being amortized on a
straight-line basis over a forty year period. See Note 2 to the Consolidated
Financial Statements for a description of the allocation of the purchase price
associated with the IMTCI acquisition.
(B) Reflects increase in interest expense associated with the issuance of
the seller notes payable assuming that the seller notes payable had been
issued as of the beginning of the period presented. The Company issued seller
notes payable in the amounts of $4.3 million and $1.0 million. Interest
accrues monthly on both notes at a rate of 8.33 percent per annum.
(C) Reflects the reduction in interest income earned by PRA International
for the period from the 1996 Preferred Stock issuance to its acquisition of
IMTCI. This adjustment assumes that $8 million of cash received from the
Preferred Stock issuance was paid to shareholders of IMTCI on January 1, 1996.
The reduction in interest income was calculated using an interest rate of
approximately 6 percent.
(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. The pro forma adjustment for
the nine month period ended September 30, 1997 is adjusted to reflect the
inclusion of the IMTCI shares issued in April 1997 in the Company's pro forma
weighted average shares outstanding for the nine month period ended September
30, 1997.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PRA International, Inc.:
We have audited the accompanying consolidated balance sheet of PRA
International, Inc. (a Delaware corporation), as of December 31, 1996, and the
related consolidated statements of income, stockholders' deficit, and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 the consolidated
results of its operations and its cash flows for the year then ended, 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-6
<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-7
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
----------------------- SEPTEMBER 30,
1995 1996 1997
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $2,474,000 $15,117,801 $ 171,959
Accounts receivable and unbilled
services, less allowance of
$27,515, $132,098, and $261,988
as of December 31, 1995 and 1996,
and September 30, 1997,
respectively..................... 5,760,511 8,192,931 13,841,237
Deferred income taxes............. -- -- 94,496
Prepaid expenses and other current
assets........................... 167,700 205,427 482,853
---------- ----------- -----------
Total current assets............ 8,402,211 23,516,159 14,590,545
Fixed assets:
Furniture and fixtures............ 605,274 1,352,685 2,727,443
Computer hardware and software.... 1,789,673 3,264,126 7,399,559
Leasehold improvements............ 263,059 507,657 897,625
---------- ----------- -----------
2,658,006 5,124,468 11,024,627
Accumulated depreciation and
amortization..................... (1,795,898) (2,228,739) (4,252,968)
---------- ----------- -----------
862,108 2,895,729 6,771,659
---------- ----------- -----------
Goodwill, net of accumulated
amortization of $184,752 as of
September 30, 1997................. -- -- 14,031,110
Other assets........................ 135,490 212,405 953,342
---------- ----------- -----------
Total assets.................... $9,399,809 $26,624,293 $36,346,656
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF PRO FORMA AS OF
----------------------- SEPTEMBER 30, SEPTEMBER 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 $ 2,404,451 $ 2,404,451
Accrued expenses...... 868,933 2,052,359 3,052,872 3,052,872
Income taxes payable.. -- 192,878 232,921 232,921
Advance billings...... 4,868,558 8,553,938 5,481,807 5,481,807
Current portion of
seller notes......... -- -- 1,104,877 1,104,877
Current portion of
long-term debt....... 266,896 392,509 232,205 232,205
---------- ----------- ----------- -----------
Total current
liabilities........ 6,566,763 12,719,182 12,509,133 12,509,133
---------- ----------- ----------- -----------
Seller notes, less
current portion........ -- -- 4,238,095 4,238,095
Long-term debt, less
current portion........ 2,232,960 2,154,775 5,517,807 5,517,807
---------- ----------- ----------- -----------
Total liabilities... 8,799,723 14,873,957 22,265,035 22,265,035
---------- ----------- ----------- -----------
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 September 30,
1997. Liquidation
preference of
$21,192,996 as of
September 30, 1997... -- 19,196,922 20,591,751 --
Redeemable common stock
warrants (Note 8)...... 1,043,701 -- -- --
---------- ----------- ----------- -----------
1,293,701 19,196,922 20,591,751 --
---------- ----------- ----------- -----------
Stockholders' deficit
(Note 9):
Preferred stock,
5,000,000 authorized,
none issued and
outstanding.......... -- -- -- --
Class D and Class F
Preferred stock...... 500,000 -- -- --
Common stock $.01 par
value, 25,000,000
shares authorized
1,903,671; 2,671,686,
and 3,282,172 shares
issued as of December
31, 1995, and 1996,
and September 30,
1997, respectively,
and 6,548,594 on a
pro forma basis...... 19,037 26,717 32,821 65,485
Additional paid-in
capital.............. 418,955 1,754,030 3,999,099 24,558,186
Accumulated deficit... (826,508) (465,438) (1,714,367) (1,714,367)
Adjustment to record
excess of redemption
value over carrying
value of redeemable
preferred stock and
common stock
warrants............. (714,606) -- -- --
Deferred compensation. -- (165,799) (132,643) (132,643)
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) (155,553) (155,553)
---------- ----------- ----------- -----------
Total stockholders'
(deficit) equity... (693,615) (7,446,586) (6,510,130) 14,081,621
---------- ----------- ----------- -----------
Total liabilities
and stockholders'
(deficit) equity... $9,399,809 $26,624,293 $36,346,656 $36,346,656
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $18,135,028 $34,469,255
Less reimbursed costs... (1,273,185) (1,422,963) (5,970,684) (3,196,751) (4,962,491)
----------- ----------- ----------- ----------- -----------
Net revenues........ 10,051,417 12,233,927 21,509,740 14,938,277 29,506,764
Operating costs and
expenses:
Direct costs.......... 6,277,195 8,260,925 14,951,791 10,376,597 21,172,372
Selling, general, and
administrative....... 2,853,080 3,334,028 4,160,843 2,900,091 6,319,510
Depreciation and
amortization......... 281,578 257,895 446,926 285,870 1,172,654
Stock repurchase and
other equity
compensation (Notes 9
and 10).............. -- -- 643,599 -- 33,156
----------- ----------- ----------- ----------- -----------
Income from operations.. 639,564 381,079 1,306,581 1,375,719 809,072
Interest expense........ (76,934) (363,958) (461,732) (344,473) (669,621)
Interest income......... 55,374 60,532 355,981 166,709 275,574
Other income (expense),
net.................... 58,675 55,451 (20,317) (57,535) (49,242)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 676,679 133,104 1,180,513 1,140,420 365,783
Provision for income
taxes.................. 230,197 -- 415,652 401,536 219,883
----------- ----------- ----------- ----------- -----------
Net income.......... 446,482 133,104 764,861 738,884 145,900
Accretion and dividends. -- (714,606) (2,300,862) (1,956,954) (1,394,829)
----------- ----------- ----------- ----------- -----------
Net income (loss)
available to common
stockholders........... $ 446,482 $ (581,502) $(1,536,001) $(1,218,070) $(1,248,929)
=========== =========== =========== =========== ===========
Unaudited pro forma data
(Note 3):
Pro forma net income
(loss) available to
common stockholders.. $ (961,021) $ 145,900
=========== ===========
Pro forma net income
(loss) per share..... $ (0.20) $ 0.02
=========== ===========
Pro forma weighted
average shares
outstanding.......... 4,850,128 6,171,922
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-11
<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
(unaudited)........... -- -- -- -- -- -- --
Issuance of common
stock in conjunction
with acquisition
(unaudited)........... -- -- -- -- -- -- --
Amortization of
deferred stock option
compensation
(unaudited)........... -- -- -- -- -- -- --
Accretion and accrued
dividends on Series A
preferred stock
(unaudited)........... -- -- 1,394,829 -- -- -- --
Net income (unaudited). -- -- -- -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Balance as of September
30, 1997 (unaudited)... -- 1,658,082 20,591,751 -- -- -- --
Pro forma adjustments
(unaudited) (Note 3).. -- (1,658,082) (20,591,751) -- -- -- --
---------- ---------- ----------- -------- -------- -------- --------
Pro forma balance as of
September 30, 1997
(unaudited)............ $ -- -- $ -- -- $ -- -- $ --
========== ========== =========== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
ATIONAL, INC.
TS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
STOCKHOLDERS'
DEFICIT
- ------------------------------
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)
-- -- -- -- -- -- -- -- (98,944) (98,944)
467,214 4,672 246,501 -- -- -- -- -- -- 251,173
143,272 1,432 1,998,568 -- -- -- -- -- -- 2,000,000
-- -- -- -- -- 33,156 -- -- -- 33,156
-- -- -- (1,394,829) -- -- -- -- -- (1,394,829)
-- -- -- 145,900 -- -- -- -- -- 145,900
- --------- ------- ----------- ----------- ---------- --------- --------- ----------- --------- ------------
3,282,172 32,821 3,999,099 (1,714,367) -- (132,643) 1,545,540 (8,539,487) (155,553) (6,510,130)
3,266,422 32,664 20,559,087 -- -- -- -- -- -- 20,591,751
- --------- ------- ----------- ----------- ---------- --------- --------- ----------- --------- ------------
6,548,594 $65,485 $24,558,186 $(1,714,367) $ -- $(132,643) 1,545,540 $(8,539,487) $(155,553) $ 14,081,621
========= ======= =========== =========== ========== ========= ========= =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............ $ 446,482 $ 133,104 $ 764,861 $ 738,884 $ 145,900
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating
activities--
Depreciation and
amortization......... 281,578 257,895 446,926 285,870 1,172,654
Amortization of debt
discount............. -- 27,425 65,819 49,364 49,365
Stock repurchase
compensation......... -- -- 632,548 -- --
Noncash stock option
compensation......... -- -- 11,051 -- 33,156
Deferred income
taxes................ 168,035 -- -- -- (201,445)
Changes in operating
assets and
liabilities:
Accounts receivable
and unbilled
services............. (730,006) (3,546,437) (2,505,691) 272,212 (3,284,531)
Income taxes
receivable........... 173,593 -- -- -- --
Prepaid expenses and
other assets......... 24,669 (125,143) (114,988) (743,331) (744,252)
Accounts payable and
accrued expenses..... 53,982 49,888 2,193,765 981,808 690,341
Income taxes payable.. 62,170 -- 192,878 401,535 201,588
Advance billings...... (268,960) 2,619,179 3,778,102 3,071,277 (3,475,287)
---------- ----------- ----------- ---------- ------------
Net cash provided by
(used in) operating
activities......... 211,543 (584,089) 5,465,271 5,057,619 (5,412,511)
Investing activities:
Purchase of fixed
assets............... (181,904) (506,238) (2,509,127) (1,569,021) (3,186,281)
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) (1,569,021) (10,708,280)
Financing activities:
Proceeds from issuance
of long-term debt.... 750,000 2,000,000 -- -- 4,225,875
Repayments of long-
term debt............ (105,670) (43,509) (16,557) (12,967) (3,177,289)
Proceeds from issuance
of preferred stock... 300,000 450,000 18,903,014 50,000 --
Proceeds from issuance
of common stock...... -- -- -- -- 251,173
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
financing
activities......... 944,330 2,409,731 9,691,349 37,033 1,299,759
Effect of exchange rate
on cash and cash
equivalents........... (110,062) (81,816) (16,907) 37,481 (124,810)
---------- ----------- ----------- ---------- ------------
Increase (decrease) in
cash and cash
equivalents........... 863,907 1,242,348 12,643,801 3,563,112 (14,945,842)
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 $6,037,112 $ 171,959
========== =========== =========== ========== ============
Supplemental
information:
Cash paid for taxes... $ 99,000 $ -- $ 88,000 $ 88,000 $ 372,000
========== =========== =========== ========== ============
Cash paid for
interest............. $ 76,000 $ 280,000 $ 462,000 $ 280,000 $ 521,000
========== =========== =========== ========== ============
Supplemental disclosure
of noncash financing
and investing
activities:
Assets acquired under
capital lease........ $ -- $ -- $ 7,525 $ -- $ 693,165
========== =========== =========== ========== ============
Issuance of seller
notes and common
stock in conjunction
with acquisition..... $ -- $ -- $ -- $ -- $ 7,342,972
========== =========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1996, AND SEPTEMBER 30, 1997 (INFORMATION AS OF
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997, 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-15
<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 $5,343,000 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...................................................... 13,615,000
Liabilities assumed and direct acquisition costs.............. (2,997,000)
-----------
$15,343,000
===========
</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 NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net revenues........................... $31,983,642 $32,431,213
Net income (loss)...................... 474,430 (152,221)
Accretion and dividends................ (2,300,862) (1,394,829)
Net loss available to common
stockholders.......................... (1,826,433) (1,547,050)
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 elimination of
interest expense associated with debt the Company expects to repay with the
proceeds from the offering and 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
nine months ended September 30, 1996 and 1997, have been prepared by the
Company and, in the opinion of management, include
F-16
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Company's results of operations and cash flows. The
operating results for the nine months ended September 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 September 30, 1997,
reflects the conversion of the outstanding shares of Series A Preferred Stock
into 3,266,422 shares of common stock.
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 and (ii) the expiration of the redemption rights on the
Series A Preferred Stock.
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.
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.
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER SHARE
The Company anticipates repaying approximately $10.1 million in certain long
term debt with proceeds from the offering contemplated by this prospectus.
Assuming such repayment, supplemental pro forma net income (loss) per share,
adjusted to give effect for the elimination of interest associated with such
debt, would have been (0.12) and 0.07 for the year ended December 31, 1996 and
the nine month period ended September 30, 1997, respectively. For purposes of
this supplemental pro forma presentation, 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 offering range.
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 nine months ended September 30, 1997, was $(0.12) and $ on
a pro forma basis.
F-17
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The Company is also
authorized to issue up to 5,000,000 shares of preferred stock, par value $.01
per share, in one or more series, and, to the extent permitted by law, to fix
the rights, preferences, privileges and restrictions without any further vote
or action by the stockholders of the Company. In addition, the 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 September 30,
1997, there has been no impairment in the carrying value of long-lived assets.
F-18
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 September 30, 1997, the fair value of the senior subordinated note
payable approximated $2,000,000. As of September 30, 1997, the fair value of
the 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.
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. The Company uses this method because management
considers total costs incurred to be the best available measure of progress on
these contracts. The estimated total costs of contracts are reviewed and
revised periodically throughout the lives of the contracts with adjustment to
revenue resulting from such revisions being recorded on a cumulative basis in
the period in which the revisions are made. A majority of the Company's
contracts undergo modifications over the contract period. Revenues related to
contract modifications are recognized when realization is assured and the
amounts are reasonably determinable. Contract costs consist primarily of
direct labor and other related labor costs. 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>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 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>
- --------
* Less than 10% of consolidated revenues.
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.
F-19
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable, unbilled services and cash and cash
equivalents. Accounts receivable and unbilled services include amounts due
from pharmaceutical and biotechnology companies. Accounts receivable and
unbilled services from individual customers that are greater than 10 percent
of consolidated accounts receivable and unbilled services in the respective
periods were as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------- AS OF
1995 1996 SEPTEMBER 30, 1997
------ ------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Customer A............................ *% 17% *%
Customer C............................ 12 12 *
Customer E............................ * 14 13
Customer F............................ 26 * 10
</TABLE>
- --------
* Less than 10% of consolidated accounts receivable and unbilled services.
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 September 30, 1997, the Company had invested approximately $251,000 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.
F-20
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 statements 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 SEPTEMBER 30, 1997
---------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable.............. $4,574,869 $6,037,312 $ 7,559,930
Unbilled services................ 1,213,157 2,287,717 6,543,295
Less--Allowance for doubtful ac-
counts.......................... (27,515) (132,098) (261,988)
---------- ---------- -----------
$5,760,511 $8,192,931 $13,841,237
========== ========== ===========
Subsequent to period end the Company has billed approximately 56 percent of
amounts not billed as of September 30, 1997. The Company expects to bill all
remaining unbilled services outstanding as of September 30, 1997 in the
succeeding twelve months.
5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<CAPTION>
AS OF DECEMBER 31,
---------------------- AS OF
1995 1996 SEPTEMBER 30, 1997
---------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related ex-
penses.......................... $ 723,518 $1,447,930 $ 2,363,731
Accrued interest on seller notes
payable......................... -- -- 171,631
Other accrued expenses........... 145,415 604,429 517,510
---------- ---------- -----------
$ 868,933 $2,052,359 $ 3,052,872
========== ========== ===========
</TABLE>
6. LONG-TERM DEBT AND SELLER NOTES PAYABLE:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------- AS OF
1995 1996 SEPTEMBER 30, 1997
---------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Junior subordinated debentures... $ 750,000 $ 750,000 $ --
Senior subordinated note payable,
net of discount................. 1,698,330 1,764,149 1,813,513
Revolver......................... -- -- 2,761,832
GmbH line of credit.............. -- -- 440,858
Obligations under capital leases
and other....................... 51,526 33,135 733,809
---------- ---------- ----------
2,499,856 2,547,284 5,750,012
Less--Current portion............ (266,896) (392,509) (232,205)
---------- ---------- ----------
$2,232,960 $2,154,775 $5,517,807
========== ========== ==========
</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
F-21
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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. 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 $713,000 as of December 31, 1995 and 1996,
and September 30, 1997, respectively. Accumulated depreciation of
approximately $9,000, $10,000, and $75,000 has been recorded as of December
31, 1995 and 1996, and September 30, 1997, respectively. Interest on the
leases is imputed at rates ranging from 6 to 18 percent as of September 30,
1997. The leases expire in various years through 2002 and, as of September 30,
1997, have remaining aggregate annual payments of approximately $84,000,
$266,000, $243,000, $120,000, $15,000, and $4,000 during 1997 through 2002,
including interest of approximately $47,000.
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.
Outstanding borrowings under the Revolver were approximately $2.8 million as
of September 30, 1997. 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 5.9 percent as of September 30, 1997) plus 2 percent. The
Company utilized proceeds from the Revolver to retire $3,100,000 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 $568,000). 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.
F-22
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate principal payments of long-term debt as of September 30, 1997, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING LONG-TERM
DECEMBER 31, DEBT
------------ ----------
<S> <C>
1997.......................................................... $ 88,073
1998.......................................................... 310,537
1999.......................................................... 3,004,948
2000.......................................................... 2,120,440
2001.......................................................... 14,958
Thereafter.................................................... 444,728
----------
5,983,684
Less--Unamortized debt discount.............................. (186,487)
Less--Interest on obligations under capital leases........... (47,185)
----------
Total...................................................... $5,750,012
==========
</TABLE>
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 $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 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,
--------------------------- NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997
-------- -------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal..................... $ 52,770 $ 62,108 $353,169 $ 406,977
State....................... 9,400 (1,203) 62,483 51,557
Foreign..................... -- -- -- --
-------- -------- -------- ---------
62,170 60,905 415,652 458,534
Deferred:
Federal..................... 143,027 (62,108) 27,111 (70,692)
State....................... 25,000 1,203 3,189 (9,960)
Foreign..................... -- -- 258,300 (134,750)
Valuation allowance......... -- -- (288,600) (23,249)
-------- -------- -------- ---------
168,027 (60,905) -- (238,651)
-------- -------- -------- ---------
$230,197 $ -- $415,652 $ 219,883
======== ======== ======== =========
</TABLE>
F-23
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
-------------------------- NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997
------- -------- ------- ------------------
(UNAUDITED)
<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 4.0
Amortization of goodwill.... -- -- -- 10.0
Other permanent differences. 2.0 10.0 2.0 4.0
Foreign losses not
benefitted................. -- -- -- 10.0
Change in valuation
allowance.................. (6.0) (48.0) (5.0) (2.0)
------- -------- ------- ----
Effective income tax rate... 34.0% -- % 35.0% 60.0%
======= ======== ======= ====
</TABLE>
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 SEPTEMBER 30, 1997
--------- --------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Operating loss carryforwards....... $ 282,700 $ 24,400 $ 130,151
Cash to accrual adjustment......... 139,600 73,600 (11,674)
Accruals and reserves.............. 120,800 207,000 299,082
Depreciation....................... (24,300) (68,200) (127,397)
Other.............................. (76,800) (83,400) (65,515)
Valuation allowance for deferred
tax assets........................ (442,000) (153,400) (130,151)
--------- --------- ---------
Net deferred tax asset............. $ -- $ -- $ 94,496
========= ========= =========
</TABLE>
In determining the extent to which a valuation allowance for net deferred
tax assets is required, the Company evaluates all available evidence including
projections of future taxable income, carryback opportunities, and other tax
planning strategies. 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 foreign net operating losses as to which the
Company is unable to make a judgement about the likelihood of realization. The
Company believes that it is more likely than not that the net deferred tax
asset will be realized.
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.
F-24
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 September 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
September 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.
F-25
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $1,656,000 have been included in the carrying value of the Preferred Stock
as of December 31, 1996, and September 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.
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.
F-26
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
9. STOCKHOLDERS' DEFICIT:
Preferred stock consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
-------- -----
<S> <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.
F-27
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 September 30, 1997,
which were subject to the repurchase provisions. The repurchase provisions
will be terminated in connection with the initial public offering.
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 September 30, 1997, 138,491
shares were available for the issuance of stock options. As of September 30,
1997, 623,361 options to purchase shares of common stock were exercisable,
with a weighted average exercise price of $0.41.
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 nine months ended September 30, 1997, the Company recorded
compensation expense of approximately $11,000 and $33,000, 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............................... 842,175 5.34
Options exercised............................. (287,518) 0.13
Options expired............................... (44,325) 0.55
---------
Shares under option, December 31, 1996.......... 1,465,782 3.20
Options granted (unaudited)................... 256,987 13.73
Options exercised (unaudited)................. -- --
Options expired (unaudited)................... (7,880) 11.87
---------
Shares under option, September 30, 1997
(unaudited).................................... 1,714,889 $4.73
=========
</TABLE>
F-28
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding as of September 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-$ 0.54 584,207 6.03 $ 0.15
2.92- 5.93 881,575 8.99 5.23
11.17- 13.96 249,107 9.58 13.73
------------- ---------
$ 0.09-$13.96 1,714,889 8.07 $ 4.73
============= =========
</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 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 NINE MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ------------------
1995 1996 1996 1997
-------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income, as reported.............. $133,104 $764,861 $738,884 $ 145,900
======== ======== ======== =========
SFAS No. 123 pro forma net income
(loss).............................. 131,843 714,483 729,192 (142,343)
======== ======== ======== =========
Net income (loss) per share, as re-
ported.............................. $ (0.20) $ 0.02
======== =========
SFAS No. 123 pro forma net income
(loss) per share.................... $ (0.21) $ (0.02)
======== =========
</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 nine months
ended September 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 nine months ended September 30, 1996 and 1997, was
approximately $567,000, $685,000, $1,042,000, $714,000, and $2,128,000,
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
F-29
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately 2.7 percent. Rental expense under these leases was approximately
$678,000 during the nine months ended September 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................................. $ 976,710 $ 1,840,417 $ 2,817,127
1998................................. 1,329,761 2,179,907 3,509,668
1999................................. 1,367,134 2,016,419 3,383,553
2000................................. 1,405,502 1,987,644 3,393,146
2001................................. 1,444,890 1,885,755 3,330,645
Thereafter........................... 4,186,407 5,788,350 9,974,757
----------- ----------- -----------
$10,710,404 $15,698,492 $26,408,896
=========== =========== ===========
</TABLE>
In November 1997, the Company and the University of Virginia Real Estate
Foundation entered into a lease of a four-story building comprising
approximately 76,000 square feet for the Company's Charlottesville, VA
operations. The lease has a fifteen-year term, renewable for up to two
additional five-year terms, with a base rental rate of $19.95 per square foot
for the first five years. The Company's occupancy of the building, which has
yet to be constructed, is scheduled to occur in the first quarter of 1999.
Upon the Company's occupancy of this building, the University of Virginia Real
Estate Foundation has agreed to assume the principal existing real estate
lease of the Company in Charlottesville.
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
$110,000 to $175,000. The employment contracts expire in various years through
2000. As of September 30, 1997, remaining aggregate annual payments under such
agreements approximated $306,000, $1,139,000, $710,000, and $201,000 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 September 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 $30,000 and
$78,000 during the nine months ended September 30, 1996 and 1997,
respectively.
F-30
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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. European
operations include results of the Company's wholly-owned subsidiary in Germany,
and as of December 1996, the Company's newly-formed and wholly-owned UK
subsidiary whose operations are substantially the same in nature. For all
periods presented a significant majority of the European operations relate to
those of the German subsidiary (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
North America............... $ 7,791 $ 8,738 $14,735 $ 10,072 $ 24,267
Europe...................... 2,260 3,496 6,775 4,866 5,240
------- ------- ------- -------- --------
$10,051 $12,234 $21,510 $ 14,938 $ 29,507
======= ======= ======= ======== ========
Operating income:
North America............... $ 621 $ 158 $ 1,292 $ 823 $ 1,234
Stock repurchase and other
equity compensation........ -- -- (644) -- (33)
Europe...................... 19 223 659 553 (392)
------- ------- ------- -------- --------
$ 640 $ 381 $ 1,307 $ 1,376 $ 809
======= ======= ======= ======== ========
Identifiable assets:
North America............... $ 3,529 $ 7,933 $23,717 $ 11,926 $ 33,733
Europe...................... 731 1,467 2,907 2,792 2,614
------- ------- ------- -------- --------
$ 4,260 $ 9,400 $26,624 $ 14,718 $ 36,347
======= ======= ======= ======== ========
</TABLE>
F-31
<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.
/s/ Arthur Andersen LLP
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-32
<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-33
<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-34
<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-35
<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> <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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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 six month period then ended. 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 six month
period then ended, 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-42
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. $15,117,801 $ 2,355,846
Accounts receivable and
unbilled services, less
allowance of $132,098 and
$77,232 as of December
31, 1996 and June 30,
1997, respectively....... 8,192,931 12,278,247
Income taxes receivable... -- 85,539
Prepaid expenses and other
current assets........... 205,427 383,205
----------- -----------
Total current assets.... 23,516,159 15,102,837
Fixed assets:
Furniture and fixtures.... 1,352,685 3,572,850
Computer hardware and
software................. 3,264,126 6,103,015
Leasehold improvements.... 507,657 857,026
----------- -----------
5,124,468 10,532,891
Accumulated depreciation
and amortization......... (2,228,739) (3,908,793)
----------- -----------
2,895,729 6,624,098
----------- -----------
Goodwill, net of accumulated
amortization of $91,947 as
of June 30, 1997........... -- 14,064,635
Other assets................ 212,405 583,207
----------- -----------
Total assets............ $26,624,293 $36,374,777
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable........................... $ 1,527,498 $ 3,013,436
Accrued expenses........................... 2,052,359 3,164,547
Income taxes payable....................... 192,878 --
Advance billings........................... 8,553,938 6,506,323
Current portion of seller notes............ -- 747,734
Current portion of long-term debt.......... 392,509 22,176
----------- -----------
Total current liabilities................ 12,719,182 13,454,216
----------- -----------
Seller notes, less current portion........... -- 4,581,847
Long-term debt, less current portion......... 2,154,775 4,541,696
----------- -----------
Total liabilities........................ 14,873,957 22,577,759
----------- -----------
Commitments (Note 11)
Redeemable convertible preferred stock (Note
8):
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).... -- --
----------- -----------
19,196,922 20,128,894
----------- -----------
Stockholders' deficit (Note 9):
Preferred stock, 5,000,000 authorized, none
issued and outstanding.................... -- --
Common stock $.01 par value, 25,000,000
shares authorized, 2,671,686, and
3,046,036 shares issued as of December 31,
1996, and June 30, 1997, respectively..... 26,717 30,460
Additional paid-in capital................. 1,754,030 3,751,460
Accumulated deficit........................ (465,438) (1,297,553)
Adjustment to record excess of redemption
value over carrying value of redeemable
preferred stock and common stock warrants. -- --
Deferred compensation...................... (165,799) (143,693)
1,545,540 shares of common stock in
treasury, at cost......................... (8,539,487) (8,539,487)
Cumulative foreign currency translation
adjustment................................ (56,609) (133,063)
----------- -----------
Total stockholders' deficit.............. (7,446,586) (6,331,876)
----------- -----------
Total liabilities and stockholders'
deficit................................. $26,624,293 $36,374,777
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Professional fee revenues............................ $11,482,017 $21,337,690
Less reimbursed costs................................ (2,088,441) (3,290,456)
----------- -----------
Net revenues..................................... 9,393,576 18,047,234
Operating costs and expenses:
Direct costs....................................... 6,452,725 13,032,130
Selling, general, and administrative............... 1,912,286 3,995,790
Depreciation and amortization...................... 180,683 640,118
Stock repurchase and other equity compensation
(Notes 9 and 10).................................. -- 22,106
----------- -----------
Income from operations............................... 847,882 357,090
Interest expense..................................... (227,588) (369,192)
Interest income...................................... 98,595 244,869
Other income (expense), net.......................... (57,403) (42,411)
----------- -----------
Income before income taxes........................... 661,486 190,356
Provision for income taxes........................... 232,906 90,499
----------- -----------
Net income....................................... 428,580 99,857
Accretion and dividends.............................. (1,665,999) (931,972)
----------- -----------
Net income (loss) available to common stockholders... $(1,237,419) $ (832,115)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<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, 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 -- -- -- --
===== ========= =========== === ===== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<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>
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)
========= ======= ========== ========== ==== ========= ========= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE>
PRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net income.......................................... $ 428,580 $ 99,857
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization....................... 180,683 640,118
Amortization of debt discount....................... 32,910 35,900
Stock repurchase compensation....................... -- --
Noncash stock option compensation................... -- 22,106
Deferred income taxes............................... -- (107,209)
Changes in operating assets and liabilities:
Accounts receivable and unbilled services........... 681,739 (1,759,674)
Income taxes receivable............................. -- 80,316
Prepaid expenses and other assets................... (652,157) (11,397)
Accounts payable and accrued expenses............... 428,073 1,405,310
Income taxes payable................................ 252,181 (192,878)
Advance billings.................................... 2,072,147 (2,466,519)
---------- ------------
Net cash provided by (used in) operating
activities....................................... 3,424,156 (2,254,070)
Investing activities:
Purchase of fixed assets............................ (517,105) (2,857,394)
Cash paid for acquisitions, net of cash acquired.... -- (7,521,999)
Proceeds from disposal of fixed assets.............. -- --
---------- ------------
Net cash used in investing activities............. (517,105) (10,379,393)
Financing activities:
Proceeds from issuance of long-term debt............ -- --
Repayments of long-term debt........................ (8,412) (51,648)
Proceeds from issuance of preferred stock........... 50,000 --
Proceeds from issuance of common stock.............. -- 1,173
Proceeds from stock option exercises................ -- --
Cash paid for stock repurchase...................... -- --
Dividends paid...................................... -- --
---------- ------------
Net cash provided by (used in) financing
activities....................................... 41,588 (50,475)
Effect of exchange rate on cash and cash equivalents. 38,936 (78,017)
---------- ------------
Increase (decrease) in cash and cash equivalents..... 2,987,575 (12,761,955)
Cash and cash equivalents at beginning of period..... 2,474,000 15,117,801
---------- ------------
Cash and cash equivalents at end of period........... 5,461,575 $ 2,355,846
========== ============
Supplemental information:
Cash paid for taxes................................. $ 88,000 $ 372,000
========== ============
Cash paid for interest.............................. $ 129,000 $ 369,000
========== ============
Supplemental disclosure of noncash financing and
investing activities:
Assets acquired under capital lease................. $ -- $ 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-48
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 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-49
<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 elimination
of interest expense associated with debt the Company expects to repay with the
proceeds from the offering and 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 normal recurring
adjustments) necessary to present fairly the Company's results of operations
and cash flows.
F-50
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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. The Company is also
authorized to issue up to 5,000,000 shares of preferred stock, per value $.01
per share, in one or more series, and, to the extent permitted by law, to fix
the rights, preferences, privileges and restrictions without any further vote
as action by the stockholders of the Company. In addition, the 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.
