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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________
Commission File Number: 0-27058
PAREXEL International Corporation
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2776269
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 West Street, Waltham, MA 02154
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(617) 487-9900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
----- -----
Indicate the number of shares outstanding of each of the issues classes of
common stock, as of the latest practicable date.
As of February 10, 1997, there were 19,450,568 shares of
PAREXEL International Corporation common stock outstanding.
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PAREXEL INTERNATIONAL CORPORATION
INDEX
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PAGE
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet -- December 31 and
June 30, 1996 2
Condensed consolidated statement of operations -- Three
months ended December 31, 1996 and 1995; six months
ended December 31, 1996 and 1995 3
Condensed consolidated statement of cash flows -- Six
months ended December 31, 1996 and 1995 4
Notes to condensed consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Risk Factors 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
-------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Unrestricted $ 16,243 $ 66,522
Restricted 858 891
Marketable securities 29,319 27,722
Accounts receivable, net 39,277 53,372
Other current assets 6,905 8,620
-------- --------
Total current assets 92,602 157,127
Property and equipment, net 8,193 16,112
Other assets 1,606 1,862
-------- --------
$102,401 $175,101
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 762 $ 637
Accounts payable 7,003 7,922
Advance billings 20,008 24,729
Other current liabilities 11,401 13,395
-------- --------
Total current liabilities 39,174 46,683
Long-term debt 360 196
Other liabilities 1,655 1,714
-------- --------
Total liabilities 41,189 48,593
-------- --------
Stockholders' equity:
Common stock - $.01 par value; shares
authorized: 25,000,000 at June 30, 1996,
50,000,000 at December 31, 1996; shares
issued: 15,654,220 at June 30, 1996,
19,468,006 at December 31, 1996; shares
outstanding: 15,624,808 at June 30, 1996,
19,438,594 at December 31, 1996 156 194
Additional paid-in capital and other
stockholders' equity 66,255 126,362
Accumulated deficit (5,199) (48)
-------- --------
Total stockholders' equity 61,212 126,508
-------- --------
$102,401 $175,101
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
2
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PAREXEL INTERNATIONAL CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $28,059 $ 48,201 $ 52,428 $ 91,353
Reimbursed costs (7,443) (11,032) (13,839) (21,154)
------- -------- -------- --------
Net revenue 20,616 37,169 38,589 70,199
------- -------- -------- --------
Costs and expenses:
Direct costs 14,409 25,358 26,874 48,179
Selling, general and administrative 4,244 7,684 8,078 14,301
Depreciation and amortization 518 1,005 1,033 1,888
------- -------- -------- --------
19,171 34,047 35,985 64,368
------- -------- -------- --------
Income from operations 1,445 3,122 2,604 5,831
Other income, net 123 425 221 789
------- -------- -------- --------
Income before provision for income taxes 1,568 3,547 2,825 6,620
Provision for income taxes 612 1,274 1,127 2,411
------- -------- -------- --------
Net income $ 956 $ 2,273 $ 1,698 $ 4,209
======= ======== ======== ========
Net income per share $ 0.08 $ 0.13 $ 0.15 $ 0.24
======= ======== ======== ========
Weighted average common and
common equivalent shares outstanding 12,462 17,999 11,630 17,628
======= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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PAREXEL INTERNATIONAL CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,698 $ 4,209
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,033 1,888
Change in operating assets and liabilities,
net of effects from acquisitions (552) (6,279)
Other operating activities (75) --
-------- --------
Net cash provided (used) by operating activities 2,104 (182)
-------- --------
Cash flows from investing activities:
Purchase of marketable securities (44,193) (20,965)
Proceeds from sale of marketable securities 21,418 22,537
Cash related to acquisition activities -- 251
Purchase of property and equipment (731) (7,436)
-------- --------
Net cash used by investing activities (23,506) (5,613)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 21,225 59,388
Proceeds from issuance of preferred stock 1,769 --
Cash received from stock subscriptions 157 --
Dividends paid (940) --
Repayments of long-term debt (444) (3,000)
-------- --------
Net cash provided by financing activities 21,767 56,388
-------- --------
Effect of exchange rate changes on unrestricted cash
and cash equivalents (71) (314)
-------- --------
Net increase in unrestricted cash
and cash equivalents 294 50,279
Unrestricted cash and cash equivalents at beginning
of period 5,315 16,243
-------- --------
Unrestricted cash and cash equivalents at end of period $ 5,609 $ 66,522
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months and the six months
ended December 31, 1996 are not necessarily indicative of the results that may
be expected for the fiscal year ended June 30, 1997. For further information,
refer to the consolidated financial statements and notes thereto included in
PAREXEL International Corporation's (the "Company") Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.