F-51
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 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.
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. The Company uses this method because management
considers total costs incurred to be the best available measure of progress on
these contracts. The estimated total costs of contracts are reviewed and
revised periodically throughout the lives of the contracts with adjustment to
revenue resulting from such revisions being recorded on a cumulative basis in
the period in which the revisions are made. A majority of the Company's
contracts undergo scope modification over the contract period. Revenues
related to contract modifications are recognized when realization is assured
and the amounts are reasonably determinable. Contract costs consist primarily
of direct labor and other related labor costs. 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>
SIX MONTHS
ENDED JUNE 30,
----------------
1996 1997
----------- ----
(UNAUDITED)
<S> <C> <C>
Customer A................................................ 11% *%
Customer B................................................ 12 *
Customer E................................................ * 10
Customer F................................................ * 15
</TABLE>
- --------
* Less than 10% of consolidated net revenues.
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.
F-52
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable, unbilled services and cash and cash
equivalents. Accounts receivable and unbilled services include amounts due
from pharmaceutical and biotechnology companies. Accounts receivable and
unbilled services from individual customers that are greater than 10 percent
of consolidated accounts receivable and unbilled services in the respective
periods were as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
1996 JUNE 30, 1997
------------ -------------
<S> <C> <C>
Customer A...................................... 17% *%
Customer C...................................... 12 *
Customer E...................................... 14 10
Customer I...................................... * 12
</TABLE>
- --------
* Less than 10% of consolidated accounts receivable and unbilled services.
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.
F-53
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 AS OF
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Accounts receivable.......................... $6,037,312 $ 7,963,763
Unbilled services............................ 2,287,717 4,391,716
Less--Allowance for doubtful accounts........ (132,098) (77,232)
---------- -----------
$8,192,931 $12,278,247
========== ===========
</TABLE>
The Company expects to bill all unbilled services within the succeeding
twelve months.
5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Accrued payroll and related expenses......... $1,447,930 $2,356,228
Accrued VAT taxes payable.................... 122,694 64,294
Accrued interest on seller notes payable..... -- 103,500
Other accrued expenses....................... 481,735 640,525
---------- ----------
$2,052,359 $3,164,547
========== ==========
</TABLE>
6. LONG-TERM DEBT AND SELLER NOTES PAYABLE:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Junior subordinated debentures.............. $ 750,000 $ 750,000
Senior subordinated note payable, net of
discount................................... 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............ 33,135 540,370
---------- ----------
2,547,284 4,563,872
Less--Current portion....................... (392,509) (22,176)
---------- ----------
$2,154,775 $4,451,696
========== ==========
</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
F-54
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 $25,000 and $526,000 as of December 31, 1996, and June 30, 1997,
respectively. Accumulated depreciation of approximately $10,000 and $16,000
has been recorded as of December 31, 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.
F-55
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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 $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>
SIX MONTHS ENDED
JUNE 30, 1997
----------------
<S> <C>
Current:
Federal.................................................... $226,869
State...................................................... 32,569
Foreign.................................................... --
--------
259,438
Deferred:
Federal.................................................... (64,512)
State...................................................... (9,127)
Foreign.................................................... (95,300)
Valuation allowance........................................ --
--------
(168,939)
--------
$ 90,499
========
</TABLE>
F-56
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
SIX MONTHS ENDED
JUNE 30, 1997
----------------
<S> <C>
Statutory Federal income tax rate........................... 34.0%
State income taxes.......................................... 5.0
Amortization of goodwill.................................... 5.5
Other permanent differences................................. 3.0
----
Effective income tax rate................................... 47.5%
====
</TABLE>
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, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Operating loss
carryforwards.......... $ 24,400 $ 119,700
Cash to accrual
adjustment............. 73,600 (43,000)
Accruals and reserves... 207,000 310,500
Depreciation............ (68,200) (106,900)
Other................... (83,400) (126,900)
Valuation allowance for
deferred tax assets.... (153,400) (153,400)
--------- ---------
Net deferred taxes...... $ -- $ --
========= =========
</TABLE>
In determining the extent to which a valuation allowance for net deferred
tax assets is required, the Company evaluates all available evidence including
projections of future taxable income, carryback opportunities, and other tax
planning strategies. 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 primarily to foreign net operating losses 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.
F-57
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Automatic Conversion
Upon the closing of an initial public offering, the merger, or the 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,
F-58
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-59
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"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.
9. STOCKHOLDERS' DEFICIT:
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.
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.
F-60
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 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 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 forma 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>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Net income, as reported................................... $428,580 $ 99,857
======== ========
SFAS No. 123 pro forma net income (loss).................. 425,137 (56,625)
======== ========
</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 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.
F-61
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 six months ended June 30, 1996
and 1997, was approximately $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>
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.
F-62
<PAGE>
PRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
$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 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.
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. European
operations include results of the Company's wholly-owned subsidiary in
Germany, and as of December 31, 1996, the Company's newly-formed and wholly-
owned subsidiary whose operations are substantially the same in nature. For
all periods presented a significant majority of the European operations relate
to those of the German subsidiary (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
-------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues:
North America......................................... $ 6,386 $ 14,446
Europe................................................ 3,008 3,601
-------- --------
$ 9,394 $ 18,047
======== ========
Operating income:
North America......................................... $ 487 $ 611
Stock repurchase and other equity compensation........ -- (22)
Europe................................................ 361 (232)
-------- --------
$ 848 $ 357
======== ========
Identifiable assets:
North America......................................... $ 10,318 $ 32,965
Europe................................................ 2,376 3,410
-------- --------
$ 12,694 $ 36,375
======== ========
</TABLE>
F-63
<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, has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/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 NINE MONTHS ENDED
SEPTEMBER 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
September 30, 1997
Allowance for accounts receiv-
able............................. 132,098 102,098 231,988 261,988
</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.................................................................. 27
Management................................................................ 43
Certain Transactions...................................................... 54
Principal Stockholders.................................................... 56
Description of Capital Stock.............................................. 57
Shares Eligible For Future Sale........................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 63
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
-------
SALOMON SMITH BARNEY
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. The issuance and sale of such securities were made in reliance
upon Section 4(2) of the Securities Act. In August 1997, the
II-1
<PAGE>
debenture was repaid in full and the warrant, as subsequently modified, was
exercised in part for 236,136 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. The issuance and sale of such securities were made in reliance
upon Section 4(2) of the Securities Act.
On February 7, 1996, Associates made a personal loan to Associates' founder,
Raymond J. Rugloski, in the amount of $500,000. This loan was financed from
the proceeds of its sale in December 1995/January 1996 of 76,830 shares of
Class F Preferred Stock of Associates at a price per share of $6.5080,
representing, in the event of their conversion into common stock of
Associates, 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. The issuance and sale of such securities were
made in reliance upon Section 4(2) of the Securities Act.
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. The issuance and sale of
such securities were made in reliance upon Section 4(2) of the Securities Act.
(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 Rule 506 of Regulation
D promulgated under the Securities Act and 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.
II-2
<PAGE>
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
**10.1 Registration Rights Agreement dated as of October 31, 1997 among the
Registrant and the Stockholders as defined therein
*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 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 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 November 14, 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 November 14, 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 dated November 17, 1992, Amendment No. 3 dated October 11,
1996, Memo dated February 14, 1997, Amendment No. 5 dated March 14,
1997 and Amendment No. 6 dated November 14, 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 November 14, 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 November 14, 1997
10.13 Consulting Agreement dated October 1, 1997 between Associates and Dr.
Judith Ann Hemberger
10.14 Amended and Restated Option Agreement dated as of November 14, 1997
between the Registrant and Earle Martin
10.15 Amended and Restated Option Agreement dated as of November 14, 1997
between the Registrant and James C. Powers
10.16 Amended and Restated Option Agreement dated as of November 14, 1997
between the Registrant and Joachim Vollmar
10.17 Amended and Restated Option Agreement dated as of November 14, 1997
between the Registrant and Patrick K. Donnelly
10.18 Amended and Restated Option Agreement dated as of November 14, 1997
between the Registrant and Robert J. Dockhorn, M.D.
10.19 Restated Option Agreement dated as of October 31, 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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**10.22 Option Agreement dated as of October 15, 1997 between Harry Penner and
the Registrant
**10.23 Option Agreement dated as of October 15, 1997 between Judith Hemberger
and the Registrant
**10.24 Lease Agreement dated November , 1997 between the University of
Virginia Real Estate Foundation and Associates
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>
- --------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
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 day of December 1997.
PRA INTERNATIONAL, INC.
/s/ Earle Martin
By___________________________________
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 December , 1997
____________________________________ Officer (principal executive
Earle Martin officer) and Chairman of the
Board of Directors
* Executive Vice President, December , 1997
____________________________________ Managing Director, European
Joachim Vollmar Operations and Director
/s/ Patrick K. Donnelly Executive Vice President, December , 1997
____________________________________ Chief Financial Officer
Patrick K. Donnelly (principal accounting
officer), Director and
Assistant Secretary
* Director December , 1997
____________________________________
Harry H. Penner, Jr.
* Director December , 1997
____________________________________
Judith A. Hemberger
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director December , 1997
____________________________________
Daniel A. D'Aniello
* Director December , 1997
____________________________________
David W. Dupree
* Director December , 1997
____________________________________
Peter M. Manos
</TABLE>
/s/ Earle Martin
*By:______________________
Attorney-in-Fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
Proposed Form of
**1.1 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).................
Amended and Restated By-
*3.2 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 dated as of
October 31, 1997 among the
Registrant and the
Stockholders as defined
therein...................
*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 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 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 November 14, 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 November 14, 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 dated November
17, 1992, Amendment No. 3
dated October 11, 1996,
Memo dated February 14,
1997, Amendment No. 5
dated March 14, 1997 and
Amendment No. 6 dated
November 14, 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 November 14,
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 November 14, 1997...
10.13 Consulting Agreement dated
October 1, 1997 between
Associates and Dr. Judith
Ann Hemberger.............
10.14 Amended and Restated
Option Agreement dated as
of November 14, 1997
between the Registrant and
Earle Martin..............
10.15 Amended and Restated
Option Agreement dated as
of November 14, 1997
between the Registrant and
James C. Powers...........
10.16 Amended and Restated
Option Agreement dated as
of November 14, 1997
between the Registrant and
Joachim Vollmar...........
10.17 Amended and Restated
Option Agreement dated as
of November 14, 1997
between the Registrant and
Patrick K. Donnelly.......
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.18 Amended and Restated
Option Agreement dated as
of November 14, 1997
between the Registrant and
Robert J. Dockhorn, M.D...
10.19 Restated Option Agreement
dated as of October 31,
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.........
**10.22 Option Agreement dated as
of October 15, 1997
between Harry Penner and
the Registrant............
**10.23 Option Agreement dated as
of October 15, 1997
between Judith Hemberger
and the Registrant........
**10.24 Lease Agreement dated
November , 1997 between
the University of Virginia
Real Estate Foundation and
Associates................
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
- --------
* Previously filed.
** To be filed by amendment.
2
<PAGE>
Exhibit 10.8
Execution Copy
--------------
EMPLOYMENT AND NON-COMPETITION AGREEMENT
BETWEEN
EARLE MARTIN
AND
PHARMACEUTICAL RESEARCH ASSOCIATES, INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 11th day of
October, 1996, by and between Pharmaceutical Research Associates, Inc., a
Virginia corporation (hereinafter called "Employer"), having its principal
office in the Commonwealth of Virginia, and Earle Martin, (hereinafter called
"Employee").
WHEREAS, Employer and Employee desire to enter into an agreement for the
employment by Employer of Employee.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby covenant and
agree as follows:
1. Position. Employer hereby employs Employee and Employee hereby accepts
--------
employment in the position of President, with appropriate title, rank, status
and responsibilities as determined from time to time by Employer upon the terms
and conditions hereinafter set forth.
2. Term. The period of employment under this Agreement shall begin on the
----
date of this Agreement (the "Effective Date"), and shall end on November 1, 1998
(the "First Termination Date"), unless sooner terminated pursuant to Section 7
hereof. After the First Termination Date, employment hereunder shall be deemed
to be renewed automatically, upon the same terms and conditions, for
- 1 -
<PAGE>
successive periods of one year each, until either party, at least ninety (90)
days prior to the expiration of the First Termination Date or any successive
term, as applicable, shall give written notice to the other of a determination
not to renew such employment. Notwithstanding the foregoing, Employee's
employment hereunder shall be terminable at any time, and from time to time, in
accordance with the provisions of Section 7 of this Agreement. Subject to
Section 7(d) of this Agreement, the period during which (a) Employee is employed
under the terms of this Agreement and (b) this Agreement is in force (other than
with respect to the provisions that survive termination of this Agreement),
shall be known hereafter as the "Term".
3. Duties.
------
(a) During the Term, Employee agrees to use his best efforts in the
business of Employer and to devote his full time, skill, attention and energies
to the business of Employer, and shall not, during the Term, be engaged in any
other business activity which shall be competitive with the business of Employer
or which may (i) interfere with Employee's ability to discharge his
responsibilities to Employer, or (ii) detract from the business of Employer.
The Board of Directors of Employer (the "Board") shall have the power to
determine the specific duties that shall be performed by Employee and the means
and manner by which those duties shall be performed.
(b) In furtherance of the restrictions on the activities of Employee
set forth in Section 3(a) above, during the Term, Employee agrees:
(i) not to work either on a part-time or independent contracting basis
for any other company, business or enterprise without the prior written consent
of the Board; and
- 2 -
<PAGE>
(ii) not to serve on the board of directors or comparable governing
body of any other material business, civic or community corporation or similar
entity without the prior written consent of the Board (excluding those boards of
directors on which Employee serves as of the date of this Agreement, which
boards, if any, are listed on Exhibit A hereto).
(c) Employee agrees to use his reasonable efforts to impart his skill
and knowledge relating to the business of Employer to such individuals as are
designated by Employer, and to train such individuals in the aspects of the
business with which Employee is familiar. In addition, at the request of
Employer and without additional compensation, Employee shall use his best
efforts to record and document his knowledge relating to the business of
Employer.
4. Base Salary, Increases, Benefits, Expenses. For all services rendered
------------------------------------------
by Employee under this Agreement and subject to Section 7 below, during the
Term, Employer shall provide Employee with the following:
(a) Commencing on the Effective Date, Employer shall pay to Employee,
in equal bi-monthly installments, a base salary of $125,000 per year.
(b) Employee shall be eligible for salary increases, which may be
based on performance and/or cost-of-living factors, as determined under the
provisions of any salary policy of Employer that is generally applicable to
Employer's employees, provided that any such increases shall be reviewed and
approved in advance by the Compensation Committee of the Board (the
"Compensation Committee"), and Employee shall be entitled to such other
increases in compensation as are otherwise imposed by the Compensation
Committee, in its discretion, from time to time.
- 3 -
<PAGE>
(c) Employee shall participate in Employer's 1996 Bonus Plan, as such
1996 Bonus Plan currently exists on the date of this Agreement.
(d) Employee shall participate in Employer's standard benefits
programs, which presently include health, life and disability insurance, as well
as those additional benefits (the "Additional Benefits") currently offered to
Employer's executive staff, including additional life and disability insurance,
health club membership and monthly car allowance. It is agreed that the nature
and amount of the Additional Benefits, if any, shall be determined from time to
time by the Compensation Committee, in its discretion. Employer may, at its
election, maintain policies of life and disability insurance on Employee, with
Employer or an affiliate of Employer as beneficiary, and Employee shall
cooperate as necessary to obtain such policies and to keep them in force.
Employee shall be entitled to a total of twenty (20) days of paid vacation per
year. Employee shall be covered by the holiday policy of the Employer, and,
unless inconsistent with applicable law, by any other pension or retirement
plan, disability benefit plan or any other benefit plan or arrangement of
Employer (other than a medical or life insurance plan) presently or hereafter
existing for the benefit of officers or employees of Employer generally, and
determined by the Compensation Committee to be applicable to Employee.
(e) Subject to such conditions as Employer may from time to time
determine, Employer shall pay or reimburse Employee for reasonable expenses
incurred by Employee in connection with the business of Employer and the
performance of Employee's duties hereunder.
(f) It is understood and agreed that the Compensation Committee will
meet quarterly to review compensation matters of Employer, and will (on at least
an annual basis) set all
- 4 -
<PAGE>
annual bonus targets, salary increases and benefits to which Employee shall be
entitled to participate.
(g) It is the intention of Employer to have the Compensation Committee
recommend to the Board of Directors (the "PRADE Board") of PRA International,
Inc., a Delaware corporation and the parent company of Employer ("PRADE"), to
create, shortly after the date of this Agreement, an incentive based option plan
for key employees of Employer (the "ISO Plan"). It is expected that the ISO
Plan will consist of options for common stock of PRADE and will have key terms,
subject to alteration and amendment in the sole discretion of the PRADE Board in
consultation with the Compensation Committee, substantially similar to those set
forth on Exhibit B hereto as well as those contemplated by Section 8 of this
Agreement. At such time as the ISO Plan is created, Employee shall be entitled
to participate therein.
5. Confidential Information and Certain Property Matters.
-----------------------------------------------------
(a) Employee hereby acknowledges that, in the course of his employment
under this Agreement, he will be given access to or otherwise will come into
contact with and/or will possess, and that with respect to Employer's business
he already possesses, information, knowledge, contacts and experience relating
to the businesses, operations, properties, assets, liabilities and financial
condition of Employer and the markets and industries in which it operates,
including, without limitation, information relating to business plans and ideas,
trade secrets, intellectual property, know-how, formulas, processes, research
and development, methods, policies, materials, results of operations, financial
and statistical data, personnel data and customers in and related to the markets
and industries in which Employer operates (the "Confidential Information"),
which are considered by Employer to be valuable, secret, confidential and
proprietary. Employee hereby
- 5 -
<PAGE>
acknowledges and agrees that the Confidential Information is valuable, secret,
confidential and proprietary to Employer, and hereby undertakes and agrees that
he shall not, at any time (whether during or after the expiration of the Term),
or for any purpose, make public, disclose, divulge, furnish, release, transfer,
sell or otherwise make available to any person any of the Confidential
Information, or otherwise use any of the same or allow any of the same to be
used for any purpose including, but not limited to, contacting for any purpose
the personnel, customers or suppliers of Employer, other than as may be
permitted to Employee under this Agreement. Notwithstanding the foregoing,
Employee may, without violating this Section 5(a), disclose Confidential
Information if (i) such disclosure is required to comply with a valid court
order or any administrative law order or decree, (ii) Employee gives Employer
advance written notice of the required disclosure so that Employer may, if it
wishes, seek an appropriate protective order and (iii) Employee, in any event,
requests that any disclosed information be afforded confidential treatment, to
the greatest extent possible.
(b) Employee hereby agrees to promptly and fully disclose to Employer
all Inventions made or conceived by him that would be deemed applicable, useful
or otherwise beneficial to or in respect of, the current business of Employer,
in whole or in part, during his employment with Employer. For the purposes of
this Agreement, "Inventions" include, but are not limited to, customer list
compilations, machinery, apparatus, products, processes, results of research and
development (including without limitation results that constitute trade secrets,
ideas and writings), computer hardware, information systems, software (including
without limitation source code, object code, documentation, diagrams and flow
charts) and any other discoveries, concepts and ideas, whether patentable or not
(including without limitation processes, methods, formulas, and techniques, as
well as improvements thereof or know-how related thereto, concerning any present
or prospective business
- 6 -
<PAGE>
activities of Employer). Any and all Inventions shall be the absolute property
of Employer or its designees, and Employee acknowledges that he shall have no
interest whatsoever in such Inventions. At the request of Employer and without
additional compensation, Employee (i) shall make application in due form for
United States letters patent and foreign letters patent on such Inventions, and
shall assign to Employer all his right, title and interest in such Inventions,
(ii) shall execute any and all instruments and do any and all acts necessary or
desirable in connection with any such application for letters patent or in order
to establish and perfect in Employer the entire right, title and interest in
such Inventions, patent applications or patents and (iii) shall execute any
instruments necessary or desirable in connection with any continuations,
renewals or reissues thereof or in the conduct of any related proceedings or
litigation. Except as authorized by Employer in writing, Employee shall not
disclose, directly or indirectly, to any person other than Employer, any
information relating to any Invention or any patent application relating
thereto.
(c) Employee hereby acknowledges and agrees that the work performed by
Employee pursuant to his employment by Employer will be specifically ordered or
commissioned by Employer, and that such work shall be considered a "work for
hire" as defined in the Copyright Revision Act of 1976 (the "Act"), granting
Employer full ownership to the work and all rights comprised therein. Should
any work not fall within the definition of a "work for hire" as set forth in
such Act, Employee hereby transfers and assigns to Employer full ownership of
the copyright to the work and all rights comprised therein. Employee shall sign
all applications for registration of such copyright as are requested by
Employer, and shall sign all other writings and instruments and perform all
other acts necessary or desirable to carry out the terms of this Agreement.
- 7 -
<PAGE>
6. Covenant Not to Compete. (a) Employee agrees that during the Term and
-----------------------
for a period of two years thereafter (the "Noncompetition Period"), he shall not
directly or indirectly own, manage, operate, join, advise, consult, control or
participate in the ownership, management, operation or control of, or be
connected in any manner with, any business under any name similar to the name of
Employer or any other person whose principal business is (or the principal
business of any of its affiliates is) competitive with Employer or who proposes
to engage in a business competitive with Employer, or in any department or
division of any other person where such department or division is competitive
with Employer (where the nature of Employer's business is measured (i) if the
competitive act in question occurs during the Term, at the time the competitive
act in question is made by Employee, and (ii) if the competitive act in question
occurs after the Term, at the time Employee's employment is terminated
hereunder). During the Noncompetition Period, Employee agrees that he shall not
offer to any person any services that compete with or are substantially similar
to those provided by Employer (where the nature of Employer's business,
including the services provided by Employer, are measured (1) if the offer is
made during the Term, at the time the offer is made by Employee, and (2) if the
offer is made after the Term, at the time Employee's employment is terminated
hereunder).
(b) Employee agrees that he shall not engage in unfair competition
with Employer during the Noncompetition Period.
(c) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), other than on behalf of Employer and consistent with
his duties as an employee of Employer, directly or indirectly solicit the trade
of, or trade with, any person who is a client, customer or supplier of Employer
(where all such clients, customers and suppliers are measured at the time
- 8 -
<PAGE>
Employee's employment is terminated hereunder) unless Employee receives the
prior written consent of the Board to do so.
(d) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), directly or indirectly, solicit or induce (or attempt
to solicit or induce) to leave the employ of Employer for any reason whatsoever,
or hire, any person who (i) was employed by Employer within one year prior to
the time of the act of solicitation or inducement, or (ii) is employed by
Employer at the time of the act of solicitation or inducement.
(e) During and after the Term, Employee agrees not to disparage
Employer, the parent of Employer, or any of the subsidiaries or affiliates of
Employer. During and after the Term, Employer agrees not to disparage the
character of Employee.
(f) Employee hereby specifically acknowledges and agrees that the
provisions of this Section 6 are reasonable and necessary to protect the
legitimate interests of Employer, and that Employee desires to agree to the
provisions of this Section 6. In the event that any of the provisions of this
Section 6 should ever be held to exceed the time, scope or geographic
limitations permitted by applicable law, it is hereby declared to be the
intention of the parties hereto that such provision be reformed to reflect the
maximum time, scope and geographic limitations that are permitted by such law.
(g) Employee hereby acknowledges and agrees for himself, and for any
person participating with him in any breach or threatened breach of this
Section 6 (the "Other Person"), that, owing to the special, unique and
extraordinary nature of the matters covered by this Section 6, in the event of
any breach or threatened breach by Employee or the Other Person of any of the
provisions hereof, Employer would suffer substantial and irreparable injury,
which could not be fully compensated by
- 9 -
<PAGE>
monetary award alone, and Employer would not have adequate remedy at law.
Therefore, Employee agrees that, in such event, Employer shall be entitled to
temporary and/or permanent injunctive relief against him and any such Other
Person, without the necessity of proving actual damages or of posting bond to
enforce any of the provisions of this Section 6, and he hereby waives for
himself and for any such Other Person the defenses, claims, or arguments that
the matters are not special, unique, and extraordinary, that Employer must prove
actual damages, and that Employer has an adequate remedy at law.
(h) Employee further agrees that the rights and remedies described in
this Section 6 are cumulative and shall be in addition to and not in lieu of any
other rights and remedies otherwise available under this Agreement, or at law or
in equity, including but not limited to monetary damages.
7. Termination.
-----------
(a) Basic Termination. In addition to the termination provisions
-----------------
set forth in Section 7(b) and Section 7(c) hereof, the Term shall terminate
pursuant to the applicable provisions of Section 2 hereof and immediately upon
the death of Employee. Upon termination of the Term under the applicable
provisions of Section 2 hereof or upon the death of Employee, Employer shall
have no further obligation to Employee except as set forth in Section 8 hereof.
(b) Termination By Employer. The Term may be terminated by Employer
-----------------------
under the following circumstances (in each case, upon such termination, Employer
shall have no further obligation to Employee except as set forth in Section 8
hereof):
(i) Disability. If during the Term, Employee shall be prevented
----------
from performing his duties for a continuous
- 10 -
<PAGE>
period of one hundred and eighty (180) days by reason of disability which
renders Employee physically or mentally incapable (excluding infrequent and
temporary absences due to illness) of performing substantially all of his duties
under this Agreement, Employer may terminate Employee's employment hereunder. If
after a period of disability commences (but prior to termination of Employee's
employment), Employee returns to work for a period of at least twenty (20)
consecutive work days, the period of disability shall be deemed to terminate and
not be counted towards any period of subsequent disability. For purposes of this
Agreement, Employer, upon the advice of a qualified and impartial physician,
shall determine whether Employee has become physically or mentally incapable of
performing substantially all of his duties under this Agreement. Employer shall
give Employee (or his guardian, as applicable) thirty (30) days' written notice
of termination of the Term under this Section 7(b)(i).
(ii) For Good Cause. Employer may terminate Employee's employment at
--------------
any time for Good Cause (as defined below), by giving reasonable notice
under the circumstances to Employee. "Good Cause" shall include, without
limitation, (A) a material breach of this Agreement by Employee (where
Employee fails to cure such breach within five (5) days after being
notified in writing by Employer of such breach), (B) Employee's failure to
perform his assigned duties without an excuse that is reasonably acceptable
to Employer, (C) Employee engages in an act (or causes an act) that has a
material adverse impact on the reputation, business, business relationships
or financial condition of Employer, (D) the conviction of Employee of a
felony or any crime involving moral turpitude, fraud or misrepresentation,
(E) misappropriation or embezzlement by Employee of funds or assets of
Employer, and (F) Employee's willful refusal to
- 11 -
<PAGE>
perform specific directives of the Board which are consistent with the
scope, ethics and nature of Employee's duties and responsibilities
hereunder. Notwithstanding the foregoing, "Good Cause" shall not include a
situation whereby Employer asks Employee to relocate to another city and
Employee declines to do so. Termination by Employer for Good Cause
hereunder based on a material breach of this Agreement or for other
wrongful acts committed by Employee against Employer, shall not abrogate
the rights and remedies of Employer in respect of the breach or wrongful
act giving rise to such termination.
(c) Termination by Employee. The Term may be terminated by Employee
-----------------------
upon thirty (30) days' written notice given to Employer after a material breach
hereof by Employer (where Employer fails to cure such breach within five (5)
days after being notified in writing by Employee of such breach). Termination by
Employee hereunder shall not abrogate the rights and remedies of Employee in
respect of the breach giving rise to such termination. Upon termination by
Employee following a material breach by Employer, Employee shall have no further
duties or obligations to Employer under this Agreement (except as contemplated
by Section 7(d) below).
(d) Survival of Sections. It is agreed that notwithstanding anything
--------------------
contained in this Agreement to the contrary, Sections 5, 6, the applicable
provisions of 7(b)(ii), 8 and 9 of this Agreement shall survive termination of
the Term.
8. Payments by, Obligations of, and Events Affecting the Respective
----------------------------------------------------------------
Parties in Event of Termination.
- -------------------------------
(a) Should the Term terminate under Section 7(a) of this Agreement
(expiration of the Term or the death of Employee),
- 12 -
<PAGE>
or be terminated by Employer under Section 7(b)(i) of this Agreement (disability
of Employee):
(i) Employee shall be entitled to receive:
(A) any and all accrued but unpaid base salary
compensation due to Employee as of the date on which the Term is
terminated shall be paid within fifteen (15) days of such date; plus
(B) severance payments equal to the sum of (y) six
months base salary (as it would normally be paid) plus (z) an
additional six months base salary less the fair market value (as of
the date on which the Term is terminated) of any options held by
Employee under the ISO Plan which have vested and any shares held by
Employee as a result of the exercise by Employee of vested options
held by Employee under the ISO Plan (such fair market value to be
determined by the Board in good faith).
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO
Plan will automatically terminate (under the terms of the ISO Plan).
(iv) In the event the Term is terminated due to the death of
Employee, PRADE shall have the right, in its sole discretion (under
the terms of the ISO Plan), to purchase from the estate of Employee
(within ninety (90) days of the date on which the Term is terminated),
vested options held by Employee under the ISO plan and/or any shares
held by the estate of Employee as a result of the exercise by Employee
(or his
- 13 -
<PAGE>
estate) of vested options held by Employee under the ISO Plan. The
purchase price of the options and shares contemplated by this Section
8(a)(iv) shall be the fair market value of such vested options and/or
shares as of the date on which the Term is terminated (as determined
by the PRADE Board in good faith).
(b) Should the Term be terminated by Employer under Section
7(b)(ii) of this Agreement (for Good Cause):
(i) Employee shall be entitled to receive (within fifteen
(15) days of the date on which the Term is terminated) any and all
accrued but unpaid base salary compensation due to Employee as of the
date on which the Term is terminated.
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically terminate (under the terms of the ISO Plan).
(iv) All vested options held by Employee under the ISO Plan
that are not exercised by Employee within ninety (90) days of the date
on which the Term is terminated, will automatically terminate (under
the terms of the ISO Plan).
(c) Should the Term be terminated by Employee under Section
7(c) of this Agreement:
(i) Employee shall be entitled to receive:
(A) Any and all accrued but unpaid base salary
compensation due to Employee as of the date on which the
- 14 -
<PAGE>
Term is terminated (payable within fifteen (15) days of the date on which
the Term is terminated); plus
(B) full base salary (payable monthly at the same time Employee
would otherwise be entitled to receive such base salary if Employee were
still employed by Employer) (y) through November 1, 1998 or (z) for a
period of twelve (12) months after the date on which the Term is
terminated, whichever period is longer.
(ii) Benefits pursuant to any of Employer's employee benefit plans
shall be payable in accordance with the terms of the instruments applicable
thereto.
(iii) All unvested options held by Employee under the ISO Plan will
automatically vest as of the date on which the Term is terminated (under the
terms of the ISO Plan).
(iv) Within ninety (90) days of the date on which the Term is
terminated, Employee shall have the option (under the terms of the ISO Plan) to
require PRADE to repurchase (during such ninety (90) day period) vested options
held by Employee under the ISO Plan and/or shares of PRADE's common stock
previously issued pursuant to the exercise of options held by Employee under the
ISO Plan. The purchase price of the options and/or shares contemplated by this
Section 8(c)(iv) shall be the fair market value of such vested options and/or
shares as of the date on which the Term is terminated (as determined by the
PRADE Board in good faith). Notwithstanding the foregoing, the obligation of
PRADE to repurchase the options and/or shares referenced in this Section
8(c)(iv) shall only apply to the extent PRADE has funds legally and readily
available to make such repurchase (with the availability of the funds being
determined by the PRADE Board in good faith).
- 15 -
<PAGE>
9. Records. Upon termination of Employee's employment with Employer for
-------
any reason under this Agreement, Employee shall promptly deliver to Employer any
and all correspondence, mailing lists, drawings, blueprints, manuals, letters,
records, notes, notebooks, reports, flow-charts, programs, proposals, computer
tapes, discs and diskettes which are in Employee's possession or under his
control, and any and all documents concerning or relating to Employer's
business, clients, customers, investors or lenders, or concerning products,
processes or technologies used by Employer which are in Employee's possession or
under his control, and, without limiting the foregoing, shall promptly deliver
to Employer any and all documents or materials which are in Employee's
possession or under his control containing or constituting Confidential
Information.
10. Arbitration. Except with respect to matters involving equitable
-----------
remedies (in which case any such matter may be brought in a court of competent
jurisdiction), all disputes between Employer and Employee hereunder, or
otherwise arising out of the employment or termination of employment of
Employee, shall be settled by arbitration before a three-member panel pursuant
to the rules of the American Arbitration Association, in Washington, D.C. The
award rendered by the arbitrators shall be conclusive and binding upon the
parties hereto. Each party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared.
11. Entire Agreement. This Agreement (together with Exhibit A and
----------------
Exhibit B hereto) supersedes any prior agreement between the parties hereto with
respect to the subject hereof; constitutes the entire agreement between the
parties hereto with respect to the subject hereof; and replaces in its or their
entirety (and stands as a written amendment thereto or termination thereof, as
required) any and all employment or other agreements (whether written or oral)
that Employee may have in place with
- 16 -
<PAGE>
Employer as of the Effective Date. No amendment, alteration or modification of
this Agreement shall be valid unless in each instance such amendment, alteration
or modification is expressed in a written instrument duly executed in the name
of the party or parties making such amendment, alteration or modification.
12. Severability. The provisions of this Agreement shall be deemed
------------
severable, and, subject to Section 6(f) of this Agreement, if any part of any
provision is held to be illegal, void, voidable, invalid, nonbinding or
unenforceable in its entirety or partially or as to any party, for any reason,
such provision may be changed, consistent with the intent of the parties hereto,
to the extent reasonably necessary to make the provision, as so changed, legal,
valid, binding and enforceable. If any provision of this Agreement is held to be
illegal, void, voidable, invalid, nonbinding or unenforceable in its entirety or
partially or as to any party, for any reason, and if such provision cannot be
changed consistent with the intent of the parties hereto to make it fully legal,
valid, binding and enforceable, then such provision shall be stricken from this
Agreement, and the remaining provisions of this Agreement shall not in any way
be affected or impaired, but shall remain in full force and effect.
13. Governing Law. This Agreement is to be governed by and interpreted
-------------
under the laws of the Commonwealth of Virginia, without regard to the conflicts
of laws provisions or rules of such State's law.
14. Headings; Form of Words. The headings contained in this Agreement
-----------------------
have been inserted for the convenience of reference only, and neither such
headings nor the placement of any term hereof under any particular heading shall
in any way restrict or modify any of the terms or provisions hereof. Terms used
in the singular shall be read in the plural, and vice versa, and terms used in
the masculine gender shall be read in the feminine or
- 17 -
<PAGE>
neuter gender when the context so requires. The term "person" as used herein
refers to a natural person, a corporation, a limited liability company, a
partnership, a joint venture, or other entity or association, as the context
requires.
15. Notices. All notices, requests, consents, payments, demands and other
-------
communications required or contemplated under this Agreement ("Notices") shall
be in writing and (a) personally delivered, (b) deposited in the United States
mail, registered or certified mail, return receipt requested, with postage
prepaid, or (c) sent by Federal Express or Airborne Courier (for next business
day delivery), shipping prepaid, as follows:
If to Employer, to:
Pharmaceutical Research Associates, Inc.
2400 Old Ivy Road
Charlottesville, Virginia 22903-4826
Attn: Earle Martin, CEO
If to Employee, to:
Earle Martin
312 Grove Avenue
Falls Church, Virginia 22046
or such other persons or address as any party may request by notice given as
aforesaid. Notices shall be deemed given and received at the time of personal
delivery or, if sent by U.S. mail, five (5) business days after the date mailed
in the manner set forth in this Section 15, or, if sent by Federal Express or
Airborne Courier, one business day after such sending.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original,
- 18 -
<PAGE>
but all of which together shall constitute one and the same instrument.
17. Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors, assigns, heirs and representatives of the parties
hereto, whether so expressed or not. Neither this Agreement nor any of the
rights and obligations hereunder shall be assigned, delegated, sold,
transferred, sublicensed or otherwise disposed of, by operation of law or
otherwise, without the prior written consent of the other party hereto.
18. Cooperation. Each party to this Agreement agrees to cooperate with
-----------
the other party hereto to carry out the purpose and intent of this Agreement,
including without limitation the execution and delivery to the appropriate party
of all such further documents as may reasonably be required in order to carry
out the terms of this Agreement.
19. Waiver. Any waiver of any provision hereof (or in any related
------
document or instrument) shall not be effective unless made expressly and in a
writing executed in the name of the party sought to be charged. The failure of
any party to insist, in any one or more instances, on performance of any of the
terms or conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant or condition, but the obligations of the parties with
respect thereto shall continue in full force and effect.
20. Indemnification. Employee shall be entitled to be indemnified by
---------------
Employer to the fullest extent permitted by the Virginia Stock Corporation Act
notwithstanding any limitations set forth in Employer's Articles of
Incorporation.
- 19 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Employer: PHARMACEUTICAL RESEARCH ASSOCIATES, INC.
By: /s/ Earle Martin
------------------------------
Print Name: Earle Martin
----------------------
Print Title: President
---------------------
Employee: /s/ Earle Martin
---------------------------------
Print Name: Earle Martin
----------------------
- 20 -
<PAGE>
Exhibit A
Boards of Directors on Which Employee Serves as of the Date of this Agreement
-----------------------------------------------------------------------------
Asbury Services, Inc.
- 21 -
<PAGE>
Exhibit B
Key Terms of ISO Plan
---------------------
Class of Shares: Options will be for shares of PRADE's Common Stock.
Number of Shares: Maximum number of shares issuable under the ISO Plan
will be approximately 323,000.
Exercise Price: $11.683 per share (in cash, or by cash or cashless
exercise on death/disability).
Vesting: 25% of the options under the ISO Plan will vest over a
four-year period from the date of grant (the "Grant
Date"), with the first 25% vesting on the first
anniversary of the Grant Date, and each additional 25%
vesting on each successive anniversary of the Grant Date
through the fourth anniversary thereof.
Notwithstanding the foregoing, 50% of the options under
the ISO Plan will vest automatically upon any
extraordinary event in which any purchaser(s) (whether
taken individually or as a group), under that certain
Stock Purchase Agreement, dated September 13, 1996, by
and among PRADE, Employer, and Carlyle Partners II, L.P.
(together with certain Affiliates; the "Stock Purchase
Agreement"), receives an Internal Rate of Return (as
such term is defined in that certain Stockholders'
Agreement attached as Exhibit C to the Stock Purchase
Agreement; "IRR") greater than 25% (to the extent that
exercise of any options under the ISO Plan do not reduce
such IRR below 25%).
In addition to the foregoing, 25% of the options under
the ISO Plan will vest automatically upon any
extraordinary event in which the above stated IRR for
any such Purchaser(s) (whether taken individually or as
a group) is greater than 33%.
Grant of Options: Allocation of the options under the ISO Plan will be
determined by the PRADE Board in consultation with the
Compensation Committee.
Additional: The ISO Plan shall also contain the provisions
contemplated by Section 8 of the Employment Agreement,
with respect to automatic vesting, rights of repurchase,
etc.
Note: Capitalized terms used herein without definition shall
have the meanings ascribed thereto in the attached
Employment Agreement.
- 22 -
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AND NON-COMPETITION AGREEMENT (the
"Amendment") is made as of the 14th day of November 1997 by and between
Pharmaceutical Research Associates, Inc., a Virginia corporation (hereinafter
called "Employer"), and Earle Martin (hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment and
Non-Competition Agreement dated as of October 11, 1996 (the "Employment
Agreement"; capitalized terms used and not otherwise defined in this Amendment
shall have the respective meanings assigned to them in the Employment
Agreement); and
WHEREAS, the parties hereto have agreed to amend the Employment Agreement
on the terms and conditions contained herein so that the terms of such
Employment Agreement conform to the terms and conditions of that certain Amended
and Restated Option Agreement (the "Option Agreement") by and between Employee
and Employer's parent, PRA International, Inc., a Delaware corporation
("International"), which Option Agreement is being executed concurrently
herewith.
NOW THEREFORE, in consideration of the premises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Employment Agreement. From and after the Effective Date
----------------------------------
(as defined in Section 2 hereof), the Employment Agreement is hereby amended by
deleting Sections 8(a)(iv) and 8(c)(iv) in their entirety.
2. Effectiveness of Amendment. This Amendment shall become effective as
--------------------------
of the consummation on or before January 31, 1998 of an initial public offering
of common stock of International approved by the Public Offering Committee of
the International Board (the "Effective Date") upon the execution and delivery
of this Amendment by each of the parties hereto. In the event such an initial
public offering is not consummated on or before January 31, 1998, this Amendment
shall be null and void. At all times on and after the Effective Date, each
reference in the Employment Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, shall mean and be a reference to the
<PAGE>
-2-
Employment Agreement as amended by this Amendment. Except as, and to the extent,
specifically amended by this Amendment, the Employment Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
3. Execution in Counterparts. This Amendment 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 to be an original
and all of which taken together shall constitute but one and the same
instrument.
4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF VIRGINIA (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
5. Headings. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment No. 1
to Employment Agreement as a sealed instrument as of the date first set forth
above.
PHARMACEUTICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Earle Martin
---------------------------------
Name: Earle Martin
Title: President
/s/ Earle Martin
------------------------------------
EARLE MARTIN
<PAGE>
Exhibit 10.9
Execution Copy
--------------
EMPLOYMENT AND NON-COMPETITION AGREEMENT
BETWEEN
JAMES POWERS
AND
PHARMACEUTICAL RESEARCH ASSOCIATES, INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 11th day of
October, 1996, by and between Pharmaceutical Research Associates, Inc., a
Virginia corporation (hereinafter called "Employer"), having its principal
office in the Commonwealth of Virginia, and James Powers, (hereinafter called
"Employee").
WHEREAS, Employer and Employee desire to enter into an agreement for the
employment by Employer of Employee.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby covenant and
agree as follows:
1. Position. Employer hereby employs Employee and Employee hereby accepts
--------
employment in the position of Executive Vice-President, with appropriate title,
rank, status and responsibilities as determined from time to time by Employer
upon the terms and conditions hereinafter set forth.
2. Term. The period of employment under this Agreement shall begin on the
----
date of this Agreement (the "Effective Date"), and shall end on November 1, 1998
(the "First Termination Date"), unless sooner terminated pursuant to Section 7
hereof. After the First Termination Date, employment hereunder shall be deemed
to be renewed automatically, upon the same terms and conditions, for
- 1 -
<PAGE>
successive periods of one year each, until either party, at least ninety (90)
days prior to the expiration of the First Termination Date or any successive
term, as applicable, shall give written notice to the other of a determination
not to renew such employment. Notwithstanding the foregoing, Employee's
employment hereunder shall be terminable at any time, and from time to time, in
accordance with the provisions of Section 7 of this Agreement. Subject to
Section 7(d) of this Agreement, the period during which (a) Employee is employed
under the terms of this Agreement and (b) this Agreement is in force (other than
with respect to the provisions that survive termination of this Agreement),
shall be known hereafter as the "Term".
3. Duties.
------
(a) During the Term, Employee agrees to use his best efforts in the
business of Employer and to devote his full time, skill, attention and energies
to the business of Employer, and shall not, during the Term, be engaged in any
other business activity which shall be competitive with the business of Employer
or which may (i) interfere with Employee's ability to discharge his
responsibilities to Employer, or (ii) detract from the business of Employer. The
Board of Directors of Employer (the "Board") shall have the power to determine
the specific duties that shall be performed by Employee and the means and manner
by which those duties shall be performed.
(b) In furtherance of the restrictions on the activities of Employee
set forth in Section 3(a) above, during the Term, Employee agrees:
(i) not to work either on a part-time or independent contracting basis
for any other company, business or enterprise without the prior written consent
of the Board; and
- 2 -
<PAGE>
(ii) not to serve on the board of directors or comparable governing
body of any other material business, civic or community corporation or similar
entity without the prior written consent of the Board (excluding those boards of
directors on which Employee serves as of the date of this Agreement, which
boards, if any, are listed on Exhibit A hereto).
(c) Employee agrees to use his reasonable efforts to impart his skill
and knowledge relating to the business of Employer to such individuals as are
designated by Employer, and to train such individuals in the aspects of the
business with which Employee is familiar. In addition, at the request of
Employer and without additional compensation, Employee shall use his best
efforts to record and document his knowledge relating to the business of
Employer.
4. Base Salary, Increases, Benefits, Expenses. For all services rendered
------------------------------------------
by Employee under this Agreement and subject to Section 7 below, during the
Term, Employer shall provide Employee with the following:
(a) Commencing on the Effective Date, Employer shall pay to Employee,
in equal bi-monthly installments, a base salary of $115,000 per year.
(b) Employee shall be eligible for salary increases, which may be
based on performance and/or cost-of-living factors, as determined under the
provisions of any salary policy of Employer that is generally applicable to
Employer's employees, provided that any such increases shall be reviewed and
approved in advance by the Compensation Committee of the Board (the
"Compensation Committee"), and Employee shall be entitled to such other
increases in compensation as are otherwise imposed by the Compensation
Committee, in its discretion, from time to time.
- 3 -
<PAGE>
(c) Employee shall participate in Employer's 1996 Bonus Plan, as such
1996 Bonus Plan currently exists on the date of this Agreement.
(d) Employee shall participate in Employer's standard benefits
programs, which presently include health, life and disability insurance, as well
as those additional benefits (the "Additional Benefits") currently offered to
Employer's executive staff, including additional life and disability insurance,
health club membership and monthly car allowance. It is agreed that the nature
and amount of the Additional Benefits, if any, shall be determined from time to
time by the Compensation Committee, in its discretion. Employer may, at its
election, maintain policies of life and disability insurance on Employee, with
Employer or an affiliate of Employer as beneficiary, and Employee shall
cooperate as necessary to obtain such policies and to keep them in force.
Employee shall be entitled to a total of twenty (20) days of paid vacation per
year. Employee shall be covered by the holiday policy of the Employer, and,
unless inconsistent with applicable law, by any other pension or retirement
plan, disability benefit plan or any other benefit plan or arrangement of
Employer (other than a medical or life insurance plan) presently or hereafter
existing for the benefit of officers or employees of Employer generally, and
determined by the Compensation Committee to be applicable to Employee.
(e) Subject to such conditions as Employer may from time to time
determine, Employer shall pay or reimburse Employee for reasonable expenses
incurred by Employee in connection with the business of Employer and the
performance of Employee's duties hereunder.
(f) It is understood and agreed that the Compensation Committee will
meet quarterly to review compensation matters of Employer, and will (on at least
an annual basis) set all
- 4 -
<PAGE>
annual bonus targets, salary increases and benefits to which Employee shall be
entitled to participate.
(g) It is the intention of Employer to have the Compensation Committee
recommend to the Board of Directors (the "PRADE Board") of PRA International,
Inc., a Delaware corporation and the parent company of Employer ("PRADE"), to
create, shortly after the date of this Agreement, an incentive based option plan
for key employees of Employer (the "ISO Plan"). It is expected that the ISO
Plan will consist of options for common stock of PRADE and will have key terms,
subject to alteration and amendment in the sole discretion of the PRADE Board in
consultation with the Compensation Committee, substantially similar to those set
forth on Exhibit B hereto as well as those contemplated by Section 8 of this
Agreement. At such time as the ISO Plan is created, Employee shall be entitled
to participate therein.
5. Confidential Information and Certain Property Matters.
-----------------------------------------------------
(a) Employee hereby acknowledges that, in the course of his employment
under this Agreement, he will be given access to or otherwise will come into
contact with and/or will possess, and that with respect to Employer's business
he already possesses, information, knowledge, contacts and experience relating
to the businesses, operations, properties, assets, liabilities and financial
condition of Employer and the markets and industries in which it operates,
including, without limitation, information relating to business plans and ideas,
trade secrets, intellectual property, know-how, formulas, processes, research
and development, methods, policies, materials, results of operations, financial
and statistical data, personnel data and customers in and related to the markets
and industries in which Employer operates (the "Confidential Information"),
which are considered by Employer to be valuable, secret, confidential and
proprietary. Employee hereby
- 5 -
<PAGE>
acknowledges and agrees that the Confidential Information is valuable, secret,
confidential and proprietary to Employer, and hereby undertakes and agrees that
he shall not, at any time (whether during or after the expiration of the Term),
or for any purpose, make public, disclose, divulge, furnish, release, transfer,
sell or otherwise make available to any person any of the Confidential
Information, or otherwise use any of the same or allow any of the same to be
used for any purpose including, but not limited to, contacting for any purpose
the personnel, customers or suppliers of Employer, other than as may be
permitted to Employee under this Agreement. Notwithstanding the foregoing,
Employee may, without violating this Section 5(a), disclose Confidential
Information if (i) such disclosure is required to comply with a valid court
order or any administrative law order or decree, (ii) Employee gives Employer
advance written notice of the required disclosure so that Employer may, if it
wishes, seek an appropriate protective order and (iii) Employee, in any event,
requests that any disclosed information be afforded confidential treatment, to
the greatest extent possible.
(b) Employee hereby agrees to promptly and fully disclose to Employer
all Inventions made or conceived by him that would be deemed applicable, useful
or otherwise beneficial to or in respect of, the current business of Employer,
in whole or in part, during his employment with Employer. For the purposes of
this Agreement, "Inventions" include, but are not limited to, customer list
compilations, machinery, apparatus, products, processes, results of research and
development (including without limitation results that constitute trade secrets,
ideas and writings), computer hardware, information systems, software (including
without limitation source code, object code, documentation, diagrams and flow
charts) and any other discoveries, concepts and ideas, whether patentable or not
(including without limitation processes, methods, formulas, and techniques, as
well as improvements thereof or know-how related thereto, concerning any present
or prospective business
- 6 -
<PAGE>
activities of Employer). Any and all Inventions shall be the absolute property
of Employer or its designees, and Employee acknowledges that he shall have no
interest whatsoever in such Inventions. At the request of Employer and without
additional compensation, Employee (i) shall make application in due form for
United States letters patent and foreign letters patent on such Inventions, and
shall assign to Employer all his right, title and interest in such Inventions,
(ii) shall execute any and all instruments and do any and all acts necessary or
desirable in connection with any such application for letters patent or in order
to establish and perfect in Employer the entire right, title and interest in
such Inventions, patent applications or patents and (iii) shall execute any
instruments necessary or desirable in connection with any continuations,
renewals or reissues thereof or in the conduct of any related proceedings or
litigation. Except as authorized by Employer in writing, Employee shall not
disclose, directly or indirectly, to any person other than Employer, any
information relating to any Invention or any patent application relating
thereto.
(c) Employee hereby acknowledges and agrees that the work performed by
Employee pursuant to his employment by Employer will be specifically ordered or
commissioned by Employer, and that such work shall be considered a "work for
hire" as defined in the Copyright Revision Act of 1976 (the "Act"), granting
Employer full ownership to the work and all rights comprised therein. Should
any work not fall within the definition of a "work for hire" as set forth in
such Act, Employee hereby transfers and assigns to Employer full ownership of
the copyright to the work and all rights comprised therein. Employee shall sign
all applications for registration of such copyright as are requested by
Employer, and shall sign all other writings and instruments and perform all
other acts necessary or desirable to carry out the terms of this Agreement.
- 7 -
<PAGE>
6. Covenant Not to Compete. (a) Employee agrees that during the Term and
-----------------------
for a period of two years thereafter (the "Noncompetition Period"), he shall not
directly or indirectly own, manage, operate, join, advise, consult, control or
participate in the ownership, management, operation or control of, or be
connected in any manner with, any business under any name similar to the name of
Employer or any other person whose principal business is (or the principal
business of any of its affiliates is) competitive with Employer or who proposes
to engage in a business competitive with Employer, or in any department or
division of any other person where such department or division is competitive
with Employer (where the nature of Employer's business is measured (i) if the
competitive act in question occurs during the Term, at the time the competitive
act in question is made by Employee, and (ii) if the competitive act in question
occurs after the Term, at the time Employee's employment is terminated
hereunder). During the Noncompetition Period, Employee agrees that he shall not
offer to any person any services that compete with or are substantially similar
to those provided by Employer (where the nature of Employer's business,
including the services provided by Employer, are measured (1) if the offer is
made during the Term, at the time the offer is made by Employee, and (2) if the
offer is made after the Term, at the time Employee's employment is terminated
hereunder).
(b) Employee agrees that he shall not engage in unfair competition
with Employer during the Noncompetition Period.
(c) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), other than on behalf of Employer and consistent with
his duties as an employee of Employer, directly or indirectly solicit the trade
of, or trade with, any person who is a client, customer or supplier of Employer
(where all such clients, customers and suppliers are measured at the time
- 8 -
<PAGE>
Employee's employment is terminated hereunder) unless Employee receives the
prior written consent of the Board to do so.
(d) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), directly or indirectly, solicit or induce (or attempt
to solicit or induce) to leave the employ of Employer for any reason whatsoever,
or hire, any person who (i) was employed by Employer within one year prior to
the time of the act of solicitation or inducement, or (ii) is employed by
Employer at the time of the act of solicitation or inducement.
(e) During and after the Term, Employee agrees not to disparage
Employer, the parent of Employer, or any of the subsidiaries or affiliates of
Employer. During and after the Term, Employer agrees not to disparage the
character of Employee.
(f) Employee hereby specifically acknowledges and agrees that the
provisions of this Section 6 are reasonable and necessary to protect the
legitimate interests of Employer, and that Employee desires to agree to the
provisions of this Section 6. In the event that any of the provisions of this
Section 6 should ever be held to exceed the time, scope or geographic
limitations permitted by applicable law, it is hereby declared to be the
intention of the parties hereto that such provision be reformed to reflect the
maximum time, scope and geographic limitations that are permitted by such law.
(g) Employee hereby acknowledges and agrees for himself, and for any
person participating with him in any breach or threatened breach of this Section
6 (the "Other Person"), that, owing to the special, unique and extraordinary
nature of the matters covered by this Section 6, in the event of any breach or
threatened breach by Employee or the Other Person of any of the provisions
hereof, Employer would suffer substantial and irreparable injury, which could
not be fully compensated by
- 9 -
<PAGE>
monetary award alone, and Employer would not have adequate remedy at law.
Therefore, Employee agrees that, in such event, Employer shall be entitled to
temporary and/or permanent injunctive relief against him and any such Other
Person, without the necessity of proving actual damages or of posting bond to
enforce any of the provisions of this Section 6, and he hereby waives for
himself and for any such Other Person the defenses, claims, or arguments that
the matters are not special, unique, and extraordinary, that Employer must prove
actual damages, and that Employer has an adequate remedy at law.
(h) Employee further agrees that the rights and remedies described in
this Section 6 are cumulative and shall be in addition to and not in lieu of any
other rights and remedies otherwise available under this Agreement, or at law or
in equity, including but not limited to monetary damages.
7. Termination.
-----------
(a) Basic Termination. In addition to the termination provisions set
-----------------
forth in Section 7(b) and Section 7(c) hereof, the Term shall terminate pursuant
to the applicable provisions of Section 2 hereof and immediately upon the death
of Employee. Upon termination of the Term under the applicable provisions of
Section 2 hereof or upon the death of Employee, Employer shall have no further
obligation to Employee except as set forth in Section 8 hereof.
(b) Termination By Employer. The Term may be terminated by Employer
-----------------------
under the following circumstances (in each case, upon such termination, Employer
shall have no further obligation to Employee except as set forth in Section 8
hereof):
(i) Disability. If during the Term, Employee shall be prevented from
----------
performing his duties for a continuous
- 10 -
<PAGE>
period of one hundred and eighty (180) days by reason of disability which
renders Employee physically or mentally incapable (excluding infrequent and
temporary absences due to illness) of performing substantially all of his duties
under this Agreement, Employer may terminate Employee's employment hereunder.
If after a period of disability commences (but prior to termination of
Employee's employment), Employee returns to work for a period of at least twenty
(20) consecutive work days, the period of disability shall be deemed to
terminate and not be counted towards any period of subsequent disability. For
purposes of this Agreement, Employer, upon the advice of a qualified and
impartial physician, shall determine whether Employee has become physically or
mentally incapable of performing substantially all of his duties under this
Agreement. Employer shall give Employee (or his guardian, as applicable) thirty
(30) days' written notice of termination of the Term under this Section 7(b)(i).
(ii) For Good Cause. Employer may terminate Employee's employment at any
--------------
time for Good Cause (as defined below), by giving reasonable notice under the
circumstances to Employee. "Good Cause" shall include, without limitation, (A)
a material breach of this Agreement by Employee (where Employee fails to cure
such breach within five (5) days after being notified in writing by Employer of
such breach), (B) Employee's failure to perform his assigned duties without an
excuse that is reasonably acceptable to Employer, (C) Employee engages in an act
(or causes an act) that has a material adverse impact on the reputation,
business, business relationships or financial condition of Employer, (D) the
conviction of Employee of a felony or any crime involving moral turpitude, fraud
or misrepresentation, (E) misappropriation or embezzlement by Employee of funds
or assets of Employer, and (F) Employee's willful refusal to
- 11 -
<PAGE>
perform specific directives of the Board which are consistent with the scope,
ethics and nature of Employee's duties and responsibilities hereunder.
Notwithstanding the foregoing, "Good Cause" shall not include a situation
whereby Employer asks Employee to relocate to another city and Employee declines
to do so. Termination by Employer for Good Cause hereunder based on a material
breach of this Agreement or for other wrongful acts committed by Employee
against Employer, shall not abrogate the rights and remedies of Employer in
respect of the breach or wrongful act giving rise to such termination.
(c) Termination by Employee. The Term may be terminated by Employee upon
-----------------------
thirty (30) days' written notice given to Employer after a material breach
hereof by Employer (where Employer fails to cure such breach within five (5)
days after being notified in writing by Employee of such breach). Termination
by Employee hereunder shall not abrogate the rights and remedies of Employee in
respect of the breach giving rise to such termination. Upon termination by
Employee following a material breach by Employer, Employee shall have no further
duties or obligations to Employer under this Agreement (except as contemplated
by Section 7(d) below).
(d) Survival of Sections. It is agreed that notwithstanding anything
--------------------
contained in this Agreement to the contrary, Sections 5, 6, the applicable
provisions of 7(b)(ii), 8 and 9 of this Agreement shall survive termination of
the Term.
8. Payments by, Obligations of, and Events Affecting the Respective
----------------------------------------------------------------
Parties in Event of Termination.
- -------------------------------
(a) Should the Term terminate under Section 7(a) of this Agreement
(expiration of the Term or the death of Employee),
- 12 -
<PAGE>
or be terminated by Employer under Section 7(b)(i) of this Agreement (disability
of Employee):
(i) Employee shall be entitled to receive:
(A) any and all accrued but unpaid base salary compensation due to
Employee as of the date on which the Term is terminated shall be paid within
fifteen (15) days of such date; plus
(B) severance payments equal to the sum of (y) six months base salary
(as it would normally be paid) plus (z) an additional six months base salary
less the fair market value (as of the date on which the Term is terminated) of
any options held by Employee under the ISO Plan which have vested and any shares
held by Employee as a result of the exercise by Employee of vested options held
by Employee under the ISO Plan (such fair market value to be determined by the
Board in good faith).
(ii) Benefits pursuant to any of Employer's employee benefit plans shall
be payable in accordance with the terms of the instruments applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan will
automatically terminate (under the terms of the ISO Plan).
(iv) In the event the Term is terminated due to the death of Employee,
PRADE shall have the right, in its sole discretion (under the terms of the ISO
Plan), to purchase from the estate of Employee (within ninety (90) days of the
date on which the Term is terminated), vested options held by Employee under the
ISO plan and/or any shares held by the estate of Employee as a result of the
exercise by Employee (or his
- 13 -
<PAGE>
estate) of vested options held by Employee under the ISO Plan. The purchase
price of the options and shares contemplated by this Section 8(a)(iv) shall be
the fair market value of such vested options and/or shares as of the date on
which the Term is terminated (as determined by the PRADE Board in good faith).
(b) Should the Term be terminated by Employer under Section 7(b)(ii) of
this Agreement (for Good Cause):
(i) Employee shall be entitled to receive (within fifteen (15) days of
the date on which the Term is terminated) any and all accrued but unpaid base
salary compensation due to Employee as of the date on which the Term is
terminated.
(ii) Benefits pursuant to any of Employer's employee benefit plans shall
be payable in accordance with the terms of the instruments applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan will
automatically terminate (under the terms of the ISO Plan).
(iv) All vested options held by Employee under the ISO Plan that are not
exercised by Employee within ninety (90) days of the date on which the Term is
terminated, will automatically terminate (under the terms of the ISO Plan).
(c) Should the Term be terminated by Employee under Section 7(c) of this
Agreement:
(i) Employee shall be entitled to receive:
(A) Any and all accrued but unpaid base salary compensation due to
Employee as of the date on which the
- 14 -
<PAGE>
Term is terminated (payable within fifteen (15) days of the date on which the
Term is terminated); plus
(B) full base salary (payable monthly at the same time Employee would
otherwise be entitled to receive such base salary if Employee were still
employed by Employer) (y) through November 1, 1998 or (z) for a period of twelve
(12) months after the date on which the Term is terminated, whichever period is
longer.
(ii) Benefits pursuant to any of Employer's employee benefit plans shall
be payable in accordance with the terms of the instruments applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan will
automatically vest as of the date on which the Term is terminated (under the
terms of the ISO Plan).
(iv) Within ninety (90) days of the date on which the Term is terminated,
Employee shall have the option (under the terms of the ISO Plan) to require
PRADE to repurchase (during such ninety (90) day period) vested options held by
Employee under the ISO Plan and/or shares of PRADE's common stock previously
issued pursuant to the exercise of options held by Employee under the ISO Plan.
The purchase price of the options and/or shares contemplated by this Section
8(c)(iv) shall be the fair market value of such vested options and/or shares as
of the date on which the Term is terminated (as determined by the PRADE Board in
good faith). Notwithstanding the foregoing, the obligation of PRADE to
repurchase the options and/or shares referenced in this Section 8(c)(iv) shall
only apply to the extent PRADE has funds legally and readily available to make
such repurchase (with the availability of the funds being determined by the
PRADE Board in good faith).
- 15 -
<PAGE>
9. Records. Upon termination of Employee's employment with Employer for
-------
any reason under this Agreement, Employee shall promptly deliver to Employer any
and all correspondence, mailing lists, drawings, blueprints, manuals, letters,
records, notes, notebooks, reports, flow-charts, programs, proposals, computer
tapes, discs and diskettes which are in Employee's possession or under his
control, and any and all documents concerning or relating to Employer's
business, clients, customers, investors or lenders, or concerning products,
processes or technologies used by Employer which are in Employee's possession or
under his control, and, without limiting the foregoing, shall promptly deliver
to Employer any and all documents or materials which are in Employee's
possession or under his control containing or constituting Confidential
Information.
10. Arbitration. Except with respect to matters involving equitable
-----------
remedies (in which case any such matter may be brought in a court of competent
jurisdiction), all disputes between Employer and Employee hereunder, or
otherwise arising out of the employment or termination of employment of
Employee, shall be settled by arbitration before a three-member panel pursuant
to the rules of the American Arbitration Association, in Washington, D.C. The
award rendered by the arbitrators shall be conclusive and binding upon the
parties hereto. Each party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared.
11. Entire Agreement. This Agreement (together with Exhibit A and
----------------
Exhibit B hereto) supersedes any prior agreement between the parties hereto with
respect to the subject hereof; constitutes the entire agreement between the
parties hereto with respect to the subject hereof; and replaces in its or their
entirety (and stands as a written amendment thereto or termination thereof, as
required) any and all employment or other agreements (whether written or oral)
that Employee may have in place with
- 16 -
<PAGE>
Employer as of the Effective Date. No amendment, alteration or modification of
this Agreement shall be valid unless in each instance such amendment, alteration
or modification is expressed in a written instrument duly executed in the name
of the party or parties making such amendment, alteration or modification.
12. Severability. The provisions of this Agreement shall be deemed
------------
severable, and, subject to Section 6(f) of this Agreement, if any part of any
provision is held to be illegal, void, voidable, invalid, nonbinding or
unenforceable in its entirety or partially or as to any party, for any reason,
such provision may be changed, consistent with the intent of the parties hereto,
to the extent reasonably necessary to make the provision, as so changed, legal,
valid, binding and enforceable. If any provision of this Agreement is held to
be illegal, void, voidable, invalid, nonbinding or unenforceable in its entirety
or partially or as to any party, for any reason, and if such provision cannot be
changed consistent with the intent of the parties hereto to make it fully legal,
valid, binding and enforceable, then such provision shall be stricken from this
Agreement, and the remaining provisions of this Agreement shall not in any way
be affected or impaired, but shall remain in full force and effect.
13. Governing Law. This Agreement is to be governed by and interpreted
-------------
under the laws of the Commonwealth of Virginia, without regard to the conflicts
of laws provisions or rules of such State's law.
14. Headings; Form of Words. The headings contained in this Agreement
-----------------------
have been inserted for the convenience of reference only, and neither such
headings nor the placement of any term hereof under any particular heading shall
in any way restrict or modify any of the terms or provisions hereof. Terms used
in the singular shall be read in the plural, and vice versa, and terms used in
the masculine gender shall be read in the feminine or
- 17 -
<PAGE>
neuter gender when the context so requires. The term "person" as used herein
refers to a natural person, a corporation, a limited liability company, a
partnership, a joint venture, or other entity or association, as the context
requires.
15. Notices. All notices, requests, consents, payments, demands and other
-------
communications required or contemplated under this Agreement ("Notices") shall
be in writing and (a) personally delivered, (b) deposited in the United States
mail, registered or certified mail, return receipt requested, with postage
prepaid, or (c) sent by Federal Express or Airborne Courier (for next business
day delivery), shipping prepaid, as follows:
If to Employer, to:
Pharmaceutical Research Associates, Inc.
2400 Old Ivy Road
Charlottesville, Virginia 22903-4826
Attn: Earle Martin, CEO
If to Employee, to:
James Powers
2310 Gersandy Place
Charlottesville, Virginia 22901
or such other persons or address as any party may request by notice given as
aforesaid. Notices shall be deemed given and received at the time of personal
delivery or, if sent by U.S. mail, five (5) business days after the date mailed
in the manner set forth in this Section 15, or, if sent by Federal Express or
Airborne Courier, one business day after such sending.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original,
- 18 -
<PAGE>
but all of which together shall constitute one and the same instrument.
17. Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors, assigns, heirs and representatives of the parties
hereto, whether so expressed or not. Neither this Agreement nor any of the
rights and obligations hereunder shall be assigned, delegated, sold,
transferred, sublicensed or otherwise disposed of, by operation of law or
otherwise, without the prior written consent of the other party hereto.
18. Cooperation. Each party to this Agreement agrees to cooperate with
-----------
the other party hereto to carry out the purpose and intent of this Agreement,
including without limitation the execution and delivery to the appropriate party
of all such further documents as may reasonably be required in order to carry
out the terms of this Agreement.
19. Waiver. Any waiver of any provision hereof (or in any related
------
document or instrument) shall not be effective unless made expressly and in a
writing executed in the name of the party sought to be charged. The failure of
any party to insist, in any one or more instances, on performance of any of the
terms or conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant or condition, but the obligations of the parties with
respect thereto shall continue in full force and effect.
20. Indemification. Employee shall be entitled to be indemnified by
--------------
Employer to the fullest extent permitted by the Virginia Stock Corporation act
notwithstanding any limitations set forth in Employer's Articles of
Incorporation.
- 19 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
Employer: PHARMACEUTICAL RESEARCH ASSOCIATES, INC.
By: /s/ Earle Martin
--------------------------
Print Name: Earle Martin
-----------------
Print Title: President
-----------------
Employee: /s/ James C. Powers
-----------------------------------
Print Name: James C. Powers
-----------------
- 20 -
<PAGE>
Exhibit A
Boards of Directors on Which Employee Serves as of the Date of this Agreement
-----------------------------------------------------------------------------
None
- 21 -
<PAGE>
Exhibit B
Key Terms of ISO Plan
---------------------
Class of Shares: Options will be for shares of PRADE's Common Stock.
Number of Shares: Maximum number of shares issuable under the ISO
Plan will be approximately 323,000.
Exercise Price: $11.683 per share (in cash, or by cash or cashless
exercise on death/disability).
Vesting: 25% of the options under the ISO Plan will vest
over a four-year period from the date of grant (the
"Grant Date"), with the first 25% vesting on the
first anniversary of the Grant Date, and each
additional 25% vesting on each successive
anniversary of the Grant Date through the fourth
anniversary thereof.
Notwithstanding the foregoing, 50% of the options
under the ISO Plan will vest automatically upon any
extraordinary event in which any purchaser(s)
(whether taken individually or as a group), under
that certain Stock Purchase Agreement, dated
September 13, 1996, by and among PRADE, Employer,
and Carlyle Partners II, L.P. (together with
certain Affiliates; the "Stock Purchase
Agreement"), receives an Internal Rate of Return
(as such term is defined in that certain
Stockholders' Agreement attached as Exhibit C to
the Stock Purchase Agreement; "IRR") greater than
25% (to the extent that exercise of any options
under the ISO Plan do not reduce such IRR below
25%).
In addition to the foregoing, 25% of the options
under the ISO Plan will vest automatically upon any
extraordinary event in which the above stated IRR
for any such Purchaser(s) (whether taken
individually or as a group) is greater than 33%.
Grant of Options: Allocation of the options under the ISO Plan will
be determined by the PRADE Board in consultation
with the Compensation Committee.
Additional: The ISO Plan shall also contain the provisions
contemplated by Section 8 of the Employment
Agreement, with respect to automatic vesting,
rights of repurchase, etc.
Note: Capitalized terms used herein without definition
shall have the meanings ascribed thereto in the
attached Employment Agreement.
- 22 -
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AND NON-COMPETITION AGREEMENT (the
"Amendment") is made as of the 14th day of November 1997 by and between
Pharmaceutical Research Associates, Inc., a Virginia corporation (hereinafter
called "Employer"), and James Powers (hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment and
Non-Competition Agreement dated as of October 11, 1996 (the "Employment
Agreement"; capitalized terms used and not otherwise defined in this Amendment
shall have the respective meanings assigned to them in the Employment
Agreement); and
WHEREAS, the parties hereto have agreed to amend the Employment Agreement
on the terms and conditions contained herein so that the terms of such
Employment Agreement conform to the terms and conditions of that certain Amended
and Restated Option Agreement (the "Option Agreement") by and between Employee
and Employer's parent, PRA International, Inc., a Delaware corporation
("International"), which Option Agreement is being executed concurrently
herewith.
NOW THEREFORE, in consideration of the premises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Employment Agreement. From and after the Effective Date
----------------------------------
(as defined in Section 2 hereof), the Employment Agreement is hereby amended by
deleting Sections 8(a)(iv) and 8(c)(iv) in their entirety.
2. Effectiveness of Amendment. This Amendment shall become effective as
--------------------------
of the consummation on or before January 31, 1998 of an initial public offering
of common stock of International approved by the Public Offering Committee of
the International Board (the "Effective Date") upon the execution and delivery
of this Amendment by each of the parties hereto. In the event such an initial
public offering is not consummated on or before January 31, 1998, this Amendment
shall be null and void. At all times on and after the Effective Date, each
reference in the Employment Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, shall mean and be a reference to the
<PAGE>
-2-
Employment Agreement as amended by this Amendment. Except as, and to the
extent, specifically amended by this Amendment, the Employment Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
3. Execution in Counterparts. This Amendment 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 to be an original
and all of which taken together shall constitute but one and the same
instrument.
4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF VIRGINIA (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
5. Headings. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment No. 1
to Employment Agreement as a sealed instrument as of the date first set forth
above.
PHARMACEUTICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Earle Martin
---------------------------
Name: Earle Martin
Title: President
/s/ James Powers
------------------------------
JAMES POWERS
<PAGE>
Exhibit 10.10
E M P L O Y M E N T A G R E E M E N T
--------------------------------------
Employee is not bound by collective labor agreement.
PARTIES:
The undersigned:
Pharmaceutical Research Associates, Inc. (PRA) established at 1290 Trail,
- ---------------------------------------------- -----------
Charlottesville, Virginia 22901-1736 U.S.A. herein called "employer"
- --------------------------------------------
and
Joachim Vollmar living at Brucknerstrasse 4, D-6940 Weinheim, Germany hereafter
- --------------- -------------------------------------------
called "employee"
declare to have entered into the following contract of employment:
1.0. POSITION AND DUTIES.
-------------------
1.1. Employee enters the employment of employer as Managing Director PRA
Europe starting on 1 October 1992 and agrees to perform to the best of
his abilities all the duties which may reasonably be assigned to him by
or on behalf of employer and which are connected with employer's
business, and to follow thereby the directions which shall be given to
him by or on behalf of employer.
1.2. Employee is responsible for all aspects of PRA's European operations,
including organization, personnel, financial performance, marketing,
strategic planning, operations, and European locations. The position
will report to Raymond Rugloski or his assignee.
1.3. Employer expects that the employee will succeed in establishing PRA as a
premier contract research organization serving both the clinical
research needs within Europe and, in cooperation with PRA, Inc., the
international requirements of our sponsors. PRA expects that the
employee will understand the nature of the evolving regulatory
environment in Europe and will adapt PRA's services to meet certain
unique needs. The employee must ensure that, in addressing sponsors'
needs in Europe, PRA maintains high standards of business ethics and
performance.
<PAGE>
-2-
1.4. Employee is specifically responsible for:
1.4.1. Establishment of annual budgets for revenues and expenses.
1.4.2. Accomplishment of profit objectives (including decision-making authority
for all spending decisions within the limits of the budget).
1.4.3. Development and implementation of strategic plans regarding target
clients, services, locations, staffing, etc., necessary for PRA to
achieve in goals in Europe.
1.4.4. Development of annual objectives for PRA Europe.
1.4.5. Staffing of all European positions.
1.4.6. Marketing and sales in Europe (including generation of proposals). The
employee is expected to take a leading role in this area until a full-
time marketing/sales person is hired; the employee will continue to play
an active role even after this individual is hired.
1.4.7. Participation in meetings of PRA's senior management team to discuss all
issues of global or strategic importance. This involves at least semi-
annual visits to PRA, Inc.
1.4.8. Adherence to the corporate philosophy and commitments stated in PRA's
Mission Statement and Ten Commandments. (Deviations may be necessitated
by a different cultural or business environment in Europe that may
require a modified Mission statement for PRA in Europe, however, any
modification must be agreed upon PRA, Inc.'s senior management team.)
1.4.9. Capital spending on facilities, with the exceptions of computer software
and hardware. (Computer decisions must be coordinated with PRA, Inc., to
maintain continuity and compatibility with PRA's worldwide systems.)
1.5. Employee will be appointed as a member of the management board of PRA BV
and expected to act in accordance with its Articles of Association, a
copy of which will be provided to the employee.
<PAGE>
-3-
1.6. Employee will be appointed as a business manager (Geschaftsfuhrer) of
PRA GmbH when it is established and expected to act in accordance with
its Articles of Association, a copy of which will be provided to the
employee.
2.0. DURATION OF CONTRACT.
--------------------
2.1. This contract of employment is initially for a period of five (5) years
starting 1 October 1992 and ending 30 September 1997, and will renew for
an indefinite period of time unless either party provides written notice
at least nine (9) months before the 30 September 1997.
2.2. This agreement will terminate is any case, without notice being
required, on the first day of the month following the month in which the
employee reaches the age of 65 years.
2.3. This notice can be terminated forthwith and without notice if an urgent
cause for summary dismissal should occur.
3.0. NOTICE AND TERMINATION.
----------------------
3.1. After the initial five (5) years of employment, this agreement can be
terminated by either party with due observance of a term of notice of
nine (9) months.
3.2. This notice can be terminated forthwith and without notice if an urgent
cause for summary dismissal should occur.
4.0. COMPENSATION, BONUSES, HOLIDAYS, STOCK AND MISCELLANEOUS.
--------------------------------------------------------
4.1. At the date of entering into this agreement as a full-time employee the
gross annual salary is DM 215,000 payable in twelve equal monthly
amounts no later than the last day of each calendar month. Interim
performance evaluations will be written at six months and compensation
will be reviewed upon employee's one-year anniversary date.
4.2. Every year in the month of June a summer allowance will be paid equal to
one-twelfth of the gross annual salary.
4.3. Every year in the month of November a Christmas allowance will be paid
equal to one-twelfth of the gross annual salary.
<PAGE>
-4-
4.4. Employee will be entitled to a vacation of thirty (30) working days per
year.
4.5. Employee will be entitled to standard national holidays.
4.6. A car will be provided for employee's exclusive use. (The details
regarding how this benefit is typically provided in Germany are now
being pursued and will be provided to employee.)
4.7. One thousand (1000) shares of PRA stock options will be granted to
employee and vested over four years at a rate of 25% per year, beginning
with employee's date of full-time employment. Shares are subject to
PRA's Stockholders Agreement.
4.8. Upon employee's acceptance and start of full-time employment employee
will be nominated to PRA, Inc.'s Board of Directors and become a part of
PRA's senior management team.
4.9. Compensation and employee benefits will become effective as of the start
date of full-time employment.
5.0. HEALTH, UNEMPLOYMENT, AND WORKER'S COMPENSATION INSURANCE.
---------------------------------------------------------
5.1. Employer will pay the amount provided by German law for employee's
health insurance (presently DM 240/month) and employee pays balance.
5.2. Employer will contribute to employee's unemployment insurance per the
German social security system which presently provides for the employer
and the employee to pay one-half of the contribution up to a government
specified maximum.
5.3. Employer will pay the contribution to the workmen's compensation
insurance as mandated by the German social security system.
6.0. DISABILITY INSURANCE.
--------------------
Where not provided by national coverage, employer will provide employee
disability insurance coverage to the amounts shown below.
<PAGE>
-5-
6.1. In case of disability due to illness:
100% salary for first 8 months
50% salary for next 6 months
400% monthly salary in case of death
6.2. In case of disability due to accident:
DM 300,000 in case of death
DM 300,000 in case of permanent disability
pro rata share in case of partial disability
permanent or partial disability shall be determined by the German social
security system or mutually acceptable physician.
Coverage will be provided for both employee and spouse.
6.3. Employee will not be entitled to the supplement referred to in
paragraphs 6.1. and 6.2. of this article if and in so far employee can
claim compensation from a third party on account of loss of wages in
connection with his disability. In the latter case employer will pay the
supplement only by way of advance on the compensation to be received
from the third party, and upon assignment of the employee's right to the
compensation to the extent of the advances paid by employer. The
advances will be settled by employer to the extent that recovery takes
place.
7.0. LIFE INSURANCE.
--------------
Employer will assume the premiums of the employee's existing life
insurance policies with Hannoversche/Leben: policy #7002-0123, premium
cost is 2.400,000 DM; policy #7022-1068, premium cost is 600,00 DM.
8.0. PENSION INSURANCE "AUSSERTARIFLICH ANGESTELLTER".
------------------------------------------------
Employer will contribute to pension insurance scheme per the German
social security system. Employer will also provide employee with pension
insurance, commonly called "ruckdeckungsveralscherung", in accordance
with German national and industry standards for highly compensated
employees. Such insurance to be at age 65, death, or upon permanent
disability.
<PAGE>
-6-
9.0. DUTY OF SECRECY.
---------------
9.1. Employee shall not, during the continuance of the employment or after
the employment has ended for whatever reason, disclose in any manner to
whomsoever (including other members of employer's staff, unless
this/these staff member(s) must be informed in connection with their
work in the employment of employer and then only upon the expressed
authorization to do so by the employer) any information of a
confidential nature concerning the business of employer and other
companies of the group, which may have become known to employee by
reason of his work for employer, and which he knows or should know the
confidential character.
9.2. If employee should act contrary to his obligations on account of the
provision of paragraph 1 of this article, employee will, without any
notice of default being required, have to pay employer liquidated
damages for each breach thereof, amounting to three (3) times employee's
last gross monthly salary, notwithstanding employer's right to claim
full compensation instead of liquidated damages.
10.0. DOCUMENTS.
---------
10.1. Employee will be forbidden to have or to keep in his private possession
any documents or correspondence or copies thereof in any manner
whatsoever, which are in his hands by reason of his work for employer,
except in so far as and so long as such is required for the performance
of his duties for employer. In any case employee shall, forthwith and
without request being made thereto, return to employer such documents,
correspondence or copies thereof at the expiry of the employment or at
his retirement from active service for whatever reason.
11.0. MEMBERSHIPS AND PUBLICATIONS.
----------------------------
11.1. Employee is encouraged to maintain memberships in scientific societies,
e.g., International Biometric Society, GMDS, and DIA.
11.2. Employee is encouraged to maintain membership in the Kommission B4 at
the BGA.
11.3. Employee is encourage to continue as the editor of the two book series,
Blometrie and Blometrie in der Pharmazeuishcen
<PAGE>
-7-
Industrie, and as the coeditor of the Biometrie und Infomatick in
Medizin und Biologie.
12.0. OBLIGATION NOT TO COMPETE DURING EMPLOYMENT AND PROHIBITION OF SECONDARY
------------------------------------------------------------------------
OCCUPATION.
----------
12.1. Employee shall not be allowed to be engaged, whether or not against
payment and for his own account or for account of third parties, in a
field similar to or otherwise competing with that of employer, or to be
involved in activities in such a field in any manner whatsoever.
12.2. Employee will refrain from accepting other paid work or secondary
occupation in addition to his work under the present agreement, unless
he has obtained employer's prior written consent thereto.
13.0. RESTRAINT OF COMPETITION AFTER EXPIRY OF THE CONTRACT.
-----------------------------------------------------
13.1. Employee shall not during a period of one (1) year after expiry of this
employment agreement be engaged or involved in any manner, either
directly or indirectly, and for his own account or for account of third
parties, in any company which carries on activities in a field similar
to or otherwise competing with that of the employer, or act as
intermediary thereby in whatever form, either directly or indirectly.
This obligation applies to work or involvement of employee as
aforementioned in any geographically distinct area of the world where
employer provides service(s).
13.2. If employee should act contrary to his obligations on account of the
provision of paragraph 1 of this article, he will, without any notice of
default being required, have to pay employer liquidated damages for
every breach thereof, the amount of which will be three (3) times the
last gross monthly salary of employee, as well as liquidated damages
equal to one/sixth part of his last gross annual salary for each day the
breach continues after notice of the discovery thereof has been given by
employer, notwithstanding employer's right to claim full compensation
instead of liquidated damages.
13.3. Should the constraints of paragraph 13.1. prevent employee from securing
reasonable employment, then employer agrees to reach
<PAGE>
-8-
a reasonable compromise with employee and/or provide a reasonable
compensation during the period specified in paragraph 13.1.
14.0. GIFTS.
-----
14.1. Without employer's prior consent employee will be forbidden to accept or
to stipulate in any connection with the performance of his duties any
commission, favor or compensation in whatever form, or gifts, in any
manner, directly or indirectly, from customers, suppliers or other third
parties during the continuance of his employment.
14.2. The provision of paragraph 1 of this article does not apply in so far as
it concerns usual business gifts of small value, i.e., DM 100. or less.
15.0. RULES AND REGULATIONS.
---------------------
15.1. The provision of the (company) rules and regulations apply to this
agreement, a copy of which is attached to this agreement. Employer
reserves the right to delete, alter or amend said rules and regulations
at the employer's discretion.
15.2. Employee will be reimbursed for expenses employee incurs on behalf of
employer, provided such expenses are in accordance with employer's
guidelines for reimbursable expenses or otherwise explicitly approved
expenditures.
15.3. Should employer request, employee agrees to a physical examine every
three (3) years.
16.0. APPLICABLE LAW.
--------------
16.1. This agreement will be governed by the laws of the state of Virginia, in
the United States of America.
Thus agreed and executed in duplicate and signed at Mannheim on
--------
April 14, 1992.
--------------
- --------------------------------------------------------------------------------
<PAGE>
-9-
PHARMACEUTICAL RESEARCH JOACHIM VOLLMAR
ASSOCIATES, INC.
/s/ Raymond J. Rugloski /s/ Joachim Vollmar
- ------------------------ ----------------------
(Authorized Signature) (Employee's Signature)
Name: Raymond J. Rugloski
-------------------
Title: President/CEO
-------------------
Date: 20-03-1992 Date: 14-04-1992
------------------- ----------
<PAGE>
MISSION STATEMENT
PRA will be the provider of choice for premium-quality, timely services to the
world-wide pharmaceutical, biotechnological, and medical device communities. In
the performance of our work, we will conduct ourselves to the highest standards
of business ethics. Our goal is to set the standard by which quality is
measured.
THE TEN COMMANDMENTS OF PRA
1. Be ethical and act with integrity.
2. Deliver high-quality products on time.
3. Attract, hire and retain competent self-motivated people and provide the
environment that will allow them to achieve their full potential.
4. Expand client base and provide a full-line of services world-wide.
5. Be sensitive to employee needs while maintaining PRA objectives.
6. Prepare necessary human, technical, and physical resources in time to meet
demand.
7. Maintain a positive, family-like atmosphere.
8. Support aggressive growth through profits and outside capital (debt &
equity).
9. Work with clients, not just for them.
10. Establish open and effective communications throughout the company.
Pharmaceutical
Research
Associates, Inc.
<PAGE>
EMPLOYMENT AGREEMENT
Amendment 1 - October 1, 1992
Pharmaceutical Research Associates, Inc. (Employer) agrees to appoint Joachim
Vollmar (Employee) as a Managing Director (Geschaftsfuhrer) of Pharmaceutical
---------------
Research Associates GmbH and Employee agrees to abide by the following
limitations on authority:
1. Employee will obtain written approval of Raymond J. Rugloski or his
assignee for managerial resolutions with respect to any one or more of the
following matters:
a. the acquiring, alienating, encumbering, leasing, letting and in any
other way obtaining and giving of registered property;
b. entering into agreements whereby the company is granted credit by a
bank;
c. lending and borrowing money, with the exception of acquiring money
under a credit already granted to the company by a bank;
d. long term direct or indirect co-operation with another company and the
termination of such co-operation;
e. direct or indirect participation in the capital of another company and
changing the size of such a participation;
f. investments;
g. the pledge of, and the fiduciary transfer of title of movable assets;
h. the entering into agreements by which the company binds itself as
guarantor or as severally-liable co-debtor, or otherwise guarantees or
agrees to bind itself as security for a debt of a third party;
i. appointing staff members as managing directors (Geschaftshuhrer) and
---------------
determining their authority and title;
j. making legal settlements;
<PAGE>
k. being a party to legal proceedings which shall include the conducting
of arbitration proceedings, with the exception of taking legal
measurers which cannot be delayed;
l. making and changing employment agreements, as a result of which
remuneration is granted, the amount of which per year exceeds the
maximum amount to be determined by Employer and to be provided in
writing;
m. establishing pension plans and granting pension rights in excess of
those arising from existing arrangements.
2. Employer may determine that a resolution as referred to in paragraph 1
shall not require its approval if the amount involved does not exceed a
value to be fixed by Employer and to be stated in writing.
3. Employer may from time-to-time add, modify, or delete resolutions referred
to in paragraph 1, said additions, modifications, or deletions to be stated
in writing.
4. Employee shall comply with instructions regarding the general lines of the
financial, social, economic, and employment policies to be given by
Employer.
Thus agreed and executed in duplicate at Charlottesville, Virginia on October
28, 1992.
- --------------------------------------------------------------------------------
PHARMACEUTICAL RESEARCH JOACHIM VOLLMAR
ASSOCIATES, INC.
/s/ Raymond J. Rugloski /s/ Joachim Vollmar
- -------------------------- ----------------------
(Authorized Signature) (Employee's Signature)
Name: Raymond J. Rugloski
-------------------
Title: CEO
-------------------
Date: October 28, 1992
-------------------
<PAGE>
AMENDMENT TO EMPLOYEE AGREEMENT
-------------------------------
PARTIES:
The undersigned:
Pharmaceutical Research Associates, Inc. (PRA) established at 1290 Seminole
- ---------------------------------------------- -------------
Trail, Charlottesville, Virginia 22901-1736 U.S.A. herein called "employer"
- -------------------------------------------------
and
Joachim Vollmar living at Brucknerstasse 4, D-6940 Weinheim, Germany hereafter
- --------------- ------------------------------------------
called "employee"
declare to have agreed to the following amendment to employee's contract of
employment:
Paragraph 4.2 and 4.3 are hereby amended such that the summer allowance and
Christmas allowance or parts of it may be paid in any form or with any name
especially as "Zinszuschuss".
Thus agreed and executed in duplicate and signed at Mannheim on 17 November
-------- -----------
1992.
PHARMACEUTICAL RESEARCH JOACHIM VOLLMAR
ASSOCIATES, INC.
/s/ Raymond J. Rugloski /s/ Joachim Vollmar
- ----------------------- ----------------------
(Authorized Signature) (Employee's Signature)
Date: 17-11-92
-----------------
Name: Raymond J. Rugloski
-------------------
Title: CEO
-------------------
Date: 17 November '92
-------------------
<PAGE>
Amendment 3 to Employment Agreement
Parties:
The undersigned:
Pharmaceutical Research Associates, Inc. ("PRA") established at 2400 Old Ivy
- ------------------------------------------------ -------------
Road, Charlottesville, Virginia, 22903-4826 U.S.A. herein called "Employer"
- --------------------------------------------------
and
Joachim Vollmar living at Brucknerstrasse 4, D-69469 Weinheim, Germany hereafter
- --------------- --------------------------------------------
called "Employee"
declare to have agreed to the following amendment to Employee's contract of
employment:
Paragraph 1.2 is hereby amended such that the name "Earle Martin" is substituted
for the name "Raymond Rugloski".
Paragraph 1.4.6 is hereby modified such that the second sentence is deleted and
replaced with the following sentence: "Employee is expected to be active and
take a leading role in marketing the services of PRA worldwide."
Paragraph 1.4.8 is hereby deleted in its entirety and replaced with the
following:
"1.4.8 Adherence to the corporate philosophy and commitments as stated in PRA's
corporate mission, vision, and strategy plan as approved by its Board of
Directors from time to time."
Paragraph 1.4.9 is hereby deleted in its entirety and replaced with the
following:
"1.4.9 Capital spending on facilities, computers, office equipment, etc."
Paragraph 1.5 is hereby deleted.
<PAGE>
Paragraph 1.7 is hereby added as follows:
"1.7 Employee shall use reasonable efforts to impart his skill and knowledge
to such individuals as are designated by Employer and to use his reasonable
efforts to record and document his knowledge relating to business of Employer
and its affiliates."
Paragraph 2.1 is hereby amended to read as follows:
"2.1 This contract of employment will be in effect until November 1, 1998 and
will automatically renew for one year periods thereafter unless either party
notifies the other in writing at least six (6) months prior to expiration of the
original term or any subsequent one year extensions."
Paragraph 2.2 is hereby deleted.
Paragraph 2.3 is hereby deleted.
Paragraph 3.1 is hereby deleted in its entirety and replaced with the following:
"3.1 After the initial period of employment through November 1, 1998, this
agreement can be terminated by either party upon six (6) months prior written
notice.
Paragraph 3.2 is hereby deleted in its entirety an replaced with the following:
"3.2 This employment agreement will terminate without notice upon any of the
following events: (i) the first day of the month following the month in which
the Employee reaches the age of 65 years, (ii) death of the Employee, or (iii)
Employee shall be prevented from performing his duties for a continuous period
of one hundred and eighty (180) days by reason of disability which renders
Employee physically or mentally incapable (excluding infrequent and temporary
absences due to illness) of performing substantially all of his duties under
this agreement provided, that if after a period of disability commences (but
--------
prior to termination of the Employee's employment), the Employee returns to work
for a period of at least twenty (20) consecutive work days, the period of
disability shall be deemed to terminate and not be counted towards any period of
subsequent disability. For purposes of this Agreement, Employer, upon the
advice of a qualified and impartial physician, shall determine whether Employee
has become physically or mentally incapable of performing all of his duties
under this agreement. Termination by Employer under this paragraph 3.2 or upon
expiration of this agreement without extension as described in paragraph 2.1
above will result in:
3.2.1 Severance payment to Employee of six (6) months salary, plus an
additional six (6)
<PAGE>
months salary less the fair market value of any options described in paragraph
4.7.1 which have vested, less any amounts paid under disability insurance
described in paragraph 6.0, plus any salary accrued but not paid through the
termination date,
3.2.2 Termination of all of the unvested options described in paragraph 4.7.1,
and
3.2.3 Employer's option to purchase vested or exercised options described in
paragraph 4.7.1 from Employee or Employee's estate at fair market value within
90 days of termination.
Paragraph 3.3 is hereby added as follows:
"3.3 Employer may terminate Employee's employment at any time due to a
material breach of the terms of the agreement by Employee or for Good Cause, by
giving thirty (30) days notice. "Good Cause" shall include, without limitation,
(i) a material breach of this agreement by Employee (where Employee fails to
cure such breach within five (5) days after being notified in writing by
Employer of such breach), (ii) the Employee's failure to perform his assigned
duties without an excuse that is reasonably acceptable to Employer, (iii) the
Employee engages in an act (or causes an act) that has a material adverse impact
on the reputation, business, business relationships or financial condition of
Employer, (iv) the conviction of Employee of a felony or any crime involving
moral turpitude, fraud or misrepresentation, (v) misappropriation or
embezzlement by Employee of funds or assets of Employer and (vi) Employee's
willful refusal to perform specific directives of the Board of Directors of
Employer which are consistent with the scope, ethics and nature of Employee's
duties and responsibilities hereunder. Termination by Employer under any clauses
under this paragraph 3.3 will result in:
3.3.1 No severance payment to Employee beyond that which has accrued through
the termination date,
3.3.2 Termination of all unvested options described in paragraph 4.7.1, and
3.3.3 The termination of all vested options described in paragraph 4.7.1 which
are not exercised in cash within 90 days of termination and Employer's option to
purchase vested or exercised options from Employee at fair market value within
90 days of termination.
Paragraph 3.4 is hereby added as follows:
3.4 Employee may terminate this agreement upon thirty (30) days' written
notice to
<PAGE>
Employer after a material breach hereof by Employer (where Employer fails to
cure such breach within five (5) days after being notified in writing by
Employee of such breach). Upon termination by Employee following a material
breach by Employer that is uncured by Employer, Employee shall have no further
duties or obligations under this employment agreement. Termination by Employee
under this section will result in:
3.4.1 a continuation of full salary through November 1, 1998 or for a period
of twelve (12) months, whichever is longer,
3.4.2 Immediate vesting of all of the Employee's unvested options described in
paragraph 4.7.1 below, and
3.4.3 Employer's option to purchase vested options and common stock awarded
under paragraph 4.7.1 of this agreement from Employee at fair market value
within ninety (90) days of termination.
Paragraph 4.1 is hereby deleted in its entirety and replaced with the following:
"4.1 The gross annual salary is currently DM 262.500 payable in twelve equal
monthly amounts no later than the last day of each calendar month. Employee
shall be eligible for annual salary and bonus increases based on performance
and/or cost-of-living factors which will be reviewed by the Compensation
Committee of the Board of Directors of Employer."
Paragraph 4.1.1 is hereby added as follows:
"4.1.1 Employee shall participate in the bonus plan currently existing for 1996
as outlined in Attachment A."
Paragraph 4.7 is hereby amended so as to delete the second sentence.
Paragraph 4.7.1 is hereby added as follows:
"4.7.1 Employee will participate in a new incentive based stock option plan to
be created by the Board of Directors of PRA International, Inc.
("International") as soon as practical upon closing of the Carlyle investment.
The option exercise price will be US$11.683 and the number of option shares will
be determined by the Compensation Committee of the Board of Directors of
Employer. One-quarter of the options will vest over a four year period with
one-quarter of these
<PAGE>
vesting on each anniversary. One-half of the options will vest automatically
upon any extraordinary event in which Carlyle receives an internal rate of
return (IRR) greater than twenty-five percent (25%) to the extent that those
options do not take Carlyle under the 25% IRR, and one-quarter of the options
will vest automatically upon any extraordinary event in which Carlyle receives
an IRR greater than thirty-three percent (33%).
Paragraph 4.7.2 is hereby added as follows:
"4.7.2 The options referred to in paragraph 4.7 and 4.7.1 above and any shares
of common stock of International issued in connection with any exercise thereof
shall be subject to a Stockholder Agreement with International, Carlyle and
certain other stockholders as defined therin.
Paragraph 4.8 is hereby deleted.
Paragraph 10.0 is hereby amended to cause the heading to read, "Documents and
-------------
Developments".
- ------------
Paragraph 10.2 is hereby added as follows:
"10.2 Employee will assign to Employer or an affiliate his entire right, title
and interest in all know-how, discoveries, improvements, customer lists, trade
secrets and ideas, writings and copyrightable material, which may be conceived
by Employee or developed or acquired by him during the term of his employment,
which may pertain directly to Employer's or its affiliates' business."
Paragraph 11.4 is hereby added as follows:
"11.4 Employee will not serve on the boards of directors of other material
business, civic or community corporations or entities during the term of his
employment (excluding those boards presently served on) without written consent
of Employer."
Paragraph 13.1 is hereby deleted in its entirety and replaced with the
following:
"13.1 Employee shall not during the period of this Agreement and for a period
of two (2) years after the expiration of this employment agreement:
<PAGE>
13.1.1 Be engaged or involved in any manner, either directly or indirectly, and
for his own account or for account of third parties, in any company which
carries on activities in a field similar to or otherwise competing with that of
Employer during the period of this Agreement and at the time his employment
terminates, or act as an intermediary thereby in whatever form, either directly
or indirectly.
13.1.2 Disparage the company, any of its subsidiaries or affiliates.
13.1.3 Engage in unfair competition with the Employer.
13.1.4 Other than on behalf of Employer, directly solicit the trade of, or
trade with, any person who is a client, customer, or supplier of Employer or
offer any services that compete with or are substantially similar to those
offered by PRA at the time the act in question occurs (if such act occurs during
the term of this Agreement) or at the time the Employee's employment is
terminated hereunder without written consent of the Board of Directors of PRA.
13.1.5 Solicit or hire for employment any person who was employed by PRA within
one (1) year prior to the time of the act of solicitation."
<PAGE>
Paragraph 17 is hereby added as follows:
"17.0 Arbitration
-----------
All disputes between Employer and Employee hereunder, or otherwise arising out
of the employment or termination of employment of Employee, shall be settled by
arbitration before a three-member panel pursuant to the rules of the American
Arbitration Association."
Amendment 1 - October 1, 1992, Section 1, is hereby amended to read, "Employee
will obtain written approval of the Board of Directors of Employer or its
assignee for managerial resolutions with respect to any one or more of the
following matters:".
The Employment Agreement, except as modified hereby, is ratified and confirmed
in all respects.
Thus agreed and executed in duplicate and signed at Washington, D.C. on
October 11, 1996.
Pharmaceutical Research Joachim Vollmar
Associates, Inc.
/s/ Earle Martin /s/ Joachim Vollmar
- ---------------------------- ----------------------------
(Authorized Signature) (Employee's Signature)
Name Earle Martin Date Oct. 11, 1996
------------------------ ---------------------
Title
------------------------
Date
------------------------
<PAGE>
MEMO
To: Gerard Luyben
From: Earle Martin /s/ Earle Martin
Subject: 1997 Salary for Joachim Vollmar
Date: February 14, 1997
CC: Pat Donnelly, Joachim Vollmar
Gerard,
I have completed a review of the compensation changes made to Joachim's base
salary since the beginning of his employment with PRA and determined that the
correct amount for 1997 is as follows:
Monthly compensation DM 21.000
x 12 months 252.000
Two additional months 42.000
Total annual salary DM 294.000
This corrects my previous memo to you stating that the 14 month amount was set
at DM 262.500.
Please implement effective January 1, 1997.
Thanks.
<PAGE>
AMENDMENT 5 TO EMPLOYMENT AGREEMENT
PARTIES:
Pharmaceutical Research Associates, Inc. established at 8300 Boone Boulevard,
- --------------------------------------- ---------------------
Suite 310, Vienna, Virginia 22182 U.S.A., herein called "Employer"
- ----------------------------------------
and
Joachim Vollmar living at Brucknerstrasse 4, D-694 Weinheim, Germany hereafter
- --------------- ------------------------------------------
called "Employee"
declare to have agreed to the following amendment to the Employment Agreement
dated April 14, 1992, as amended, between Employer and Employee (as so amended
and in effect on the date hereof, the "Employment Agreement").
SECTION 3.2.3 of the Employment Agreement is hereby amended in its entirety to
read as follows:
"3.2.3 Employee's option to require Employer to purchase vested or
exercised options described in paragraph 4.7.1 from Employee at fair market
value within 90 days of termination in accordance with the terms of Section
3 (c)(ii) of the Option Agreement dated as of October 26, 1996, as amended,
between PRA International, Inc. and Employee."
Except as amended hereby, the Employment Agreement is ratified and confirmed in
all respects.
Thus agreed and executed in duplicate and signed at Vienna, VA on March 14,
---------- --
1997.
PHARMACEUTICAL RESEARCH JOACHIM VOLLMAR
ASSOCIATES, INC.
/s/ Earle Martin /s/ Joachim Vollmar
- ---------------------- ----------------------
(Authorized Signature) (Employee's Signature)
Name: Earle Martin Date: March 14, 1997
----------------- ---------------
Title: President and CEO
-----------------
Date: March 14, 1997
-----------------
<PAGE>
AMENDMENT NO. 6 TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This AMENDMENT NO. 6 TO EMPLOYMENT AGREEMENT (the "Amendment") is made as
of the 14th day of November 1997 by and between Pharmaceutical Research
Associates, Inc., a Virginia corporation (hereinafter called "Employer"), and
Joachim Vollmar (hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement dated April 14, 1992, as amended, (as amended, the "Employment
Agreement"; capitalized terms used and not otherwise defined in this Amendment
shall have the respective meanings assigned to them in the Employment
Agreement); and
WHEREAS, the parties hereto have agreed to amend the Employment Agreement
on the terms and conditions contained herein so that the terms of such
Employment Agreement conform to the terms and conditions of that certain Amended
and Restated Option Agreement (the "Option Agreement") by and between Employee
and Employer's parent, PRA International, Inc., a Delaware corporation
("International"), which Option Agreement is being executed concurrently
herewith.
NOW THEREFORE, in consideration of the premises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Employment Agreement. From and after the Effective Date
----------------------------------
(as defined in Section 2 hereof), the Employment Agreement is hereby amended by
deleting Sections 3.2.3 and 3.4.3 in their entirety.
2. Effectiveness of Amendment. This Amendment shall become effective as
--------------------------
of the consummation on or before January 31, 1998 of an initial public offering
of common stock of International approved by the Public Offering Committee of
the International Board (the "Effective Date") upon the execution and delivery
of this Amendment by each of the parties hereto. In the event such an initial
public offering is not consummated on or before January 31, 1998, this Amendment
shall be null and void. At all times on and after the Effective Date, each
reference in the Employment Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, shall mean and be a reference to the
Employment Agreement as amended by this Amendment. Except as, and
<PAGE>
to the extent, specifically amended by this Amendment, the Employment Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
3. Execution in Counterparts. This Amendment 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 to be an original
and all of which taken together shall constitute but one and the same
instrument.
4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF VIRGINIA (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
5. Headings. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment No. 6
to Employment Agreement as a sealed instrument as of the date first set forth
above.
PHARMACEUTICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Earle Martin
---------------------------
Name: Earle Martin
Title: President
/s/ Joachim Vollmar
------------------------------
JOACHIM VOLLMAR
<PAGE>
Exhibit 10.11
EXECUTION COPY
--------------
EMPLOYMENT AND NON-COMPETITION AGREEMENT
BETWEEN
PATRICK K. DONNELLY
AND
PHARMACEUTICAL RESEARCH ASSOCIATES, INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 16th day
----
of October, 1996, by and between Pharmaceutical Research Associates, Inc., a
Virginia corporation (hereinafter called "Employer"), having its principal
office in the Commonwealth of Virginia, and Patrick K. Donnelly, (hereinafter
called "Employee").
WHEREAS, Employer and Employee desire to enter into an agreement for
the employment by Employer of Employee.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby covenant and
agree as follows:
1. Position. Employer hereby employs Employee and Employee hereby
--------
accepts employment in the position of Executive Vice-President, with appropriate
title, rank, status and responsibilities as determined from time to time by
Employer upon the terms and conditions hereinafter set forth.
2. Term. The period of employment under this Agreement shall begin
----
on the date of this Agreement (the "Effective Date"), and shall end on November
1, 1998 (the "First Termination Date"), unless sooner terminated pursuant to
Section 7 hereof. After the First Termination Date, employment hereunder shall
be deemed to be renewed automatically, upon the same terms and conditions, for
successive periods of one year each, until either party, at least ninety (90)
days prior to the expiration of the First Termination Date or any successive
term, as applicable, shall give written notice to the other of a determination
not to renew such employment. Notwithstanding the foregoing, Employee's
employment hereunder shall be terminable at any time, and from time to time, in
accordance with the provisions of Section 7 of this Agreement. Subject to
Section 7(d) of this Agreement, the period during which (a) Employee is
employed under the terms of this Agreement and (b) this
<PAGE>
-2-
Agreement is in force (other than with respect to the provisions that survive
termination of this Agreement), shall be known hereafter as the "Term".
3. Duties.
------
(a) During the Term, Employee agrees to use his best efforts in the
business of Employer and to devote his full time, skill, attention and energies
to the business of Employer, and shall not, during the Term, be engaged in any
other business activity which shall be competitive with the business of Employer
or which may (i) interfere with Employee's ability to discharge his
responsibilities to Employer, or (ii) detract from the business of Employer.
The Board of Directors of Employer (the "Board") shall have the power to
determine the specific duties that shall be performed by Employee and the means
and manner by which those duties shall be performed.
(b) In furtherance of the restrictions on the activities of Employee
set forth in Section 3(a) above, during the Term, Employee agrees:
(i) not to work either on a part-time or independent contracting
basis for any other company, business or enterprise without the prior
written consent of the Board; and
(ii) not to serve on the board of directors or comparable
governing body of any other material business, civic or community
corporation or similar entity without the prior written consent of the
Board (excluding those boards of directors on which Employee serves as of
the date of this Agreement, which boards, if any, are listed on EXHIBIT A
hereto).
(c) Employee agrees to use his reasonable efforts to impart his skill
and knowledge relating to the business of Employer to such individuals as are
designated by Employer, and to train such individuals in the aspects of the
business with which Employee is familiar. In addition, at the request of
Employer and without additional compensation, Employee shall use his best
efforts to record and document his knowledge relating to the business of
Employer.
4. Base Salary, Increases, Benefits, Expenses. For all services
------------------------------------------
rendered by Employee under this Agreement and subject to Section 7 below, during
the Term, Employer shall provide Employee with the following:
<PAGE>
-3-
(a) Commencing on the Effective Date, Employer shall pay to Employee,
in equal bi-monthly installments, a base salary of $125,000 per year.
(b) Employee shall be eligible for salary increases, which may be
based on performance and/or cost-of-living factors, as determined under the
provisions of any salary policy of Employer that is generally applicable to
Employer's employees, provided that any such increases shall be reviewed and
approved in advance by the Compensation Committee of the Board (the
"Compensation Committee"), and Employee shall be entitled to such other
increases in compensation as are otherwise imposed by the Compensation
Committee, in its discretion, from time to time.
(c) Employee shall participate in Employer's 1996 Bonus Plan, as such
1996 Bonus Plan currently exists on the date of this Agreement.
(d) Employee shall participate in Employer's standard benefits
programs, which presently include health, life and disability insurance, as well
as those additional benefits (the "Additional Benefits") currently offered to
Employer's executive staff, including additional life and disability insurance,
health club membership and monthly car allowance. It is agreed that the nature
and amount of the Additional Benefits, if any, shall be determined from time to
time by the Compensation Committee, in its discretion. Employer may, at its
election, maintain policies of life and disability insurance on Employee, with
Employer or an affiliate of Employer as beneficiary, and Employee shall
cooperate as necessary to obtain such policies and to keep them in force.
Employee shall be entitled to a total of twenty (20) days of paid vacation per
year. Employee shall be covered by the holiday policy of the Employer, and,
unless inconsistent with applicable law, by any other pension or retirement
plan, disability benefit plan or any other benefit plan or arrangement of
Employer (other than a medical or life insurance plan) presently or hereafter
existing for the benefit of officers or employees of Employer generally, and
determined by the Compensation Committee to be applicable to Employee.
(e) Subject to such conditions as Employer may from time to time
determine, Employer shall pay or reimburse Employee for reasonable expenses
incurred by Employee in connection with the business of Employer and the
performance of Employee's duties hereunder.
<PAGE>
-4-
(f) It is understood and agreed that the Compensation Committee will
meet quarterly to review compensation matters of Employer, and will (on at least
an annual basis) set all annual bonus targets, salary increases and benefits to
which Employee shall be entitled to participate.
(g) It is the intention of Employer to have the Compensation Committee
recommend to the Board of Directors (the "PRADE Board") of PRA International,
Inc., a Delaware corporation and the parent company of Employer ("PRADE"), to
create, shortly after the date of this Agreement, an incentive based option plan
for key employees of Employer (the "ISO Plan"). It is expected that the ISO
Plan will consist of options for common stock of PRADE and will have key terms,
subject to alteration and amendment in the sole discretion of the PRADE Board in
consultation with the Compensation Committee, substantially similar to those set
forth on EXHIBIT B hereto as well as those contemplated by Section 8 of this
Agreement. At such time as the ISO Plan is created, Employee shall be entitled
to participate therein.
5. Confidential Information and Certain Property Matters.
-----------------------------------------------------
(a) Employee hereby acknowledges that, in the course of his employment
under this Agreement, he will be given access to or otherwise will come into
contact with and/or will possess, and that with respect to Employer's business
he already possesses, information, knowledge, contacts and experience relating
to the businesses, operations, properties, assets, liabilities and financial
condition of Employer and the markets and industries in which it operates,
including, without limitation, information relating to business plans and ideas,
trade secrets, intellectual property, know-how, formulas, processes, research
and development, methods, policies, materials, results of operations, financial
and statistical data, personnel data and customers in and related to the markets
and industries in which Employer operates (the "Confidential Information"),
which are considered by Employer to be valuable, secret, confidential and
proprietary. Employee hereby acknowledges and agrees that the Confidential
Information is valuable, secret, confidential and proprietary to Employer, and
hereby undertakes and agrees that he shall not, at any time (whether during or
after the expiration of the Term), or for any purpose, make public, disclose,
divulge, furnish, release, transfer, sell or otherwise make available to any
person any of the Confidential Information, or otherwise use any of the same or
allow any of the same to be used for any purpose including, but not limited to,
contacting for any purpose the personnel, customers or suppliers of Employer,
other than as
<PAGE>
-5-
may be permitted to Employee under this Agreement. Notwithstanding the
foregoing, Employee may, without violating this Section 5(a), disclose
Confidential Information if (i) such disclosure is required to comply with a
valid court order or any administrative law order or decree, (ii) Employee gives
Employer advance written notice of the required disclosure so that Employer may,
if it wishes, seek an appropriate protective order and (iii) Employee, in any
event, requests that any disclosed information be afforded confidential
treatment, to the greatest extent possible.
(b) Employee hereby agrees to promptly and fully disclose to Employer
all Inventions made or conceived by him that would be deemed applicable, useful
or otherwise beneficial to or in respect of, the current business of Employer,
in whole or in part, during his employment with Employer. For the purposes of
this Agreement, "Inventions" include, but are not limited to, customer list
compilations, machinery, apparatus, products, processes, results of research and
development (including without limitation results that constitute trade secrets,
ideas and writings), computer hardware, information systems, software (including
without limitation source code, object code, documentation, diagrams and flow
charts) and any other discoveries, concepts and ideas, whether patentable or not
(including without limitation processes, methods, formulas, and techniques, as
well as improvements thereof or know-how related thereto, concerning any present
or prospective business activities of Employer). Any and all Inventions shall
be the absolute property of Employer or its designees, and Employee acknowledges
that he shall have no interest whatsoever in such Inventions. At the request of
Employer and without additional compensation, Employee (i) shall make
application in due form for United States letters patent and foreign letters
patent on such Inventions, and shall assign to Employer all his right, title and
interest in such Inventions, (ii) shall execute any and all instruments and do
any and all acts necessary or desirable in connection with any such application
for letters patent or in order to establish and perfect in Employer the entire
right, title and interest in such Inventions, patent applications or patents and
(iii) shall execute any instruments necessary or desirable in connection with
any continuations, renewals or reissues thereof or in the conduct of any related
proceedings or litigation. Except as authorized by Employer in writing,
Employee shall not disclose, directly or indirectly, to any person other than
Employer, any information relating to any Invention or any patent application
relating thereto.
(c) Employee hereby acknowledges and agrees that the work performed by
Employee pursuant to his employment by Employer will be specifically ordered or
commissioned by Employer, and that such work shall be considered a "work for
hire" as defined in the
<PAGE>
-6-
Copyright Revision Act of 1976 (the "Act"), granting Employer full ownership to
the work and all rights comprised therein. Should any work not fall within the
definition of a "work for hire" as set forth in such Act, Employee hereby
transfers and assigns to Employer full ownership of the copyright to the work
and all rights comprised therein. Employee shall sign all applications for
registration of such copyright as are requested by Employer, and shall sign all
other writings and instruments and perform all other acts necessary or desirable
to carry out the terms of this Agreement.
6. Covenant Not to Compete. (a) Employee agrees that during the
-----------------------
Term and for a period of two years thereafter (the "Noncompetition Period"), he
shall not directly or indirectly own, manage, operate, join, advise, consult,
control or participate in the ownership, management, operation or control of, or
be connected in any manner with, any business under any name similar to the name
of Employer or any other person whose principal business is (or the principal
business of any of its affiliates is) competitive with Employer or who proposes
to engage in a business competitive with Employer, or in any department or
division of any other person where such department or division is competitive
with Employer (where the nature of Employer's business is measured (i) if the
competitive act in question occurs during the Term, at the time the competitive
act in question is made by Employee, and (ii) if the competitive act in question
occurs after the Term, at the time Employee's employment is terminated
hereunder). During the Noncompetition Period, Employee agrees that he shall not
offer to any person any services that compete with or are substantially similar
to those provided by Employer (where the nature of Employer's business,
including the services provided by Employer, are measured (1) if the offer is
made during the Term, at the time the offer is made by Employee, and (2) if the
offer is made after the Term, at the time Employee's employment is terminated
hereunder).
(b) Employee agrees that he shall not engage in unfair competition
with Employer during the Noncompetition Period.
(c) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), other than on behalf of Employer and consistent with
his duties as an employee of Employer, directly or indirectly solicit the trade
of, or trade with, any person who is a client, customer or supplier of Employer
(where all such clients, customers and suppliers are measured at the time
Employee's employment is terminated hereunder) unless Employee receives the
prior written consent of the Board to do so.
<PAGE>
-7-
(d) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), directly or indirectly, solicit or induce (or attempt
to solicit or induce) to leave the employ of Employer for any reason whatsoever,
or hire, any person who (i) was employed by Employer within one year prior to
the time of the act of solicitation or inducement, or (ii) is employed by
Employer at the time of the act of solicitation or inducement.
(e) During and after the Term, Employee agrees not to disparage
Employer, the parent of Employer, or any of the subsidiaries or affiliates of
Employer. During and after the Term, Employer agrees not to disparage the
character of Employee.
(f) Employee hereby specifically acknowledges and agrees that the
provisions of this Section 6 are reasonable and necessary to protect the
legitimate interests of Employer, and that Employee desires to agree to the
provisions of this Section 6. In the event that any of the provisions of this
Section 6 should ever be held to exceed the time, scope or geographic
limitations permitted by applicable law, it is hereby declared to be the
intention of the parties hereto that such provision be reformed to reflect the
maximum time, scope and geographic limitations that are permitted by such law.
(g) Employee hereby acknowledges and agrees for himself, and for any
person participating with him in any breach or threatened breach of this Section
6 (the "Other Person"), that, owing to the special, unique and extraordinary
nature of the matters covered by this Section 6, in the event of any breach or
threatened breach by Employee or the Other Person of any of the provisions
hereof, Employer would suffer substantial and irreparable injury, which could
not be fully compensated by monetary award alone, and Employer would not have
adequate remedy at law. Therefore, Employee agrees that, in such event,
Employer shall be entitled to temporary and/or permanent injunctive relief
against him and any such Other Person, without the necessity of proving actual
damages or of posting bond to enforce any of the provisions of this Section 6,
and he hereby waives for himself and for any such Other Person the defenses,
claims, or arguments that the matters are not special, unique, and
extraordinary, that Employer must prove actual damages, and that Employer has an
adequate remedy at law.
(h) Employee further agrees that the rights and remedies described in
this Section 6 are cumulative and shall be in addition to and not in lieu of any
other rights and remedies otherwise
<PAGE>
-8-
available under this Agreement, or at law or in equity, including but not
limited to monetary damages.
7. Termination.
-----------
(a) Basic Termination. In addition to the termination provisions set
------------------
forth in Section 7(b) and Section 7(c) hereof, the Term shall terminate
pursuant to the applicable provisions of Section 2 hereof and immediately upon
the death of Employee. Upon termination of the Term under the applicable
provisions of Section 2 hereof or upon the death of Employee, Employer shall
have no further obligation to Employee except as set forth in Section 8 hereof.
(b) Termination By Employer. The Term may be terminated by Employer
------------------------
under the following circumstances (in each case, upon such termination, Employer
shall have no further obligation to Employee except as set forth in Section 8
hereof):
(i) Disability. If during the Term, Employee shall be prevented
----------
from performing his duties for a continuous period of one hundred and
eighty (180) days by reason of disability which renders Employee physically
or mentally incapable (excluding infrequent and temporary absences due to
illness) of performing substantially all of his duties under this
Agreement, Employer may terminate Employee's employment hereunder. If
after a period of disability commences (but prior to termination of
Employee's employment), Employee returns to work for a period of at least
twenty (20) consecutive work days, the period of disability shall be deemed
to terminate and not be counted towards any period of subsequent
disability. For purposes of this Agreement, Employer, upon the advice of a
qualified and impartial physician, shall determine whether Employee has
become physically or mentally incapable of performing substantially all of
his duties under this Agreement. Employer shall give Employee (or his
guardian, as applicable) thirty (30) days' written notice of termination of
the Term under this Section 7(b)(i).
(ii) For Good Cause. Employer may terminate Employee's
--------------
employment at any time for Good Cause (as defined below), by giving
reasonable notice under the circumstances to Employee. "Good Cause" shall
include, without limitation, (A) a material breach of this Agreement by
Employee (where Employee fails to cure such breach within five (5) days
after being notified in writing by Employer of such breach), (B) Employee's
failure to
<PAGE>
-9-
perform his assigned duties without an excuse that is reasonably
acceptable to Employer, (C) Employee engages in an act (or causes an act)
that has a material adverse impact on the reputation, business, business
relationships or financial condition of Employer, (D) the conviction of
Employee of a felony or any crime involving moral turpitude, fraud or
misrepresentation, (E) misappropriation or embezzlement by Employee of
funds or assets of Employer, and (F) Employee's willful refusal to perform
specific directives of the Board which are consistent with the scope,
ethics and nature of Employee's duties and responsibilities hereunder.
Notwithstanding the foregoing, "Good Cause" shall not include a situation
whereby Employer asks Employee to relocate to another city and Employee
declines to do so. Termination by Employer for Good Cause hereunder based
on a material breach of this Agreement or for other wrongful acts committed
by Employee against Employer, shall not abrogate the rights and remedies of
Employer in respect of the breach or wrongful act giving rise to such
termination.
(c) Termination by Employee. The Term may be terminated by Employee
-----------------------
upon thirty (30) days' written notice given to Employer after a material breach
hereof by Employer (where Employer fails to cure such breach within five (5)
days after being notified in writing by Employee of such breach). Termination
by Employee hereunder shall not abrogate the rights and remedies of Employee in
respect of the breach giving rise to such termination. Upon termination by
Employee following a material breach by Employer, Employee shall have no further
duties or obligations to Employer under this Agreement (except as contemplated
by Section 7(d) below).
(d) Survival of Sections. It is agreed that notwithstanding anything
--------------------
contained in this Agreement to the contrary, Sections 5, 6, the applicable
provisions of Sections 7(b)(ii), 8 and 9 of this Agreement shall survive
termination of the Term.
8. Payments by, Obligations of, and Events Affecting the Respective
----------------------------------------------------------------
Parties in Event of Termination.
- -------------------------------
(a) Should the Term terminate under Section 7(a) of this Agreement
(expiration of the Term or the death of Employee), or be terminated by Employer
under Section 7(b)(i) of this Agreement (disability of Employee):
(i) Employee shall be entitled to receive:
<PAGE>
-10-
(A) any and all accrued but unpaid base salary compensation
due to Employee as of the date on which the Term is terminated shall
be paid within fifteen (15) days of such date; plus
(B) severance payments equal to the sum of (y) six months
base salary (as it would normally be paid) plus (z) an additional six
months base salary less the fair market value (as of the date on which
the Term is terminated) of any options held by Employee under the ISO
Plan which have vested and any shares held by Employee as a result of
the exercise by Employee of vested options held by Employee under the
ISO Plan (such fair market value to be determined by the Board in good
faith).
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically terminate (under the terms of the ISO Plan).
(iv) In the event the Term is terminated due to the death of
Employee, PRADE shall have the right, in its sole discretion (under the
terms of the ISO Plan), to purchase from the estate of Employee (within
ninety (90) days of the date on which the Term is terminated), vested
options held by Employee under the ISO plan and/or any shares held by the
estate of Employee as a result of the exercise by Employee (or his estate)
of vested options held by Employee under the ISO Plan. The purchase price
of the options and shares contemplated by this Section 8(a)(iv) shall be
the fair market value of such vested options and/or shares as of the date
on which the Term is terminated (as determined by the PRADE Board in good
faith).
(b) Should the Term be terminated by Employer under Section
7(b)(ii) of this Agreement (for Good Cause):
(i) Employee shall be entitled to receive (within fifteen (15)
days of the date on which the Term is terminated) any and all accrued but
unpaid base salary compensation due to Employee as of the date on which the
Term is terminated.
<PAGE>
-11-
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically terminate (under the terms of the ISO Plan).
(iv) All vested options held by Employee under the ISO Plan that
are not exercised by Employee within ninety (90) days of the date on which
the Term is terminated, will automatically terminate (under the terms of
the ISO Plan).
(c) Should the Term be terminated by Employee under Section 7(c)
of this Agreement:
(i) Employee shall be entitled to receive:
(A) Any and all accrued but unpaid base salary compensation
due to Employee as of the date on which the Term is terminated
(payable within fifteen (15) days of the date on which the Term is
terminated); plus
(B) full base salary (payable monthly at the same time
Employee would otherwise be entitled to receive such base salary if
Employee were still employed by Employer) (y) through November 1, 1998
or (z) for a period of twelve (12) months after the date on which the
Term is terminated, whichever period is longer.
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically vest as of the date on which the Term is terminated
(under the terms of the ISO Plan).
(iv) Within ninety (90) days of the date on which the Term is
terminated, Employee shall have the option (under the terms of the ISO
Plan) to require PRADE to repurchase (during such ninety (90) day
period) vested options held by Employee under the ISO Plan and/or
shares of PRADE's common stock previously issued pursuant to the
exercise of
<PAGE>
-12-
options held by Employee under the ISO Plan. The purchase price of the
options and/or shares contemplated by this Section 8(c)(iv) shall be
the fair market value of such vested options and/or shares as of the
date on which the Term is terminated (as determined by the PRADE Board
in good faith). Notwithstanding the foregoing, the obligation of PRADE
to repurchase the options and/or shares referenced in this Section
8(c)(iv) shall only apply to the extent PRADE has funds legally and
readily available to make such repurchase (with the availability of
the funds being determined by the PRADE Board in good faith).
9. Records. Upon termination of Employee's employment with Employer
-------
for any reason under this Agreement, Employee shall promptly deliver to Employer
any and all correspondence, mailing lists, drawings, blueprints, manuals,
letters, records, notes, notebooks, reports, flow-charts, programs, proposals,
computer tapes, discs and diskettes which are in Employee's possession or under
his control, and any and all documents concerning or relating to Employer's
business, clients, customers, investors or lenders, or concerning products,
processes or technologies used by Employer which are in Employee's possession or
under his control, and, without limiting the foregoing, shall promptly deliver
to Employer any and all documents or materials which are in Employee's
possession or under his control containing or constituting Confidential
Information.
10. Arbitration. Except with respect to matters involving equitable
-----------
remedies (in which case any such matter may be brought in a court of competent
jurisdiction), all disputes between Employer and Employee hereunder, or
otherwise arising out of the employment or termination of employment of
Employee, shall be settled by arbitration before a three-member panel pursuant
to the rules of the American Arbitration Association, in Washington, D.C. The
award rendered by the arbitrators shall be conclusive and binding upon the
parties hereto. Each party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared.
11. Entire Agreement. This Agreement (together with EXHIBIT A and
----------------
EXHIBIT B hereto) supersedes any prior agreement between the parties hereto with
respect to the subject hereof; constitutes the entire agreement between the
parties hereto with respect to the subject hereof; and replaces in its or their
entirety (and stands as a written amendment thereto or termination thereof, as
required) any and all employment or other agreements (whether written or oral)
that
<PAGE>
-13-
Employee may have in place with Employer as of the Effective Date. No amendment,
alteration or modification of this Agreement shall be valid unless in each
instance such amendment, alteration or modification is expressed in a written
instrument duly executed in the name of the party or parties making such
amendment, alteration or modification.
12. Severability. The provisions of this Agreement shall be deemed
------------
severable, and, subject to Section 6(f) of this Agreement, if any part of any
provision is held to be illegal, void, voidable, invalid, nonbinding or
unenforceable in its entirety or partially or as to any party, for any reason,
such provision may be changed, consistent with the intent of the parties hereto,
to the extent reasonably necessary to make the provision, as so changed, legal,
valid, binding and enforceable. If any provision of this Agreement is held to
be illegal, void, voidable, invalid, nonbinding or unenforceable in its entirety
or partially or as to any party, for any reason, and if such provision cannot be
changed consistent with the intent of the parties hereto to make it fully legal,
valid, binding and enforceable, then such provision shall be stricken from this
Agreement, and the remaining provisions of this Agreement shall not in any way
be affected or impaired, but shall remain in full force and effect.
13. Governing Law. This Agreement is to be governed by and
-------------
interpreted under the laws of the Commonwealth of Virginia, without regard to
the conflicts of laws provisions or rules of such State's law.
14. Headings; Form of Words. The headings contained in this
-----------------------
Agreement have been inserted for the convenience of reference only, and neither
such headings nor the placement of any term hereof under any particular heading
shall in any way restrict or modify any of the terms or provisions hereof.
Terms used in the singular shall be read in the plural, and vice versa, and
terms used in the masculine gender shall be read in the feminine or neuter
gender when the context so requires. The term "person" as used herein refers to
a natural person, a corporation, a limited liability company, a partnership, a
joint venture, or other entity or association, as the context requires.
15. Notices. All notices, requests, consents, payments, demands and
-------
other communications required or contemplated under this Agreement ("Notices")
shall be in writing and (a) personally delivered, (b) deposited in the United
States mail, registered or certified mail, return receipt requested, with
postage prepaid, or (c) sent by Federal Express or Airborne Courier (for next
business day delivery), shipping prepaid, as follows:
<PAGE>
-14-
If to Employer, to:
Pharmaceutical Research Associates, Inc.
2400 Old Ivy Road
Charlottesville, Virginia 22903-4826
Attn: Earle Martin, CEO
If to Employee, to:
Patrick K. Donnelly
702 North Columbus Street
Alexandria, Virginia 22314
or such other persons or address as any party may request by notice given as
aforesaid. Notices shall be deemed given and received at the time of personal
delivery or, if sent by U.S. mail, five (5) business days after the date mailed
in the manner set forth in this Section 15, or, if sent by Federal Express or
Airborne Courier, one business day after such sending.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors, assigns, heirs and representatives of the parties
hereto, whether so expressed or not. Neither this Agreement nor any of the
rights and obligations hereunder shall be assigned, delegated, sold,
transferred, sublicensed or otherwise disposed of, by operation of law or
otherwise, without the prior written consent of the other party hereto.
18. Cooperation. Each party to this Agreement agrees to cooperate
-----------
with the other party hereto to carry out the purpose and intent of this
Agreement, including without limitation the execution and delivery to the
appropriate party of all such further documents as may reasonably be required in
order to carry out the terms of this Agreement.
19. Waiver. Any waiver of any provision hereof (or in any related
------
document or instrument) shall not be effective unless made expressly and in a
writing executed in the name of the party sought to be charged. The failure of
any party to insist, in any one or more instances, on performance of any of the
terms or conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant or
<PAGE>
-15-
condition, but the obligations of the parties with respect thereto shall
continue in full force and effect.
20. Indemnification. Employee shall be entitled to be indemnified by
---------------
Employer to the fullest extent permitted by the Virginia Stock Corporation Act
notwithstanding any limitations set forth in Employer's Articles of
Incorporation.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Employer: PHARMACEUTICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Earle Martin
----------------------
Print Name: Earle Martin
Print Title: President
/s/ Patrick K. Donnelly
Employee: -------------------------
PATRICK K. DONNELLY
<PAGE>
-16-
EXHIBIT A
BOARDS OF DIRECTORS ON WHICH EMPLOYEE SERVES AS OF THE DATE OF THIS AGREEMENT
-----------------------------------------------------------------------------
Vedcorp, L.C.
Virginia Capital, L.P.
Front Royal, Inc.
LTC Americas, Inc.
<PAGE>
-17-
EXHIBIT B
KEY TERMS OF ISO PLAN
---------------------
Class of Shares: Options will be for shares of PRADE's Common Stock.
Number of Shares: Maximum number of shares issuable under the ISO Plan will
be approximately 323,000.
Exercise Price: $11.683 per share (in cash, or by cash or cashless exercise
on death/disability).
Vesting: 25% of the options under the ISO Plan will vest over a four-
year period from the date of grant (the "Grant Date"), with
the first 25% vesting on the first anniversary of the Grant
Date, and each additional 25% vesting on each successive
anniversary of the Grant Date through the fourth anniversary
thereof.
Notwithstanding the foregoing, 50% of the options under the
ISO Plan will vest automatically upon any extraordinary
event in which any purchaser(s) (whether taken individually
or as a group), under that certain Stock Purchase Agreement,
dated September 13, 1996, by and among PRADE, Employer, and
Carlyle Partners II, L.P. (together with certain Affiliates;
the "Stock Purchase Agreement"), receives an Internal Rate
of Return (as such term is defined in that certain
Stockholders' Agreement attached as Exhibit C to the Stock
Purchase Agreement; "IRR") greater than 25% (to the extent
that exercise of any options under the ISO Plan do not
reduce such IRR below 25%).
In addition to the foregoing, 25% of the options under the
ISO Plan will vest automatically upon any extraordinary
event in which the above stated IRR for any such
Purchaser(s) (whether taken individually or as a group) is
greater than 33%.
Grant of Options: Allocation of the options under the ISO Plan will be
determined by the PRADE Board in consultation with the
Compensation Committee.
Additional: The ISO Plan shall also contain the provisions contemplated
by Section 8 of the Employment
<PAGE>
-18-
Agreement, with respect to automatic vesting, rights of
repurchase, etc.
Note: Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the attached Employment
Agreement.
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AND NON-COMPETITION AGREEMENT (the
"Amendment") is made as of the 14th day of November 1997 by and between
Pharmaceutical Research Associates, Inc., a Virginia corporation (hereinafter
called "Employer"), and Patrick K. Donnelly (hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment and
Non-Competition Agreement dated as of October 16, 1996 (the "Employment
Agreement"; capitalized terms used and not otherwise defined in this Amendment
shall have the respective meanings assigned to them in the Employment
Agreement); and
WHEREAS, the parties hereto have agreed to amend the Employment Agreement
on the terms and conditions contained herein so that the terms of such
Employment Agreement conform to the terms and conditions of that certain Amended
and Restated Option Agreement (the "Option Agreement") by and between Employee
and Employer's parent, PRA International, Inc., a Delaware corporation
("International"), which Option Agreement is being executed concurrently
herewith.
NOW THEREFORE, in consideration of the premises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Employment Agreement. From and after the Effective Date
----------------------------------
(as defined in Section 2 hereof), the Employment Agreement is hereby amended by
deleting Sections 8(a)(iv) and 8(c)(iv) in their entirety.
2. Effectiveness of Amendment. This Amendment shall become effective as
--------------------------
of the consummation on or before January 31, 1998 of an initial public offering
of common stock of International approved by the Public Offering Committee of
the International Board (the "Effective Date") upon the execution and delivery
of this Amendment by each of the parties hereto. In the event such an initial
public offering is not consummated on or before January 31, 1998, this Amendment
shall be null and void. At all times on and after the Effective Date, each
reference in the Employment Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, shall mean and be a reference to the
<PAGE>
-2-
Employment Agreement as amended by this Amendment. Except as, and to the
extent, specifically amended by this Amendment, the Employment Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
3. Execution in Counterparts. This Amendment 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 to be an original
and all of which taken together shall constitute but one and the same
instrument.
4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF VIRGINIA (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
5. Headings. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment No. 1
to Employment Agreement as a sealed instrument as of the date first set forth
above.
PHARMACEUTICAL RESEARCH
ASSOCIATES, INC.
By: /s/ Earle Martin
----------------------------
Name: Earle Martin
Title: President
/s/ Patrick K. Donnelly
-------------------------------
PATRICK K. DONNELLY
<PAGE>
Exhibit 10.12
EMPLOYMENT AND NON-COMPETITION AGREEMENT
BETWEEN
ROBERT J. DOCKHORN, M.D.
AND
INTERNATIONAL MEDICAL TECHNICAL CONSULTANTS, INC.
-------------------------------------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day
of April, 1997, by and between International Medical Technical Consultants,
Inc., a Kansas corporation (hereinafter called "Employer"), having its principal
office in the State of Kansas, and Robert J. Dockhorn, M.D. (hereinafter called
"Employee").
WHEREAS, Employer and Employee desire to enter into an agreement for
the employment by Employer of Employee.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby covenant and
agree as follows:
1. Position. Employer hereby employs Employee and Employee hereby
--------
accepts employment in the position of Executive Vice President - IMTCI, with
appropriate title, rank, status and responsibilities as determined from time to
time by Employer upon the terms and conditions hereinafter set forth.
2. Term. The period of employment under this Agreement shall begin
----
on the date of this Agreement (the "Effective Date"), and shall end on April 1,
2000 (the "First Termination Date"), unless sooner terminated pursuant to
Section 8 hereof. After the First Termination Date, employment hereunder may be
renewed, upon the same terms and conditions, for successive periods of one year
each, upon the delivery by either party, at least ninety (90) days prior to the
expiration of the First Termination Date or any successive term, as applicable,
of written notice to the other of a determination to renew such employment, but
only so long as the other party does not elect in a writing delivered to such
party within such 90-day period to refuse such renewal request. Notwithstanding
the foregoing, Employee's employment hereunder shall be terminable at any time,
and from time to time, in accordance with the provisions of Section 8 of this
Agreement. Subject to Section 8(d) of this Agreement, the period during which
(a) Employee is employed under the
<PAGE>
-2-
terms of this Agreement and (b) this Agreement is in force (other than with
respect to the provisions that survive termination of this Agreement), shall be
known hereafter as the "Term".
3. Duties.
------
(a) During the Term, Employee agrees to use his best efforts in
the business of Employer and to devote his full time, skill, attention and
energies to the business of Employer, and shall not, during the Term, be engaged
in any other business activity which shall be competitive with the business of
Employer (other than passive investments in public companies) or which may (i)
interfere with Employee's ability to discharge his responsibilities to Employer,
or (ii) detract from the business of Employer. The Board of Directors of
Employer (the "Board") shall have the power to determine the specific duties
that shall be performed by Employee and the means and manner by which those
duties shall be performed.
(b) In furtherance of the restrictions on the activities of
Employee set forth in Section 3(a) above, during the Term, Employee agrees:
(i) except as set forth in Exhibit A hereto but only so long as
it does not interfere with Employee's ability to discharge his
responsibilities to Employer hereunder, not to work either on a part-time
or independent contracting basis for any other company, business or
enterprise without the prior written consent of the Board; and
(ii) not to serve on the board of directors or comparable
governing body of any other material business, civic or community
corporation or similar entity without the prior written consent of the
Board (excluding those boards of directors on which Employee serves as of
the date of this Agreement, which boards, if any, are listed on Exhibit B
hereto).
(c) Employee agrees to use his reasonable efforts to impart his
skill and knowledge relating to the business of Employer to such individuals as
are designated by Employer, and to train such individuals in the aspects of the
business with which Employee is familiar. In addition, at the request of
Employer and without additional compensation, Employee shall use his best
efforts to record and document his knowledge relating to the business of
Employer.
<PAGE>
-3-
4. Base Salary, Increases, Benefits, Expenses. For all services
------------------------------------------
rendered by Employee under this Agreement and subject to Section 8 below, during
the Term, Employer shall provide Employee with the following:
(a) Commencing on the Effective Date, Employer shall pay to
Employee, in equal bi-monthly installments, a base salary of $175,000 per year.
(b) Employee shall be eligible for salary increases, which may be
based on performance and/or cost-of-living factors, as determined under the
provisions of any salary policy of Employer that is generally applicable to
Employer's employees, provided that any such increases shall be reviewed and
approved in advance by the Compensation Committee of the Board (the
"Compensation Committee"), and Employee shall be entitled to such other
increases in compensation as are otherwise imposed by the Compensation
Committee, in its discretion, from time to time.
(c) Employee shall participate in Employer's 1997 Bonus Plan, as
such 1997 Bonus Plan currently exists on the date of this Agreement. Employee's
bonus shall be earned on a monthly basis, but is to be paid annually.
(d) Employee shall receive a car allowance of $600.00 per month.
(e) Employee shall receive a club membership allowance of $100.00
per month.
(f) Employee shall participate in Employer's standard benefits
programs, which presently include health, life and disability insurance, as well
as those additional benefits (the "Additional Benefits") currently offered to
Employer's executive staff. Such Additional Benefits shall include but not be
limited to those benefits set forth on Exhibit C hereto. It is agreed that the
nature and amount of the Additional Benefits not set forth on Exhibit C, if any,
shall be determined from time to time by the Compensation Committee, in its
discretion. Employer may, at its election, maintain policies of life and
disability insurance on Employee, with Employer or an affiliate of Employer as
beneficiary, and Employee shall cooperate as necessary to obtain such policies
and to keep them in force. Employee shall be entitled to a total of twenty (20)
days of paid vacation per year. Employee shall be covered by the holiday policy
of the Employer, and, unless inconsistent with applicable law, by any other
pension or retirement plan, disability
<PAGE>
-4-
benefit plan or any other benefit plan or arrangement of Employer (other than a
medical or life insurance plan) presently or hereafter existing for the benefit
of officers or employees of Employer generally, and determined by the
Compensation Committee to be applicable to Employee.
(g) Subject to such conditions as Employer may from time to time
determine, Employer shall pay or reimburse Employee for reasonable expenses
incurred by Employee in connection with the business of Employer and the
performance of Employee's duties hereunder.
(h) It is understood and agreed that the Compensation Committee
will meet quarterly to review compensation matters of Employer, and will (on at
least an annual basis) set all annual bonus targets, salary increases and
benefits to which Employee shall be entitled to participate.
(i) Employee shall be entitled to participate in the 1997
Incentive Stock Option Plan (the "ISO Plan") of PRA International, Inc., a
Delaware corporation and the parent company of Employer ("PRADE").
5. [Intentionally Omitted]
6. Confidential Information and Certain Property Matters.
-----------------------------------------------------
(a) Employee hereby acknowledges that, in the course of his
employment under this Agreement, he will be given access to or otherwise will
come into contact with and/or will possess, and that with respect to Employer's
business he already possesses, information, knowledge, contacts and experience
relating to the businesses, operations, properties, assets, liabilities and
financial condition of PRADE and its subsidiaries and affiliates, including,
without limitation, Employer (collectively, the "Companies") and the markets and
industries in which they operate, including, without limitation, information
relating to business plans and ideas, trade secrets, intellectual property,
know-how, formulas, processes, research and development, methods, policies,
materials, results of operations, financial and statistical data, personnel data
and customers in and related to the markets and industries in which the
Companies operate (the "Confidential Information"), which are considered by
Employer and the other Companies to be valuable, secret, confidential and
proprietary. Employee hereby acknowledges and agrees that the Confidential
Information is valuable, secret, confidential and proprietary to Employer and
the other Companies, and hereby undertakes and agrees that he shall not, at any
time (whether during or after the
<PAGE>
-5-
expiration of the Term), or for any purpose, make public, disclose, divulge,
furnish, release, transfer, sell or otherwise make available to any person any
of the Confidential Information, or otherwise use any of the same or allow any
of the same to be used for any purpose including, but not limited to, contacting
for any purpose the personnel, customers or suppliers of Employer or any other
Company, other than as may be permitted to Employee under this Agreement.
Notwithstanding the foregoing, Employee may, without violating this Section
6(a), disclose Confidential Information if (i) such disclosure is required to
comply with a valid court order or any administrative law order or decree, (ii)
Employee gives Employer advance written notice of the required disclosure so
that Employer or another Company may, if it wishes, seek an appropriate
protective order and (iii) Employee, in any event, requests that any disclosed
information be afforded confidential treatment, to the greatest extent possible.
(b) Employee hereby agrees to promptly and fully disclose to
Employer all Inventions made or conceived by him that would be deemed
applicable, useful or otherwise beneficial to or in respect of, the current
business of Employer, in whole or in part, during his employment with Employer.
For the purposes of this Agreement, "Inventions" include, but are not limited
to, customer list compilations, machinery, apparatus, products, processes,
results of research and development (including without limitation results that
constitute trade secrets, ideas and writings), computer hardware, information
systems, software (including without limitation source code, object code,
documentation, diagrams and flow charts) and any other discoveries, concepts and
ideas, whether patentable or not (including without limitation processes,
methods, formulas, and techniques, as well as improvements thereof or know-how
related thereto, concerning any present or prospective business activities of
Employer). Any and all Inventions shall be the absolute property of Employer or
its designees, and Employee acknowledges that he shall have no interest
whatsoever in such Inventions. At the request of Employer and without additional
compensation, Employee (i) shall make application in due form for United States
letters patent and foreign letters patent on such Inventions, and shall assign
to Employer all his right, title and interest in such Inventions, (ii) shall
execute any and all instruments and do any and all acts necessary or desirable
in connection with any such application for letters patent or in order to
establish and perfect in Employer the entire right, title and interest in such
Inventions, patent applications or patents and (iii) shall execute any
instruments necessary or desirable in connection with any continuations,
renewals or reissues thereof or in the conduct of any related proceedings or
litigation. Except as authorized by Employer in writing, Employee shall not
disclose,
<PAGE>
-6-
directly or indirectly, to any person other than Employer, any information
relating to any Invention or any patent application relating thereto.
(c) Employee hereby acknowledges and agrees that the work
performed by Employee pursuant to his employment by Employer will be
specifically ordered or commissioned by Employer, and that such work shall be
considered a "work for hire" as defined in the Copyright Revision Act of 1976
(the "Act"), granting Employer full ownership to the work and all rights
comprised therein. Should any work not fall within the definition of a "work for
hire" as set forth in such Act, Employee hereby transfers and assigns to
Employer full ownership of the copyright to the work and all rights comprised
therein. Employee shall sign all applications for registration of such copyright
as are requested by Employer, and shall sign all other writings and instruments
and perform all other acts necessary or desirable to carry out the terms of this
Agreement.
7. Covenant Not to Compete. (a) Except for passive investments in
-----------------------
public companies, Employee agrees that during the Term and for a period of two
years thereafter (the "Noncompetition Period"), he shall not directly or
indirectly own, manage, operate, join, advise, consult, control or participate
in the ownership, management, operation or control of, or be connected in any
manner with, any business under any name similar to the name of any of the
Companies or any other person whose principal business is (or the principal
business of any of its affiliates is) competitive with any of the Companies or
who proposes to engage in a business competitive with any of the Companies, or
in any department or division of any other person where such department or
division is competitive with any of the Companies (where the nature of each
Company's business is measured (i) if the competitive act in question occurs
during the Term, at the time the competitive act in question is made by
Employee, and (ii) if the competitive act in question occurs after the Term, at
the time Employee's employment is terminated hereunder). During the
Noncompetition Period, Employee agrees that he shall not offer to any person any
services that compete with or are substantially similar to those provided by any
of the Companies (where the nature of each Company's business, including the
services provided by such Company, are measured (1) if the offer is made during
the Term, at the time the offer is made by Employee, and (2) if the offer is
made after the Term, at the time Employee's employment is terminated hereunder).
(b) Employee agrees that he shall not engage in unfair
competition with any of the Companies during the Noncompetition Period.
<PAGE>
-7-
(c) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), other than on behalf of any of the Companies and
consistent with his duties as an employee of Employer, directly or indirectly
solicit the trade of, or trade with, any person who is a client, customer or
supplier of any of the Companies (where all such clients, customers and
suppliers are measured at the time Employee's employment is terminated
hereunder) unless Employee receives the prior written consent of the Board to
do so.
(d) Employee agrees that he shall not, during the Noncompetition
Period (after the Term), directly or indirectly, solicit or induce (or attempt
to solicit or induce) to leave the employ of any of the Companies for any reason
whatsoever, or hire, any person who (i) was employed by any of the Companies
within one year prior to the time of the act of solicitation or inducement, or
(ii) is employed by any of the Companies at the time of the act of solicitation
or inducement.
(e) During and after the Term, Employee agrees not to disparage
any of the Companies. During and after the Term, Employer agrees not to
disparage the character of Employee.
(f) Employee hereby specifically acknowledges and agrees that the
provisions of this Section 7 are reasonable and necessary to protect the
legitimate interests of Employer and the other Companies, and that Employee
desires to agree to the provisions of this Section 7. In the event that any of
the provisions of this Section 7 should ever be held to exceed the time, scope
or geographic limitations permitted by applicable law, it is hereby declared to
be the intention of the parties hereto that such provision be reformed to
reflect the maximum time, scope and geographic limitations that are permitted by
such law.
(g) Employee hereby acknowledges and agrees for himself, and for
any person participating with him in any breach or threatened breach of this
Section 7 (the "Other Person"), that, owing to the special, unique and
extraordinary nature of the matters covered by this Section 7, in the event of
any breach or threatened breach by Employee or the Other Person of any of the
provisions hereof, Employer or one or more other Companies would suffer
substantial and irreparable injury, which could not be fully compensated by
monetary award alone, and Employer would not have adequate remedy at law.
Therefore, Employee agrees that, in such event, Employer or such other Companies
shall be entitled to temporary and/or permanent injunctive relief against him
and any such Other Person, without the necessity of proving actual
<PAGE>
-8-
damages or of posting bond to enforce any of the provisions of this Section 7,
and he hereby waives for himself and for any such Other Person the defenses,
claims, or arguments that the matters are not special, unique, and
extraordinary, that Employer or such other Companies must prove actual damages,
and that Employer or such other Companies has an adequate remedy at law.
(h) Employee further agrees that the rights and remedies
described in this Section 7 are cumulative and shall be in addition to and not
in lieu of any other rights and remedies otherwise available under this
Agreement, or at law or in equity, including but not limited to monetary
damages.
(i) The provisions of this Section 7 shall inure to the benefit
of and be enforceable by each of the Companies.
8. Termination.
-----------
(a) Basic Termination. In addition to the termination provisions
set forth in Section 8(b) and Section 8(c) hereof, the Term shall terminate
pursuant to the applicable provisions of Section 2 hereof and immediately upon
the death of Employee. Upon termination of the Term under the applicable
provisions of Section 2 hereof or upon the death of Employee, Employer shall
have no further obligation to Employee except as set forth in Section 9 hereof.
(b) Termination By Employer. The Term may be terminated by
Employer under the following circumstances (in each case, upon such termination,
Employer shall have no further obligation to Employee except as set forth in
Section 9 hereof):
(i) Disability. If during the Term, Employee shall be prevented
from performing his duties for a continuous period of one hundred and
eighty (180) days by reason of disability which renders Employee physically
or mentally incapable (excluding infrequent and temporary absences due to
illness) of performing substantially all of his duties under this
Agreement, Employer may terminate Employee's employment hereunder. If
after a period of disability commences (but prior to termination of
Employee's employment), Employee returns to work for a period of at least
twenty (20) consecutive work days, the period of disability shall be deemed
to terminate and not be counted towards any period of subsequent
disability. For purposes of this Agreement, Employer, upon the advice of a
qualified and impartial physician, shall
<PAGE>
-9-
determine whether Employee has become physically or mentally incapable of
performing substantially all of his duties under this Agreement. Employer
shall give Employee (or his guardian, as applicable) thirty (30) days'
written notice of termination of the Term under this Section 8(b)(i).
(ii) For Good Cause. Employer may terminate Employee's
employment at any time for Good Cause (as defined below), by giving
reasonable notice under the circumstances to Employee. "Good Cause" shall
include, without limitation, (A) a material breach of this Agreement by
Employee (where Employee fails to cure such breach within five (5) days
after being notified in writing by Employer of such breach), (B) Employee's
failure to perform his assigned duties without an excuse that is reasonably
acceptable to Employer, (C) Employee engages in an act (or causes an act)
that has a material adverse impact on the reputation, business, business
relationships or financial condition of Employer, (D) the conviction of
Employee of a felony or any crime involving moral turpitude, fraud or
misrepresentation, (E) misappropriation or embezzlement by Employee of
funds or assets of Employer, and (F) Employee's willful refusal to perform
specific directives of the Board which are consistent with the scope,
ethics and nature of Employee's duties and responsibilities hereunder.
Notwithstanding the foregoing, "Good Cause" shall not include a situation
whereby Employer asks Employee to relocate to another city and Employee
declines to do so. Termination by Employer for Good Cause hereunder based
on a material breach of this Agreement or for other wrongful acts committed
by Employee against Employer, shall not abrogate the rights and remedies of
Employer in respect of the breach or wrongful act giving rise to such
termination.
(c) Termination by Employee. The Term may be terminated by
Employee upon thirty (30) days' written notice given to Employer after a
material breach hereof by Employer (where Employer fails to cure such breach
within five (5) days after being notified in writing by Employee of such
breach). Termination by Employee hereunder shall not abrogate the rights and
remedies of Employee in respect of the breach giving rise to such termination.
Upon termination by Employee following a material breach by Employer, Employee
shall have no further duties or obligations to Employer under this Agreement
(except as contemplated by Section 8(d) below).
(d) Survival of Sections. It is agreed that notwithstanding
anything contained in this Agreement to the contrary,
<PAGE>
-10-
Sections 6, 7, the applicable provisions of Sections 8(b)(ii), 9 and 10 of this
Agreement shall survive termination of the Term.
9. Payments by, Obligations of, and Events Affecting the Respective
----------------------------------------------------------------
Parties in Event of Termination.
- -------------------------------
(a) Should the Term terminate under Section 8(a) of this
Agreement (expiration of the Term or the death of Employee), or be terminated by
Employer under Section 8(b)(i) of this Agreement (disability of Employee):
(i) Employee shall be entitled to receive:
(A) any and all accrued but unpaid base salary compensation
due to Employee as of the date on which the Term is terminated shall
be paid within fifteen (15) days of such date; plus
(B) severance payments equal to the sum of (y) six months
base salary (as it would normally be paid) plus (z) an additional six
months base salary less the fair market value (as of the date on which
the Term is terminated) of any options held by Employee under the ISO
Plan which have vested and any shares held by Employee as a result of
the exercise by Employee of vested options held by Employee under the
ISO Plan (such fair market value to be determined by the Board in good
faith).
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically terminate (under the terms of the ISO Plan).
(iv) In the event the Term is terminated due to the death of
Employee, PRADE shall have the right, in its sole discretion (under the
terms of the ISO Plan), to purchase from the estate of Employee (within
ninety (90) days of the date on which the Term is terminated), vested
options held by Employee under the ISO plan and/or any shares held by the
estate of Employee as a result of the exercise by Employee (or his estate)
of vested options held by Employee under the ISO Plan. The purchase price
of the
<PAGE>
-11-
options and shares contemplated by this Section 9(a)(iv) shall be the fair
market value of such vested options and/or shares as of the date on which
the Term is terminated (as determined by the PRADE Board in good faith).
(b) Should the Term be terminated by Employer under
Section 8(b)(ii) of this Agreement (for Good Cause):
(i) Employee shall be entitled to receive (within fifteen (15)
days of the date on which the Term is terminated) any and all accrued but
unpaid base salary compensation due to Employee as of the date on which the
Term is terminated.
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically terminate (under the terms of the ISO Plan).
(iv) All vested options held by Employee under the ISO Plan that
are not exercised by Employee within ninety (90) days of the date on which
the Term is terminated, will automatically terminate (under the terms of
the ISO Plan).
(c) Should the Term be terminated by Employee under Section 8(c)
of this Agreement:
(i) Employee shall be entitled to receive:
(A) Any and all accrued but unpaid base salary compensation
due to Employee as of the date on which the Term is terminated
(payable within fifteen (15) days of the date on which the Term is
terminated); plus
(B) full base salary (payable monthly at the same time
Employee would otherwise be entitled to receive such base salary if
Employee were still employed by Employer) (y) through February 1, 1999
or (z) for a period of twelve (12) months after the date on which the
Term is terminated, whichever period is longer.
<PAGE>
-12-
(ii) Benefits pursuant to any of Employer's employee benefit
plans shall be payable in accordance with the terms of the instruments
applicable thereto.
(iii) All unvested options held by Employee under the ISO Plan
will automatically vest as of the date on which the Term is terminated
(under the terms of the ISO Plan).
(iv) Within ninety (90) days of the date on which the Term is
terminated, Employee shall have the option (under the terms of the ISO
Plan) to require PRADE to repurchase (during such ninety (90) day
period) vested options held by Employee under the ISO Plan and/or
shares of PRADE's common stock previously issued pursuant to the
exercise of options held by Employee under the ISO Plan. The purchase
price of the options and/or shares contemplated by this
Section 9(c)(iv) shall be the fair market value of such vested options
and/or shares as of the date on which the Term is terminated (as
determined by the PRADE Board in good faith). Notwithstanding the
foregoing, the obligation of PRADE to repurchase the options and/or
shares referenced in this Section 9(c)(iv) shall only apply to the
extent PRADE has funds legally and readily available to make such
repurchase (with the availability of the funds being determined by the
PRADE Board in good faith).
10. Records. Upon termination of Employee's employment with Employer
-------
for any reason under this Agreement, Employee shall promptly deliver to Employer
any and all correspondence, mailing lists, drawings, blueprints, manuals,
letters, records, notes, notebooks, reports, flow-charts, programs, proposals,
computer tapes, discs and diskettes which are in Employee's possession or under
his control, and any and all documents concerning or relating to Employer's or
any other Company's business, clients, customers, investors or lenders, or
concerning products, processes or technologies used by Employer or any other
Company which are in Employee's possession or under his control, and, without
limiting the foregoing, shall promptly deliver to Employer any and all documents
or materials which are in Employee's possession or under his control containing
or constituting Confidential Information.
11. Arbitration. Except with respect to matters involving equitable
-----------
remedies (in which case any such matter may be brought in a court of competent
jurisdiction), all disputes between Employer and Employee hereunder, or
otherwise arising out of the employment or
<PAGE>
-13-
termination of employment of Employee, shall be settled by arbitration before a
three-member panel pursuant to the rules of the American Arbitration
Association, in Washington, D.C. The award rendered by the arbitrators shall be
conclusive and binding upon the parties hereto. Each party shall pay its own
expenses of arbitration and the expenses of the arbitrators shall be equally
shared.
12. Entire Agreement. This Agreement (together with Exhibit A and
----------------
Exhibit B hereto) supersedes any prior agreement between the parties hereto with
respect to the subject hereof; constitutes the entire agreement between the
parties hereto with respect to the subject hereof; and replaces in its or their
entirety (and stands as a written amendment thereto or termination thereof, as
required) any and all agreements regarding employment (whether written or oral)
that Employee may have in place with Employer as of the Effective Date. No
amendment, alteration or modification of this Agreement shall be valid unless in
each instance such amendment, alteration or modification is expressed in a
written instrument duly executed in the name of the party or parties making such
amendment, alteration or modification.
13. Severability. The provisions of this Agreement shall be deemed
------------
severable, and, subject to Section 7(f) of this Agreement, if any part of any
provision is held to be illegal, void, voidable, invalid, nonbinding or
unenforceable in its entirety or partially or as to any party, for any reason,
such provision may be changed, consistent with the intent of the parties hereto,
to the extent reasonably necessary to make the provision, as so changed, legal,
valid, binding and enforceable. If any provision of this Agreement is held to
be illegal, void, voidable, invalid, nonbinding or unenforceable in its entirety
or partially or as to any party, for any reason, and if such provision cannot be
changed consistent with the intent of the parties hereto to make it fully legal,
valid, binding and enforceable, then such provision shall be stricken from this
Agreement, and the remaining provisions of this Agreement shall not in any way
be affected or impaired, but shall remain in full force and effect.
14. Governing Law. This Agreement is to be governed by and
-------------
interpreted under the laws of the State of Kansas, without regard to the
conflicts of laws provisions or rules of such State's law.
15. Headings; Form of Words. The headings contained in this
-----------------------
Agreement have been inserted for the convenience of reference only, and neither
such headings nor the placement of any term hereof under any particular heading
shall in any way restrict or modify any of the terms or provisions hereof.
Terms used in the singular shall be read in
<PAGE>
-14-
the plural, and vice versa, and terms used in the masculine gender shall be read
in the feminine or neuter gender when the context so requires. The term "person"
as used herein refers to a natural person, a corporation, a limited liability
company, a partnership, a joint venture, or other entity or association, as the
context requires.
16. Notices. All notices, requests, consents, payments, demands and
-------
other communications required or contemplated under this Agreement ("Notices")
shall be in writing and (a) personally delivered, (b) deposited in the United
States mail, registered or certified mail, return receipt requested, with
postage prepaid, or (c) sent by Federal Express or Airborne Courier (for next
business day delivery), shipping prepaid, as follows:
If to Employer, to:
International Medical Technical Consultants, Inc.
c/o PRA International, Inc.
American Center
8300 Boone Boulevard, Suite 310
Vienna, Virginia 22128
Attn: President
If to Employee, to:
Robert J. Dockhorn, M.D.
8510 Delmar Lane
Prairie Village, KS 66207
or such other persons or address as any party may request by notice given as
aforesaid. Notices shall be deemed given and received at the time of personal
delivery or, if sent by U.S. mail, five (5) business days after the date mailed
in the manner set forth in this Section 16, or, if sent by Federal Express or
Airborne Courier, one business day after such sending.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors, assigns, heirs and representatives of the parties
hereto, whether so expressed or not. Neither this Agreement nor any of the
rights and obligations hereunder
<PAGE>
-15-
shall be assigned, delegated, sold, transferred, sublicensed or otherwise
disposed of, by operation of law or otherwise, without the prior written consent
of the other party hereto.
19. Cooperation. Each party to this Agreement agrees to cooperate
-----------
with the other party hereto to carry out the purpose and intent of this
Agreement, including without limitation the execution and delivery to the
appropriate party of all such further documents as may reasonably be required in
order to carry out the terms of this Agreement.
20. Waiver. Any waiver of any provision hereof (or in any related
------
document or instrument) shall not be effective unless made expressly and in a
writing executed in the name of the party sought to be charged. The failure of
any party to insist, in any one or more instances, on performance of any of the
terms or conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant or condition, but the obligations of the parties with
respect thereto shall continue in full force and effect.
21. Indemnification. Employee shall be entitled to be indemnified by
---------------
Employer to the fullest extent permitted by the Kansas Stock Corporation Act
notwithstanding any limitations set forth in Employer's Articles of
Incorporation.
<PAGE>
-16-
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Employer: INTERNATIONAL MEDICAL
TECHNICAL CONSULTANTS, INC.
By: /s/ P.K. Donnelly
----------------------------------
Print Name: P.K. Donnelly
Print Title: Executive Vice President
Employee: /s/ Robert J. Dockhorn, M.D.
----------------------------------
ROBERT J. DOCKHORN, M.D.
<PAGE>
-17-
Exhibit A
Permitted Outside Activities
----------------------------
Positions Held:
Glaxo Consultant
HMR Consultant
Speakers Bureau:
Zeneca
Wallace
Schering
Glaxo
HMR
BI
Pfizer
Associated Groups:
Dockhorn Properties, L.L.C.
Robert J. Dockhorn, M.D., P.A.
Hospital Staff Affiliations:
Columbia Overland Park Regional Medical Center
Shawnee Mission Medical Center
Truman Medical Center
<PAGE>
-18-
Exhibit B
Boards of Directors on Which Employee Serves
--------------------------------------------
as of the Date of this Agreement
--------------------------------
American In-Vitro Allergy/Immunology Society, Board of Directors
American Association of Certified Allergists, Board of Governors
<PAGE>
-19-
Exhibit C
Additional Benefits
-------------------
IMTCI pays the fees/licenses of the following medical organizations:
<TABLE>
<CAPTION>
Medical Organization/License Current Fee
---------------------------- -----------
<S> <C>
AAAI $340.00
ACAAI $265.00
American Academy of Pharm. $100.00
Physicians
American Academy of Pediatrics $ 55.00
American Medical Association $ 84.00
Kansas Thoracic Society $ 15.00
Kansas State Board of $150.00
Healing Arts (License)
Missouri State Allergy Association $ 58.00
Missouri State Dept. of Health $ 30.00
(License)
KU Medical Alumni Association $ 25.00
Kansas Medical Society $ 84.00
Johnson County Medical Society $100.00
American Association of Certified $ 75.00
Allergists
DEA (License) $ 70.00
Faculty of Pharmaceutical Medicine $171.75
of the Royal Colleges of Physicians
of the United Kingdom
American In-Vitro $150.00
Allergy/Immunology
</TABLE>
IMTCI pays the expenses of attending the following medical meetings:
AAAI
ACAI
ATS
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AND NON-COMPETITION AGREEMENT (the
"Amendment") is made as of the 14th day of November 1997 by and between
International Medical Technical Consultants, Inc., a Kansas corporation
(hereinafter called "Employer"), and Robert J. Dockhorn, M.D. (hereinafter
called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment and
Non-Competition Agreement dated as of April 1, 1997 (the "Employment Agreement";
capitalized terms used and not otherwise defined in this Amendment shall have
the respective meanings assigned to them in the Employment Agreement); and
WHEREAS, the parties hereto have agreed to amend the Employment Agreement
on the terms and conditions contained herein so that the terms of such
Employment Agreement conform to the terms and conditions of that certain Amended
and Restated Option Agreement (the "Option Agreement") by and between Employee
and Employer's parent, PRA International, Inc., a Delaware corporation
("International"), which Option Agreement is being executed concurrently
herewith.
NOW THEREFORE, in consideration of the premises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Employment Agreement. From and after the Effective Date
----------------------------------
(as defined in Section 2 hereof), the Employment Agreement is hereby amended by
deleting Sections 9(a)(iv) and 9(c)(iv) in their entirety.
2. Effectiveness of Amendment. This Amendment shall become effective as
--------------------------
of the consummation on or before January 31, 1998 of an initial public offering
of common stock of International approved by the Public Offering Committee of
the International Board (the "Effective Date") upon the execution and delivery
of this Amendment by each of the parties hereto. In the event such an initial
public offering is not consummated on or before January 31, 1998, this Amendment
shall be null and void. At all times on and after the Effective Date, each
reference in the Employment Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, shall mean and be a reference to the
<PAGE>
-2-
Employment Agreement as amended by this Amendment. Except as, and to the
extent, specifically amended by this Amendment, the Employment Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
3. Execution in Counterparts. This Amendment 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 to be an original
and all of which taken together shall constitute but one and the same
instrument.
4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAW OF THE STATE OF KANSAS (EXCLUDING THE LAWS APPLICABLE
TO CONFLICTS OR CHOICE OF LAW).
5. Headings. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment No. 1
to Employment Agreement as a sealed instrument as of the date first set forth
above.
INTERNATIONAL MEDICAL
TECHNICAL CONSULTANTS, INC.
By: /s/ Earle Martin
---------------------------
Name: Earle Martin
Title: President
/s/ Robert J. Dockhorn
------------------------------
ROBERT J. DOCKHORN, M.D.
<PAGE>
Exhibit 10.13
CONSULTING AGREEMENT
This Agreement, entered into the 1st of October 1997, by and between
Pharmaceutical Research Associates, Inc., a Virginia corporation, with principal
office at 8300 Boone Boulevard, Vienna, VA 22182 ("the Company") and Judith Ann
Hemberger ("Consultant"), located at 3117 West 118th Street, Leawood, KS 66211.
1.0 SERVICES
Consultant will perform professional services for the Company, which may
include, but not be limited to, the following: consulting and advisory
services for drug development program planning, regulatory strategy and
related issues directly to the Company clients in collaboration with the
Company's staff. Any and all of these will be hereinafter referred to as
the "Services". Consultant agrees to perform the Services under the
general direction of the Company's designated representative and according
to the Company's standard operating procedures or other guidelines as
provided.
2.0 PAYMENT
2.1 The Company will pay Consultant for satisfactory performance of Services at
the rate of two hundred and fifty dollars ($250.00) per hour or between
$1,000 and $2,000 per day as defined on a case-by-case basis for each
specific consulting engagement by pre-engagement agreement between
Consultant and the Company.
2.2 In addition, the Company will reimburse Consultant for reasonable travel,
living, and other expenses incurred by Consultant in the performance of
Services that are approved in advance by the Company and in accordance with
the Company's standard policy governing travel and living expenses.
2.3 Consultant will provide a detailed accounting of all time applied to the
Company's projects and tasks on a weekly basis and in a format specified by
the designated representative. This accounting of time, together with any
weekly expense reports, will constitute Consultant's invoice to the Company
for Services performed and reimbursable expenses incurred by Consultant
during the week; such invoices will be payable net 15 days of receipt of
invoice.
<PAGE>
3.0 TERM AND TERMINATION
The term of this Agreement will commence on October 1, 1997, and end on
September 30, 1998.
This Agreement may be terminated by either party at any time by giving
written notice of intent to terminate thirty (30) days in advance of the
date of termination.
Upon termination, the Company will be liable to Consultant only for payment
for Services satisfactorily performed and approved reimbursable expenses
incurred prior to termination.
4.0 WARRANTY
Consultant warrants to the Company that the Services will be performed on a
best efforts basis and that Consultant will exercise his/her best
---
professional judgment in all matters. Consultant also warrants that he/she
---
is not currently debarred under Section 335a of the Generic Drug
Enforcement Act of 1992, and that he/she will immediately disclose to the
---
Company any action, suit, claim, investigation or other legal or
administrative proceeding which may rise relating to the debarment of the
Consultant. Consultant further warrants that he/she is not obligated under
---
any other agreement which would affect the Company's or his/her own
---
obligations under this agreement, and that he/she will not enter into any
---
agreement that would conflict with or compromise any rights, obligations or
interests of the Company.
5.0 INVENTIONS AND PROPRIETARY INFORMATION
Consultant agrees:
(a) to disclose and assign to the Company as its exclusive property, all
inventions and technical or business innovations which Consultant develops
or conceives, solely or in conjunction with others (1) that are based on or
involve information of the Company or its clients, (2) that relate to,
constitute, result from, or include the work in which Consultant will be
engaged for the Company, or (3) that are otherwise made through the use of
any time, facilities or materials of the Company or its clients;
(b) that all deliverables and work products in the form of works of
authorship developed by Consultant in the performance of
<PAGE>
Services shall be deemed works made for hire, and shall belong fully and
exclusively to the Company; and that if by operation of law such
deliverables or work products are not works made for hire, Consultant
agrees to, and does hereby, assign to the Company all right, title, and
interest in such deliverables for work product, including all copyrights
therein;
(c) to execute all necessary documents and provide the Company proper
assistance (at its expense) sufficient to enable it to obtain patent,
copyright or other legal protections for any such inventions or
innovations, and to make and maintain reasonably detailed accurate records
of any such inventions or innovations;
(d) to deliver to the Company, upon termination or expiration of this
Agreement, all materials which relate to the business of, or belong to, the
Company or its clients or which by their nature are for the use of the
Company's employees, contractors or consultants;
(e) not to use, publish, or otherwise disclose (except if properly
authorized as a part of the work for the Company) any information of the
Company or any information of others, including, but not limited to, the
Company's clients which the Company is obligated to maintain in confidence;
(f) not to disclose to utilize in the performance of Services for the
Company any proprietary or confidential information of others or any
inventions of Consultant which are not included within the scope of this
Agreement.
6.0 INDEPENDENT CONTRACTOR STATUS
6.1 It is understood and agreed that Consultant is an independent contractor
and will not have any rights to any Company benefits, nor for any purposes
be deemed or intended to be an employee of the Company. Consultant agrees
to make any payments or withholding required under federal income tax,
social security, state unemployment and any related statutes or regulations
and will maintain insurance to adequately protect against risks and claims
arising out of Consultant's performance of Services. Consultant will
furnish proof of insurance to the Company upon demand.
<PAGE>
6.2 It is further understood that Consultant is not an agent of the Company and
is not authorized to bind the Company with respect to any third party.
6.3 When the performance of Services involves work with the Company's clients,
Consultant agrees, for a period of six (6) months after completion of
services, not to solicit employment from, nor directly or indirectly, offer
Services to any client of the Company for whom Consultant has performed all
or part of the Services.
7.0 CONFLICTS OF INTEREST
Consultant represents that there is no conflict of interest between
performance of this Agreement and the performance of Services by Consultant
for any other party. In the event that Consultant believes that there is
presently any such conflict, or any such conflict arises during the term of
this Agreement, Consultant will immediately notify the Company which may,
at its sole discretion, immediately terminate this Agreement without
liability to Consultant.
8.0 LIMITATION OF LIABILITY
The Company and Consultant agree that the maximum liability of either party
for any claim, loss or liability arising out of, or connected with this
Agreement, whether based upon breach of contract, warranty, negligence, or
otherwise, will in no case exceed the amounts paid to Consultant by the
Company pursuant to Article 2.0. In no event will either party be liable
to the other for special or consequential damages, including but not
limited to lost profits or savings, whether or not the possibility of such
damages has been disclosed in advance or could have been reasonably
foreseen.
9.0 NOTICES
Any notice will be in writing and will be given by registered mail, return
receipt requested, or hand delivered to the other party at the address
below, or to such other address as may be substituted by notice. If sent
by mail, notice will be effective on the date of receipt.
To: Pharmaceutical Research Associates, Inc. To: Judith Ann Hemberger
Barbara Loughman, Ph.D. 3117 West 118/th/ Street
16400 College Blvd. Leawood, KS 66211
Lenexa, KS 66219
<PAGE>
10.0 GENERAL PROVISIONS
10.1 This Agreement will be governed by the law of the state of Virginia.
10.2 Consultant will not assign any right or delegate any obligation under this
Agreement without the prior written consent of the Company. Any attempted
assignment or delegation without such consent will be void.
10.3 The headings in this Agreement are for reference purposes only; they will
not affect the meaning or construction of the terms of this Agreement.
10.4 If any parts or part of this Agreement are held to be invalid, the
remaining parts of the Agreement will continue to be valid and enforceable.
10.5 The provisions of this Agreement are for the sole benefit of the parties,
and not for the benefit of any other persons or entities.
10.6 Any action of any kind by either party arising out of this Agreement must
be commenced within two (2) years from the date the right, claim, demand,
or cause of action shall first arise.
10.7 This Agreement contains the complete and exclusive understanding of the
parties with respect to the subject matter hereof. No waiver, alteration
or modification of any of the provisions hereof will be binding unless in
writing and signed by a duly authorized representative of the party to be
bound. Neither the course of conduct between the parties no trade usage
will act to modify or alter the provisions of this Agreement.
Pharmaceutical Research Associates, Inc. Consultant
By: /s/ Barbara E. Loughman /s/ Judith Ann Hemberger
----------------------- ------------------------
Dr. Barbara E. Loughman Dr. Judith Ann Hemberger
Title: Director of International Regulatory Affairs
Date: October 7, 1997 Date: October 20, 1997
--------------- ----------------
<PAGE>
Exhibit 10.14
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED
OPTION AGREEMENT
----------------
THIS AMENDED AND RESTATED OPTION AGREEMENT (the "Agreement") evidences an
agreement made as of the 14th day of November 1997, by and between Earle Martin
(referred to here as the "Stockholder" even though he/she may not at present, or
at any time in the future, actually own any shares of stock), and PRA
INTERNATIONAL, INC., a Delaware corporation (the "Corporation).
WHEREAS, the Stockholder and the Corporation are parties to that certain
Option Agreement dated as of October 22, 1996 (as amended and in effect on the
date hereof, the "Existing Option Agreement"); and
WHEREAS, the Stockholder and the Corporation desire to amend and restate
the Existing Option Agreement in its entirety in connection with the proposed
initial public offering of the common stock, $.01 par value per share (the
"Common Stock"), of the Corporation approved by the Public Offering Committee of
the Board of Directors of the Corporation (the "IPO");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, it is agreed that the Existing Option Agreement shall be
amended and restated effective as of the consummation on or before January 31,
1998 of the IPO as follows:
1. Vesting of Options. (a) All options to purchase shares of Common Stock
------------------
held by the Stockholder listed on Schedule 1 attached hereto, as such Schedule 1
---------- ----------
may be amended from time to time with the written consent of each of the
parties, shall vest in accordance with the terms of said Schedule 1 and the
----------
terms of Section 3 hereof, except that such vesting may be accelerated by the
Corporation in its sole and absolute discretion or as otherwise provided in the
applicable Plan (as defined below).
(b) Unless sooner terminated in accordance with the terms hereof, all
Options shall terminate (whether or not vested) on the tenth (10th) anniversary
of the date of the original grant thereof.
2. Stock Option Plans. All Options, if any, granted to the Stockholder
prior to July 24, 1997 were granted pursuant to, and are
<PAGE>
-2-
subject to the terms of, the Amended and Restated 1993 Stock Option Plan of the
Corporation, a copy of which is attached as Exhibit A hereto (as may be further
---------
amended or restated, the "1993 Plan"), and all Options, if any, granted to the
Stockholder on or after July 24, 1997 were or will be granted pursuant to, and
are or will be subject to the terms of, the Amended and Restated 1997 Stock
Option Plan of the Corporation, a copy of which is attached as Exhibit B hereto
---------
(as may be further amended or restated, the "1997 Plan" and, collectively with
the 1993 Plan, the "Plans").
3. Termination of Stockholder's Employment. For purposes of this Section
---------------------------------------
3, all capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in that certain Employment and Non-Competition Agreement dated
as of October 11, 1996, between the Stockholder and Pharmaceutical Research
Associates, Inc., a Virginia corporation ("Employer") (as amended and in effect
from time to time, the "Employment Agreement").
(a) Should the Term terminate under Section 7(a) of the Employment
Agreement (expiration of the Term or the death of Employee), or be terminated by
Employer under Section 7(b)(i) of the Employment Agreement (disability of
Employee), all unvested Options will automatically terminate.
(b) Should the Term be terminated by Employer under Section 7(b)(ii) of
the Employment Agreement (for Good Cause):
(i) All unvested Options held by Stockholder will automatically terminate;
and
(ii) All vested Options held by Stockholder that are not exercised by
Stockholder within ninety (90) days of the date on which the Term is
terminated, will automatically terminate.
(c) Should the Term be terminated by Stockholder as Employee under Section
7(c) of the Employment Agreement, all unvested Options held by Stockholder will
automatically vest as of the date on which the Term is terminated.
<PAGE>
-3-
4. Disposition or Encumbrance of Rights. (The Stockholder shall not, from
------------------------------------
the date hereof, sell, assign, transfer or encumber (a) any Options, except for
the transfer of Options that are not "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended ("Non-Statutory
Options"), to the spouse or lineal descendants of the Stockholder or a trust
solely for the benefit of one or more of the foregoing (each a "Permitted
Transferee") or (b) any shares acquired in connection with the exercise of any
of the Options ("Shares" and, collectively with the Options, "Rights"), unless
they have been registered under the Securities Act of 1933, as amended, or an
exemption from registration under such Act, and is otherwise made in compliance
with any applicable state securities laws.
5. Endorsement of Stock Certificate. Each certificate representing Shares
--------------------------------
shall be stamped with the following legend or its equivalent:
"This certificate and the shares of stock represented hereby have not been
registered under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom under
such Act or any applicable state securities laws. Furthermore such shares may
be sold or otherwise transferred only in compliance with the conditions
specified in the Stockholder's Agreement between the Corporation and the holder
hereof (or, as applicable, such holder's predecessor in interest), as amended
and in effect from time to time, a complete and correct copy of which is
available for inspection at the principal office of the Corporation and will be
furnished without charge to the holder of this certificate upon written
request."
6. Transfers on Corporate Books. During the term of this Agreement, the
----------------------------
Corporation shall not make or enter any transfer of Rights on the books and
records of the Corporation unless, prior to such transfer:
(a) the Corporation, through its duly elected officers, has determined
that any such transfer is being made in accordance with the terms of this
Agreement; and
(b) the qualified transferee to whom such Rights are to be transferred has
delivered to the Corporation duplicate originals of this Agreement, executed by
the qualified transferee as a party thereto.
<PAGE>
-4-
7. Construction and Binding Effect. This Agreement shall be construed
-------------------------------
according to the laws of the State of Delaware, without giving effect to any
conflict or choice of law provision, and shall bind the parties, their permitted
assigns and their personal representatives.
8. Invalidity. The invalidity or unenforceability of any provision or
----------
provisions of this Agreement shall not affect the other provisions, and the
Agreement shall be construed in all respects as if an invalid or unenforceable
provision were omitted.
9. Duration. This agreement shall remain in full force and effect until
--------
the Stockholder no longer holds any Rights. Notwithstanding the foregoing, if
the IPO is not consummated on or before January 31, 1998, this Agreement shall
be null and void.
10. Entire Agreement. This document contains the entire agreement between
----------------
the parties and no modification or change in this Agreement shall be valid
unless the same shall be in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Amended and
Restated Option Agreement as of the date first above written.
CORPORATION:
-----------
PRA INTERNATIONAL, INC.
By: /s/ Earle Martin
-------------------------------
Title: President
STOCKHOLDER:
-----------
/s/ Earle Martin
----------------------------------
Earle Martin
Address: 312 Grove Avenue
Falls Church, VA 22046
<PAGE>
-5-
SCHEDULE 1
----------
(Earle Martin)
1. Options for 3,485 Shares will vest on each of October 22, 1997 and
October 22, 1998 and Options for 3,484 Shares will vest on each of
October 22, 1999 and October 22, 2000 (each contingent upon employment
with Employer at that time). The exercise price for such Options shall
be $11.68 per share.
2. Options for 27,875 Shares (which Options are in addition to the
Options referred to in paragraph 1 above) will vest automatically upon
(a) any extraordinary event in which any purchaser(s) (whether taken
individually or as a group), under that certain Stock Purchase
Agreement, dated September 13, 1996, as amended, by and among the
Corporation, Employer, and Carlyle Partners II, L.P. (together with
certain Affiliates; the "Stock Purchase Agreement"), receives an
Internal Rate of Return (as such term is defined in the Stockholders'
Agreement; "IRR") greater than 25% (to the extent that exercise of any
of the options granted by the Corporation as of the date hereof to
employees of the Corporation or its subsidiaries, including, without
limitation, the Options, do not reduce such IRR below 25%) or (b) the
occurrence on or before January 31, 1998 of the IPO as defined in the
Conversion Agreement of even date herewith among the Corporation and
the Preferred Stockholders as defined therein (as so defined, the
"IPO").
3. Options for 13,937 Shares (which Options are in addition to the
Options referred to in paragraphs 1 and 2 above) will vest
automatically upon (a) any extraordinary event in which the above
stated IRR for any such Purchaser(s) (whether taken individually or as
a group) is greater than 33% or (b) the occurrence on or before
January 31, 1998 of the IPO.
<PAGE>
Exhibit 10.15
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED
OPTION AGREEMENT
----------------
THIS AMENDED AND RESTATED OPTION AGREEMENT (the "Agreement") evidences an
agreement made as of the 14th day of November 1997, by and between James C.
Powers (referred to here as the "Stockholder" even though he/she may not at
present, or at any time in the future, actually own any shares of stock), and
PRA INTERNATIONAL, INC., a Delaware corporation (the "Corporation).
WHEREAS, the Stockholder and the Corporation are parties to that certain
Option Agreement dated as of October 22, 1996 (as amended and in effect on the
date hereof, the "Existing Option Agreement"); and
WHEREAS, the Stockholder and the Corporation desire to amend and restate
the Existing Option Agreement in its entirety in connection with the proposed
initial public offering of the common stock, $.01 par value per share (the
"Common Stock"), of the Corporation approved by the Public Offering Committee of
the Board of Directors of the Corporation (the "IPO");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, it is agreed that the Existing Option Agreement shall be
amended and restated effective as of the consummation on or before January 31,
1998 of the IPO as follows:
1. Vesting of Options. (a) All options to purchase shares of Common Stock
------------------
held by the Stockholder listed on Schedule 1 attached hereto, as such Schedule 1
---------- ----------
may be amended from time to time with the written consent of each of the
parties, shall vest in accordance with the terms of said Schedule 1 and the
----------
terms of Section 3 hereof, except that such vesting may be accelerated by the
Corporation in its sole and absolute discretion or as otherwise provided in the
applicable Plan (as defined below).
(b) Unless sooner terminated in accordance with the terms hereof, all
Options shall terminate (whether or not vested) on the tenth (10th) anniversary
of the date of the original grant thereof.
2. Stock Option Plans. All Options, if any, granted to the Stockholder
------------------
prior to July 24, 1997 were granted pursuant to, and are
<PAGE>
-2-
subject to the terms of, the Amended and Restated 1993 Stock Option Plan of the
Corporation, a copy of which is attached as Exhibit A hereto (as may be further
---------
amended or restated, the "1993 Plan"), and all Options, if any, granted to the
Stockholder on or after July 24, 1997 were or will be granted pursuant to, and
are or will be subject to the terms of, the Amended and Restated 1997 Stock
Option Plan of the Corporation, a copy of which is attached as Exhibit B hereto
---------
(as may be further amended or restated, the "1997 Plan" and, collectively with
the 1993 Plan, the "Plans").
3. Termination of Stockholder's Employment. For purposes of this Section
---------------------------------------
3, all capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in that certain Employment and Non-Competition Agreement dated
as of October 11, 1996, between the Stockholder and Pharmaceutical Research
Associates, Inc., a Virginia corporation ("Employer") (as amended and in effect
from time to time, the "Employment Agreement").
(a) Should the Term terminate under Section 7(a) of the Employment
Agreement (expiration of the Term or the death of Employee), or be terminated by
Employer under Section 7(b)(i) of the Employment Agreement (disability of
Employee), all unvested Options will automatically terminate.
(b) Should the Term be terminated by Employer under Section 7(b)(ii) of
the Employment Agreement (for Good Cause):
(i) All unvested Options held by Stockholder will automatically terminate;
and
(ii) All vested Options held by Stockholder that are not exercised by
Stockholder within ninety (90) days of the date on which the Term is
terminated, will automatically terminate.
(c) Should the Term be terminated by Stockholder as Employee under Section
7(c) of the Employment Agreement, all unvested Options held by Stockholder will
automatically vest as of the date on which the Term is terminated.
<PAGE>
-3-
4. Disposition or Encumbrance of Rights. (The Stockholder shall not, from
------------------------------------
the date hereof, sell, assign, transfer or encumber (a) any Options, except for
the transfer of Options that are not "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended ("Non-Statutory
Options"), to the spouse or lineal descendants of the Stockholder or a trust
solely for the benefit of one or more of the foregoing (each a "Permitted
Transferee") or (b) any shares acquired in connection with the exercise of any
of the Options ("Shares" and, collectively with the Options, "Rights"), unless
they have been registered under the Securities Act of 1933, as amended, or an
exemption from registration under such Act, and is otherwise made in compliance
with any applicable state securities laws.
5. Endorsement of Stock Certificate. Each certificate representing Shares
--------------------------------
shall be stamped with the following legend or its equivalent:
"This certificate and the shares of stock represented hereby have not been
registered under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom under
such Act or any applicable state securities laws. Furthermore such shares may be
sold or otherwise transferred only in compliance with the conditions specified
in the Stockholder's Agreement between the Corporation and the holder hereof
(or, as applicable, such holder's predecessor in interest), as amended and in
effect from time to time, a complete and correct copy of which is available for
inspection at the principal office of the Corporation and will be furnished
without charge to the holder of this certificate upon written request."
6. Transfers on Corporate Books. During the term of this Agreement, the
----------------------------
Corporation shall not make or enter any transfer of Rights on the books and
records of the Corporation unless, prior to such transfer:
(a) the Corporation, through its duly elected officers, has determined
that any such transfer is being made in accordance with the terms of this
Agreement; and
(b) the qualified transferee to whom such Rights are to be transferred has
delivered to the Corporation duplicate originals of this Agreement, executed by
the qualified transferee as a party thereto.
<PAGE>
-4-
7. Construction and Binding Effect. This Agreement shall be construed
-------------------------------
according to the laws of the State of Delaware, without giving effect to any
conflict or choice of law provision, and shall bind the parties, their permitted
assigns and their personal representatives.
8. Invalidity. The invalidity or unenforceability of any provision or
----------
provisions of this Agreement shall not affect the other provisions, and the
Agreement shall be construed in all respects as if an invalid or unenforceable
provision were omitted.
9. Duration. This agreement shall remain in full force and effect until
--------
the Stockholder no longer holds any Rights. Notwithstanding the foregoing, if
the IPO is not consummated on or before January 31, 1998, this Agreement shall
be null and void.
10. Entire Agreement. This document contains the entire agreement between
----------------
the parties and no modification or change in this Agreement shall be valid
unless the same shall be in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Amended and
Restated Option Agreement as of the date first above written.
CORPORATION:
-----------
PRA INTERNATIONAL, INC.
By: /s/ Earle Martin
------------------------------
Title: President
STOCKHOLDER:
-----------
/s/ James C. Powers
-----------------------------------
James C. Powers
Address: 2310 Gersandy Place
Charlottesville, VA 22901
<PAGE>
-5-
SCHEDULE 1
----------
(James C. Powers)
1. Options for 3,485 Shares will vest on each of October 22, 1997 and October
22, 1998 and Options for 3,484 Shares will vest on each of October 22, 1999
and October 22, 2000 (each contingent upon employment with Employer at that
time). The exercise price for such Options shall be $11.68 per share.
2. Options for 27,875 Shares (which Options are in addition to the Options
referred to in paragraph 1 above) will vest automatically upon (a) any
extraordinary event in which any purchaser(s) (whether taken individually
or as a group), under that certain Stock Purchase Agreement, dated
September 13, 1996, as amended, by and among the Corporation, Employer, and
Carlyle Partners II, L.P. (together with certain Affiliates; the "Stock
Purchase Agreement"), receives an Internal Rate of Return (as such term is
defined in the Stockholders' Agreement; "IRR") greater than 25% (to the
extent that exercise of any of the options granted by the Corporation as of
the date hereof to employees of the Corporation or its subsidiaries,
including, without limitation, the Options, do not reduce such IRR below
25%) or (b) the occurrence on or before January 31, 1998 of the IPO as
defined in the Conversion Agreement of even date herewith among the
Corporation and the Preferred Stockholders as defined therein (as so
defined, the "IPO").
3. Options for 13,937 Shares (which Options are in addition to the Options
referred to in paragraphs 1 and 2 above) will vest automatically upon (a)
any extraordinary event in which the above stated IRR for any such
Purchaser(s) (whether taken individually or as a group) is greater than 33%
or (b) the occurrence on or before January 31, 1998 of the IPO.
<PAGE>
Exhibit 10.16
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED
OPTION AGREEMENT
----------------
THIS AMENDED AND RESTATED OPTION AGREEMENT (the "Agreement") evidences an
agreement made as of the 14th day of November 1997, by and between Joachim
Vollmar (referred to here as the "Stockholder" even though he may not at
present, or at any time in the future, actually own any shares of stock), and
PRA INTERNATIONAL, INC., a Delaware corporation (the "Corporation).
WHEREAS, the Stockholder and the Corporation are parties to that certain
Option Agreement dated as of October 22, 1996 (as amended and in effect on the
date hereof, the "Existing Option Agreement"); and
WHEREAS, the Stockholder and the Corporation desire to amend and restate
the Existing Option Agreement in its entirety in connection with the proposed
initial public offering of the common stock, $.01 par value per share (the
"Common Stock"), of the Corporation approved by the Public Offering Committee of
the Board of Directors of the Corporation (the "IPO");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, it is agreed that the Existing Option Agreement shall be
amended and restated effective as of the consummation on or before January 31,
1998 of the IPO as follows:
1. Vesting of Options. (a) All options to purchase shares of Common
------------------
Stock held by the Stockholder listed on Schedule 1 attached hereto, as such
----------
Schedule 1 may be amended from time to time with the written consent of each of
- ----------
the parties, shall vest in accordance with the terms of said Schedule 1 and the
----------
terms of Section 3 hereof, except that such vesting may be accelerated by the
Corporation in its sole and absolute discretion or as otherwise provided in the
applicable Plan (as defined below).
(b) Unless sooner terminated in accordance with the terms hereof, all
Options shall terminate (whether or not vested) on the tenth (10th) anniversary
of the date of the original grant thereof.
2. Stock Option Plans. All Options, if any, granted to the Stockholder
------------------
prior to July 24, 1997 were granted pursuant to, and are
<PAGE>
subject to the terms of, the Amended and Restated 1993 Stock Option Plan of the
Corporation, a copy of which is attached as Exhibit A hereto (as may be further
---------
amended or restated, the "1993 Plan"), and all Options, if any, granted to the
Stockholder on or after July 24, 1997 were or will be granted pursuant to, and
are or will be subject to the terms of, the Amended and Restated 1997 Stock
Option Plan of the Corporation, a copy of which is attached as Exhibit B hereto
---------
(as may be further amended or restated, the "1997 Plan" and, collectively with
the 1993 Plan, the "Plans").
3. Termination of Stockholder's Employment. For purposes of this
---------------------------------------
Section 3, all capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in that certain Employment Agreement dated as of April
14, 1992, between the Stockholder and Pharmaceutical Research Associates, Inc.,
a Virginia corporation ("Employer") (as amended and in effect from time to time,
the "Employment Agreement") (The period during which the Employee is employed
under the terms of the Employment Agreement is hereinafter referred to as the
"Term.")
(a) Should the Term terminate upon the expiration of the Employment
Agreement or under Paragraph 3.2 of the Employment Agreement (the disability or
death of Employee or his reaching 65 years of age), all unvested Options will
automatically terminate.
(b) Should the Term be terminated by Employer under Paragraph 3.3 of the
Employment Agreement (for Good Cause):
(i) All unvested Options held by Stockholder will automatically terminate;
and
(ii) All vested Options held by Stockholder that are not exercised by
Stockholder within ninety (90) days of the date on which the Term is
terminated, will automatically terminate.
(c) Should the Term be terminated by Stockholder as Employee under
Paragraph 3.4 of the Employment Agreement (termination by Employee),
all unvested Options held by Stockholder will automatically vest as of
the date on which the Term is terminated.
<PAGE>
4. Disposition or Encumbrance of Rights. (The Stockholder shall not,
------------------------------------
from the date hereof, sell, assign, transfer or encumber (a) any Options, except
for the transfer of Options that are not "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended ("Non-Statutory
Options"), to the spouse or lineal descendants of the Stockholder or a trust
solely for the benefit of one or more of the foregoing (each a "Permitted
Transferee") or (b) any shares acquired in connection with the exercise of any
of the Options ("Shares" and, collectively with the Options, "Rights"), unless
they have been registered under the Securities Act of 1933, as amended, or an
exemption from registration under such Act, and is otherwise made in compliance
with any applicable state securities laws.
5. Endorsement of Stock Certificate. Each certificate representing
--------------------------------
Shares shall be stamped with the following legend or its equivalent:
"This certificate and the shares of stock represented hereby have not been
registered under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom under
such Act or any applicable state securities laws. Furthermore such shares may
be sold or otherwise transferred only in compliance with the conditions
specified in the Stockholder's Agreement between the Corporation and the holder
hereof (or, as applicable, such holder's predecessor in interest), as amended
and in effect from time to time, a complete and correct copy of which is
available for inspection at the principal office of the Corporation and will be
furnished without charge to the holder of this certificate upon written
request."
6. Transfers on Corporate Books. During the term of this Agreement, the
----------------------------
Corporation shall not make or enter any transfer of Rights on the books and
records of the Corporation unless, prior to such transfer:
(a) the Corporation, through its duly elected officers, has determined
that any such transfer is being made in accordance with the terms of this
Agreement; and
(b) the qualified transferee to whom such Rights are to be transferred has
delivered to the Corporation duplicate originals of this Agreement, executed by
the qualified transferee as a party thereto.
<PAGE>
7. Construction and Binding Effect. This Agreement shall be construed
-------------------------------
according to the laws of the State of Delaware, without giving effect to any
conflict or choice of law provision, and shall bind the parties, their permitted
assigns and their personal representatives.
8. Invalidity. The invalidity or unenforceability of any provision or
----------
provisions of this Agreement shall not affect the other provisions, and the
Agreement shall be construed in all respects as if an invalid or unenforceable
provision were omitted.
9. Duration. This agreement shall remain in full force and effect
--------
until the Stockholder no longer holds any Rights. Notwithstanding the foregoing,
if the IPO is not consummated on or before January 31, 1998, this Agreement
shall be null and void.
10. Entire Agreement. This document contains the entire agreement
----------------
between the parties and no modification or change in this Agreement shall be
valid unless the same shall be in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Amended and
Restated Option Agreement as of the date first above written.
CORPORATION:
-----------
PRA INTERNATIONAL, INC.
By: /s/ Earle Martin
--------------------------------
Title: President
STOCKHOLDER:
-----------
/s/ Joachim Vollmar
------------------------------------
Joachim Vollmar
Address: Brucknerstrasse 4
69469 Weinheim
Germany
<PAGE>
SCHEDULE 1
----------
(Joachim Vollmar)
1. Options for 3,485 Shares will vest on each of October 22, 1997 and October
22, 1998 and Options for 3,484 Shares will vest on each of October 22, 1999
and October 22, 2000 (each contingent upon employment with Employer at that
time). The exercise price for such Options shall be $11.68 per share.
2. Options for 27,875 Shares (which Options are in addition to the Options
referred to in paragraph 1 above) will vest automatically upon (a) any
extraordinary event in which any purchaser(s) (whether taken individually
or as a group), under that certain Stock Purchase Agreement, dated
September 13, 1996, as amended, by and among the Corporation, Employer, and
Carlyle Partners II, L.P. (together with certain Affiliates; the "Stock
Purchase Agreement"), receives an Internal Rate of Return (as such term is
defined in the Stockholders' Agreement; "IRR") greater than 25% (to the
extent that exercise of any of the options granted by the Corporation as of
the date hereof to employees of the Corporation or its subsidiaries,
including, without limitation, the Options, do not reduce such IRR below
25%) or (b) the occurrence on or before January 31, 1998 of the IPO as
defined in the Conversion Agreement of even date herewith among the
Corporation and the Preferred Stockholders as defined therein (as so
defined, the "IPO").
3. Options for 13,937 Shares (which Options are in addition to the Options
referred to in paragraphs 1 and 2 above) will vest automatically upon (a)
any extraordinary event in which the above stated IRR for any such
Purchaser(s) (whether taken individually or as a group) is greater than 33%
or (b) the occurrence on or before January 31, 1998 of the IPO.
<PAGE>
Exhibit 10.17
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED
OPTION AGREEMENT
----------------
THIS AMENDED AND RESTATED OPTION AGREEMENT (the "Agreement") evidences an
agreement made as of the 14th day of November 1997, by and between Patrick K.
Donnelly (referred to here as the "Stockholder" even though he/she may not at
present, or at any time in the future, actually own any shares of stock), and
PRA INTERNATIONAL, INC., a Delaware corporation (the "Corporation).
WHEREAS, the Stockholder and the Corporation are parties to that certain
Option Agreement dated as of October 22, 1996 (as amended and in effect on the
date hereof, the "Existing Option Agreement"); and
WHEREAS, the Stockholder and the Corporation desire to amend and restate
the Existing Option Agreement in its entirety in connection with the proposed
initial public offering of the common stock, $.01 par value per share (the
"Common Stock"), of the Corporation approved by the Public Offering Committee of
the Board of Directors of the Corporation (the "IPO");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, it is agreed that the Existing Option Agreement shall be
amended and restated effective as of the consummation on or before January 31,
1998 of the IPO as follows:
1. Vesting of Options. (a) All options to purchase shares of Common
------------------
Stock held by the Stockholder listed on Schedule 1 attached hereto, as such
----------
Schedule 1 may be amended from time to time with the written consent of each of
- ----------
the parties, shall vest in accordance with the terms of said Schedule 1 and the
----------
terms of Section 3 hereof, except that such vesting may be accelerated by the
Corporation in its sole and absolute discretion or as otherwise provided in the
applicable Plan (as defined below).
(b) Unless sooner terminated in accordance with the terms hereof, all
Options shall terminate (whether or not vested) on the tenth (10th) anniversary
of the date of the original grant thereof.
2. Stock Option Plans. All Options, if any, granted to the Stockholder
------------------
prior to July 24, 1997 were granted pursuant to, and are
<PAGE>
-2-
subject to the terms of, the Amended and Restated 1993 Stock Option Plan of the
Corporation, a copy of which is attached as Exhibit A hereto (as may be further
---------
amended or restated, the "1993 Plan"), and all Options, if any, granted to the
Stockholder on or after July 24, 1997 were or will be granted pursuant to, and
are or will be subject to the terms of, the Amended and Restated 1997 Stock
Option Plan of the Corporation, a copy of which is attached as Exhibit B hereto
---------
(as may be further amended or restated, the "1997 Plan" and, collectively with
the 1993 Plan, the "Plans").
3. Termination of Stockholder's Employment. For purposes of this Section
---------------------------------------
3, all capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in that certain Employment and Non-Competition Agreement dated
as of October 16, 1996, between the Stockholder and Pharmaceutical Research
Associates, Inc., a Virginia corporation ("Employer") (as amended and in effect
from time to time, the "Employment Agreement").
(a) Should the Term terminate under Section 7(a) of the Employment
Agreement (expiration of the Term or the death of Employee), or be terminated by
Employer under Section 7(b)(i) of the Employment Agreement (disability of
Employee), all unvested Options will automatically terminate.
(b) Should the Term be terminated by Employer under Section 7(b)(ii) of
the Employment Agreement (for Good Cause):
(i) All unvested Options held by Stockholder will automatically terminate;
and
(ii) All vested Options held by Stockholder that are not exercised by
Stockholder within ninety (90) days of the date on which the Term is
terminated, will automatically terminate.
(c) Should the Term be terminated by Stockholder as Employee under Section
7(c) of the Employment Agreement, all unvested Options held by Stockholder will
automatically vest as of the date on which the Term is terminated.
<PAGE>
-3-
4. Disposition or Encumbrance of Rights. (The Stockholder shall not,
------------------------------------
from the date hereof, sell, assign, transfer or encumber (a) any Options, except
for the transfer of Options that are not "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended ("Non-Statutory
Options"), to the spouse or lineal descendants of the Stockholder or a trust
solely for the benefit of one or more of the foregoing (each a "Permitted
Transferee") or (b) any shares acquired in connection with the exercise of any
of the Options ("Shares" and, collectively with the Options, "Rights"), unless
they have been registered under the Securities Act of 1933, as amended, or an
exemption from registration under such Act, and is otherwise made in compliance
with any applicable state securities laws.
5. Endorsement of Stock Certificate. Each certificate representing
--------------------------------
Shares shall be stamped with the following legend or its equivalent:
"This certificate and the shares of stock represented hereby have not been
registered under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom under
such Act or any applicable state securities laws. Furthermore such shares may
be sold or otherwise transferred only in compliance with the conditions
specified in the Stockholder's Agreement between the Corporation and the holder
hereof (or, as applicable, such holder's predecessor in interest), as amended
and in effect from time to time, a complete and correct copy of which is
available for inspection at the principal office of the Corporation and will be
furnished without charge to the holder of this certificate upon written
request."
6. Transfers on Corporate Books. During the term of this Agreement, the
----------------------------
Corporation shall not make or enter any transfer of Rights on the books and
records of the Corporation unless, prior to such transfer:
(a) the Corporation, through its duly elected officers, has determined
that any such transfer is being made in accordance with the terms of this
Agreement; and
(b) the qualified transferee to whom such Rights are to be transferred has
delivered to the Corporation duplicate originals of this Agreement, executed by
the qualified transferee as a party thereto.
<PAGE>
-4-
7. Construction and Binding Effect. This Agreement shall be construed
-------------------------------
according to the laws of the State of Delaware, without giving effect to any
conflict or choice of law provision, and shall bind the parties, their permitted
assigns and their personal representatives.
8. Invalidity. The invalidity or unenforceability of any provision or
----------
provisions of this Agreement shall not affect the other provisions, and the
Agreement shall be construed in all respects as if an invalid or unenforceable
provision were omitted.
9. Duration. This agreement shall remain in full force and effect until
--------
the Stockholder no longer holds any Rights. Notwithstanding the foregoing, if
the IPO is not consummated on or before January 31, 1998, this Agreement shall
be null and void.
10. Entire Agreement. This document contains the entire agreement
----------------
between the parties and no modification or change in this Agreement shall be
valid unless the same shall be in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Amended and
Restated Option Agreement as of the date first above written.
CORPORATION:
-----------
PRA INTERNATIONAL, INC.
By: /s/ Earle Martin
---------------------------
Title: President
STOCKHOLDER:
-----------
/s/ Patrick K. Donnelly
-------------------------------
Patrick K. Donnelly
Address: 1200 Crayton Road
Herndon, VA 22070
<PAGE>
-5-
SCHEDULE 1
----------
(Patrick K. Donnelly)
1. Options for 3,485 Shares will vest on each of October 22, 1997 and October
22, 1998 and Options for 3,484 Shares will vest on each of October 22, 1999
and October 22, 2000 (each contingent upon employment with Employer at that
time). The exercise price for such Options shall be $11.68 per share.
2. Options for 27,875 Shares (which Options are in addition to the Options
referred to in paragraph 1 above) will vest automatically upon (a) any
extraordinary event in which any purchaser(s) (whether taken individually
or as a group), under that certain Stock Purchase Agreement, dated
September 13, 1996, as amended, by and among the Corporation, Employer, and
Carlyle Partners II, L.P. (together with certain Affiliates; the "Stock
Purchase Agreement"), receives an Internal Rate of Return (as such term is
defined in the Stockholders' Agreement; "IRR") greater than 25% (to the
extent that exercise of any of the options granted by the Corporation as of
the date hereof to employees of the Corporation or its subsidiaries,
including, without limitation, the Options, do not reduce such IRR below
25%) or (b) the occurrence on or before January 31, 1998 of the IPO as
defined in the Conversion Agreement of even date herewith among the
Corporation and the Preferred Stockholders as defined therein (as so
defined, the "IPO").
3. Options for 13,937 Shares (which Options are in addition to the Options
referred to in paragraphs 1 and 2 above) will vest automatically upon (a)
any extraordinary event in which the above stated IRR for any such
Purchaser(s) (whether taken individually or as a group) is greater than 33%
or (b) the occurrence on or before January 31, 1998 of the IPO.
<PAGE>
Exhibit 10.18
PRA INTERNATIONAL, INC.
AMENDED AND RESTATED
OPTION AGREEMENT
----------------
THIS AMENDED AND RESTATED OPTION AGREEMENT (the "Agreement") evidences an
agreement made as of the 14th day of November 1997, by and between Robert J.
Dockhorn, M.D. (referred to here as the "Stockholder" even though he/she may not
at present, or at any time in the future, actually own any shares of stock), and
PRA INTERNATIONAL, INC., a Delaware corporation (the "Corporation).
WHEREAS, the Stockholder and the Corporation are parties to that certain
Option Agreement dated as of April 1, 1997 (as amended and in effect on the date
hereof, the "Existing Option Agreement"); and
WHEREAS, the Stockholder and the Corporation desire to amend and restate
the Existing Option Agreement in its entirety in connection with the proposed
initial public offering of the common stock, $.01 par value per share (the
"Common Stock"), of the Corporation approved by the Public Offering Committee of
the Board of Directors of the Corporation (the "IPO");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, it is agreed that the Existing Option Agreement shall be
amended and restated effective as of the consummation on or before January 31,
1998 of the IPO as follows:
1. Vesting of Options. (a) All options to purchase shares of Common
------------------
Stock held by the Stockholder listed on Schedule 1 attached hereto, as such
----------
Schedule 1 may be amended from time to time with the written consent of each of
- ----------
the parties, shall vest in accordance with the terms of said Schedule 1 and the
----------
terms of Section 3 hereof, except that such vesting may be accelerated by the
Corporation in its sole and absolute discretion or as otherwise provided in the
applicable Plan (as defined below).
(b) Unless sooner terminated in accordance with the terms hereof, all
Options shall terminate (whether or not vested) on the tenth (10th) anniversary
of the date of the original grant thereof.
2. Stock Option Plans. All Options, if any, granted to the Stockholder
------------------
prior to July 24, 1997 were granted pursuant to, and are
<PAGE>
-2-
subject to the terms of, the Amended and Restated 1993 Stock Option Plan of the
Corporation, a copy of which is attached as Exhibit A hereto (as may be further
---------
amended or restated, the "1993 Plan"), and all Options, if any, granted to the
Stockholder on or after July 24, 1997 were or will be granted pursuant to, and
are or will be subject to the terms of, the Amended and Restated 1997 Stock
Option Plan of the Corporation, a copy of which is attached as Exhibit B hereto
---------
(as may be further amended or restated, the "1997 Plan" and, collectively with
the 1993 Plan, the "Plans").
3. Termination of Stockholder's Employment. For purposes of this
---------------------------------------
Section 3, all capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in that certain Employment and Non-Competition
Agreement dated as of April 1, 1997, between the Stockholder and International
Medical Technical Consultants, Inc., a Kansas corporation ("Employer") (as
amended and in effect from time to time, the "Employment Agreement").
(a) Should the Term terminate under Section 7(a) of the Employment
Agreement (expiration of the Term or the death of Employee), or be terminated by
Employer under Section 7(b)(i) of the Employment Agreement (disability of
Employee), all unvested Options will automatically terminate.
(b) Should the Term be terminated by Employer under Section 7(b)(ii) of
the Employment Agreement (for Good Cause):
(i) All unvested Options held by Stockholder will automatically terminate;
and
(ii) All vested Options held by Stockholder that are not exercised by
Stockholder within ninety (90) days of the date on which the Term is
terminated, will automatically terminate.
(c) Should the Term be terminated by Stockholder as Employee under Section
7(c) of the Employment Agreement, all unvested Options held by Stockholder will
automatically vest as of the date on which the Term is terminated.
<PAGE>
-3-
4. Disposition or Encumbrance of Rights. (The Stockholder shall not,
------------------------------------
from the date hereof, sell, assign, transfer or encumber (a) any Options, except
for the transfer of Options that are not "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended ("Non-Statutory
Options"), to the spouse or lineal descendants of the Stockholder or a trust
solely for the benefit of one or more of the foregoing (each a "Permitted
Transferee") or (b) any shares acquired in connection with the exercise of any
of the Options ("Shares" and, collectively with the Options, "Rights"), unless
they have been registered under the Securities Act of 1933, as amended, or an
exemption from registration under such Act, and is otherwise made in compliance
with any applicable state securities laws.
5. Endorsement of Stock Certificate. Each certificate representing
--------------------------------
Shares shall be stamped with the following legend or its equivalent:
"This certificate and the shares of stock represented hereby have not been
registered under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom under
such Act or any applicable state securities laws. Furthermore such shares may
be sold or otherwise transferred only in compliance with the conditions
specified in the Stockholder's Agreement between the Corporation and the holder
hereof (or, as applicable, such holder's predecessor in interest), as amended
and in effect from time to time, a complete and correct copy of which is
available for inspection at the principal office of the Corporation and will be
furnished without charge to the holder of this certificate upon written
request."
6. Transfers on Corporate Books. During the term of this Agreement, the
----------------------------
Corporation shall not make or enter any transfer of Rights on the books and
records of the Corporation unless, prior to such transfer:
(a) the Corporation, through its duly elected officers, has determined
that any such transfer is being made in accordance with the terms of this
Agreement; and
(b) the qualified transferee to whom such Rights are to be transferred has
delivered to the Corporation duplicate originals of this Agreement, executed by
the qualified transferee as a party thereto.
<PAGE>
-4-
7. Construction and Binding Effect. This Agreement shall be construed
-------------------------------
according to the laws of the State of Delaware, without giving effect to any
conflict or choice of law provision, and shall bind the parties, their permitted
assigns and their personal representatives.
8. Invalidity. The invalidity or unenforceability of any provision or
----------
provisions of this Agreement shall not affect the other provisions, and the
Agreement shall be construed in all respects as if an invalid or unenforceable
provision were omitted.
9. Duration. This agreement shall remain in full force and effect until
--------
the Stockholder no longer holds any Rights. Notwithstanding the foregoing, if
the IPO is not consummated on or before January 31, 1998, this Agreement shall
be null and void.
10. Entire Agreement. This document contains the entire agreement between
----------------
the parties and no modification or change in this Agreement shall be valid
unless the same shall be in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have signed this Amended and
Restated Option Agreement as of the date first above written.
CORPORATION:
-----------
PRA INTERNATIONAL, INC.
By: /s/ Earle Martin
-------------------------------
Title: President
STOCKHOLDER:
-----------
/s/ Robert J. Dockhorn, M.D.
----------------------------------
Robert J. Dockhorn, M.D.
Address:__________________________
__________________________
__________________________
<PAGE>
-5-
SCHEDULE 1
----------
(Robert J. Dockhorn, M.D.)
Options for 5,000 Shares will vest on April 1 of each of 1998, 1999, 2000 and
2001 (each contingent upon employment with Employer at that time). The exercise
price for such Options shall be $27.50 per share.
<PAGE>
Exhibit 10.19
RESTATED OPTION AGREEMENT
This RESTATED OPTION AGREEMENT (the "Agreement") is made as of the 31st day
of October, 1997 by and among (i) PRA INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and (ii) JAMES C. POWERS, JOACHIM VOLLMAR, W. BAIN
MACLACHLAN, ROGER FLORA, MICHAEL N. BOYD, WILLIAM M. WALSH III and PATRICK K.
DONNELLY (collectively, the "OPTIONHOLDERS").
WHEREAS, pursuant to the terms and conditions of that certain Stockholders'
Agreement dated as of October 11, 1996, as amended (as amended, the
"Stockholders' Agreement"), the Optionholders agreed that their respective
rights (the "Options") to purchase shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), were as set forth in Schedule 2.10 to
-------------
the Stockholders' Agreement and that the terms and conditions of all prior
agreements or documents governing such Options were terminated in their
entirety.
WHEREAS, as a condition precedent to the consummation of the initial public
offering of the Common Stock approved by the Public Offering Committee of the
Board of Directors of the Company (the "IPO"), the Company and the Optionholders
have agreed to enter into this Agreement to govern their respective rights and
obligations with respect to the Options covered by the Stockholders' Agreement;
WHEREAS, the Company and the Optionholders believe it to be in their best
interests that they enter into this Agreement;
WHEREAS, the parties desire to enter into this Agreement on the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and obligations set
forth in this Agreement, and of other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Covered Options. Each of the Optionholders who is holding Options to
---------------
purchase shares of the Common Stock governed by the terms of the Stockholders'
Agreement as of the date hereof (a) acknowledges and agrees that Schedule 1
-------- -
attached hereto and incorporated herein by reference sets forth opposite his
name an accurate representation of all
<PAGE>
-2-
such Options held by such Optionholder governed by the terms of the
Stockholders' Agreement on the date hereof and that the terms and provisions of
such Options, except as otherwise provided in this Agreement, shall be as set
forth in said Schedule 1 and that all prior agreements or documents governing
-------- -
such Options, including, without limitation, the provisions of Section 2.10 of
the Stockholders' Agreement, are terminated in their entirety, and (b) agrees to
the terms of and to be bound by Schedule 1.
-------- -
2. Effectiveness of Restated Option Agreement. This Agreement shall
------------------------------------------
become effective as of the consummation on or before January 31, 1998 of the IPO
(the "Effective Date"). In the event that the IPO is not consummated on or
before January 31, 1998, this Agreement shall be null and void. The parties
hereto acknowledge and agree that from and after the Effective Date, the
provisions of the Stockholders Agreement (including, without limitation, Section
2.10 thereof) shall be null and void and of no further force or effect.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, representatives, successors and assigns of the parties
hereto who agree in writing to be bound by the terms hereof, whether so
expressed or not.
3.2 Governing Law. This Agreement is to be governed by and interpreted
-------------
under the laws of the State of Delaware without regard to the conflicts of laws
provisions or rules of such state's law.
3.3 Entire Agreement; Amendments. (a) This Agreement constitutes the
----------------------------
entire agreement between the parties hereto with respect to the subject hereof,
and supersedes and nullifies any prior instruments (including without
limitation, the provisions of Section 2.10 of the Stockholders' Agreement).
(b) No amendment, alteration, modification or waiver of any provision of
this Agreement shall be valid unless in each instance such amendment,
alteration, modification or waiver is expressed in a written instrument duly
executed by each of the parties hereto.
3.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-3-
3.5 Headings; Form of Words.
-----------------------
(a) The headings contained in this Agreement have been inserted for the
convenience of reference only, and neither such headings nor the placement of
any term hereof under any particular heading shall in any way restrict or modify
any of the terms or provisions hereof.
(b) Terms used in the singular shall be read in the plural, and vice
versa, and terms used in the masculine gender shall be read in the feminine or
neuter gender when the context so requires.
3.6 Severability. The provisions of this Agreement shall be deemed
------------
severable, and if any part of any provision is held to be illegal, void,
voidable, invalid, nonbinding or unenforceable in its entirety or partially or
as to any party, for any reason, such provision may be changed, consistent with
the intent of the parties hereto, to the extent reasonably necessary to make the
provision, as so changed, legal, valid, binding and enforceable. If any
provision of this Agreement is held to be illegal, void, voidable, invalid,
nonbinding or unenforceable in its entirety or partially or as to any party, for
any reason, and if such provision cannot be changed consistent with the intent
of the parties hereto to make it fully legal, valid, binding and enforceable,
then such provisions shall be stricken from this Agreement, and the remaining
provisions of this Agreement shall not in any way be affected or impaired, but
shall remain in full force and effect.
<PAGE>
-4-
IN WITNESS WHEREOF, this Restated Option Agreement has been duly executed
by or on behalf of each of the parties hereto as of the date first set above,
and the provisions hereof shall be effective as of the Effective Date.
PRA INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Earle Martin
----------------------------------
Name: Earle Martin
Title: President
/s/ James C. Powers
----------------------------------
JAMES C. POWERS
/s/ Joachim Vollmar
----------------------------------
JOACHIM VOLLMAR
/s/ W. Bain MacLachlan
----------------------------------
W. BAIN MACLACHLAN
/s/ Roger Flora
----------------------------------
ROGER FLORA
/s/ Michael N. Boyd
----------------------------------
MICHAEL N. BOYD
/s/ William M. Walsh III
----------------------------------
WILLIAM M. WALSH III
/s/ Patrick K. Donnelly
----------------------------------
PATRICK K. DONNELLY
<PAGE>
SCHEDULE 1
Terms and Provisions Governing Certain Options Held by Optionholders
1. Existing Options.
----------------
<TABLE>
<CAPTION>
# of Per Share
------ ---------
Name Shares Vested Unvested Exercise Price Date of Grant
- ---- ------ ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
J. Powers 30,000 30,000 0 $.175 09/22/93
J. Vollmar 60,000 60,000 0 $.175 09/22/93
B. MacLachlan 20,000 10,000 5,000 to vest $5.75 12/01/95
on each of
3/8/98 and 99
R. Flora 98,276 98,276 0 $.175 09/22/93
M. Boyd 38,276 38,276 0 $.175 09/22/93
W. Walsh 30,000 30,000 0 $.175 09/22/93
P. Donnelly 60,000 26,250 11,250 to vest $5.75 10/11/96
on each of
10/11/98, 99
and 2000
</TABLE>
2. Options. (a) All Options held by the Optionholder shall vest in
-------
accordance with the terms of the table set forth above in Section 1 of this
Schedule 1, as such table may be amended from time to time, except that (i) such
- -------- -
vesting may be accelerated by the Corporation in its sole and absolute
discretion or as otherwise provided in the Plan (as defined below) and (ii) all
unvested Options held by Patrick K. Donnelly referred to above in this Schedule
1 shall immediately vest upon the occurrence of any transaction or event
pursuant to which the Corporation (A) is merged or consolidated with another
entity, (B) undergoes a reorganization or recapitalization, (C) engages in an
initial public offering or (D) sells, leases, transfers, hypothecates, pledges
or otherwise disposes of all or substantially all of its assets.
(b) Upon the termination of the Optionholder's employment with a
Subsidiary (as defined in the Stockholders' Agreement as in effect on the date
hereof) of the Company for any reason, all unvested Options shall terminate
immediately (except in the case of Patrick Donnelly whose Options shall vest in
their entirety in the event of Mr. Donnelly's death or Disability as defined in
his employment agreement with Pharmaceutical Research Associates, Inc.) and all
vested Options shall terminate in thirty (30) days of such termination of
employment or active involvement.
<PAGE>
-2-
(c) Subject to Section 2(b), all Options shall terminate (whether or not
vested) on the tenth (10th) anniversary of the date of the original grant
thereof.
(d) The Optionholder shall not be entitled to any payment for, or in
respect of, any Options that terminate for any reason.
(e) All of the Options (except those granted to Patrick K. Donnelly
referred to above in this Schedule 1) were granted pursuant to, and are subject
to the terms of, the Amended and Restated 1993 Stock Option Plan of the
Corporation, a copy of which is attached as Exhibit A hereto (as may be
------- -
further amended or restated, the "Plan").
3. No Piracy; Confidentiality. (a) In the event that the Optionholder
--------------------------
is or was an employee of a Subsidiary of the Corporation, for a period of one
(1) year following the termination of the Optionholder's employment with such
Subsidiary, the Optionholder agrees to refrain from interfering with the
employment relationship between the Company and its Subsidiaries and its other
employees by soliciting any of such individuals to participate in independent
business ventures and, provided such person or entity was a customer at the time
of termination the Optionholder's employment, agrees to refrain from soliciting
any such customer of the Company or its Subsidiaries for the Optionholder or for
any person or entity other than the Company or its Subsidiaries.
(b) In the event that the Optionholder is or was an employee of a
Subsidiary of the Corporation, the Optionholder agrees (i) not to divulge to
anyone (other than the Company, any of its Subsidiaries or any persons
designated by the Company or any of its Subsidiaries) any knowledge or
information or any type whatsoever of a confidential nature relating to the
Company or any of its Subsidiaries, including, without limitation, all
information concerning customers, suppliers, competitive bidding techniques,
market needs, and methods, procedures and know-how and other information of a
financial, technical or confidential nature relating to the business of the
Company or any of its Subsidiaries (unless readily ascertainable form public or
published information or trade sources) and (ii) not to disclose, publish or
make use of any such knowledge or information of a confidential nature without
the prior written consent of the Company.
(c) In the event that any Optionholder is a party to an employment or
similar agreement with the Company or any of its Subsidiaries that contains
provisions relating to the subject matter of this Section 3, such provisions
contained in such employment or similar agreement shall control.
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS (LOSSES) PER SHARE
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE NINE
FOR THE YEAR MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Weighted average common shares outstanding.......... 1,285,263 1,408,223
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........................ -- 1,198,834
--------- ---------
Weighted average common and common equivalent shares
outstanding........................................ 4,850,128 6,171,922
========= =========
</TABLE>
<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.
December 10, 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 Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-38565) 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
December 10, 1997