The balance sheet at June 30, 1996 has been derived from the audited financial
statements at that date but does not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements.
The Company's stock is currently quoted on the Nasdaq National Market under the
symbol "PRXL".
Note 2 -- Capital Stock Changes
In December 1996, 2,516,300 shares of the Company's common stock were sold by
the Company to the public at a price per share of $24.00. Proceeds to the
Company, net of offering expenses, amounted to approximately $57.2 million.
Note 3 -- Earnings per Share
Earnings per share calculations for the three months ended December 31, 1996 are
based on 17,490,940 weighted average common shares outstanding, plus 508,488
common share equivalents attributable to common stock options. Earnings per
share calculations for the six months ended December 31, 1996 are based on
17,130,192 weighted average common shares outstanding, plus 497,460 common share
equivalents attributable to common stock options. See Exhibit 11 for further
information on the computation of earnings per common and common equivalent
share.
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Note 4 -- Subsequent Event
On January 28, 1997, the Board of Directors of the Company declared a
two-for-one stock split of the Company's common stock, payable in the form of a
stock dividend. All stockholders of record as of the close of business on
February 7, 1997, will receive one additional share of stock for each share
owned. Issuance of the stock dividend is expected to occur on or about February
21, 1997.
Financial information contained elsewhere in this Form 10-Q has been
retroactively adjusted to reflect the impact of the common stock split for all
periods presented.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth and discussed below for the three months and six
months ended December 31, 1996, is derived from the Condensed Consolidated
Financial Statements included herein. The financial information set forth and
discussed below is unaudited but, in the opinion of management, reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of such information. The Company's results of operations for a
particular quarter may not be indicative of results expected during subsequent
fiscal quarters or for the entire year.
OVERVIEW
The Company provides a full spectrum of clinical trials research and development
services on a contract basis to the pharmaceutical and biotechnology industries.
These services are provided to clients on a global basis and include: (1)
designing, initiating and monitoring clinical trials; (2) managing and analyzing
clinical data; and (3) industry consulting services including regulatory
affairs, medical writing, performance improvement, training and health
economics.
The Company's contracts are typically fixed price, multi-year contracts that
require a portion of the fee to be paid at the time the contract is entered
into, with the balance of the fee paid in installments during the contract's
duration. Net revenue from contracts is generally recognized on a percentage of
completion basis as work is performed.
As is customary in the industry, the Company routinely subcontracts with third
party investigators in connection with clinical trials and other third party
service providers for laboratory analysis and other specialized services. These
and other reimbursable costs are paid by the client and, in accordance with
industry practice, are included in revenue. Reimbursed costs vary from contract
to contract. Accordingly, the Company views net revenue, which consists of
revenue less reimbursed costs, as its primary measure of revenue growth.
Direct costs consist of compensation and related fringe benefits for
project-related employees, other project-related costs not reimbursed and
allocated facilities and information systems costs. Selling, general and
administrative expenses consist of compensation and related fringe benefits for
selling and administrative employees, professional services and advertising
costs, as well as allocated costs related to facilities and information systems.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Net revenue increased by $16.6 million, or 80.3%, from $20.6 million for the
three months ended December 31, 1995 to $37.2 million for the three months ended
December 31, 1996. This increase was primarily due to net revenue increases of
$11.1 million and $5.0 million from North American and European operations,
respectively. This net revenue growth was primarily
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attributable to an increase in the volume of clinical research projects serviced
by the Company and, to a lesser extent, the Company's four recent acquisitions.
Excluding the four acquisitions, the Company's net revenue for the three months
ended December 31, 1996 increased by $13.8 million, or 67.1%, from the
comparable prior year period, primarily in the areas of clinical monitoring
services and data management and biostatistical analysis. There can be no
assurance that the Company can sustain this rate of increase in net revenue
from continuing operations in future periods. See "Risk Factors."
Direct costs increased by $10.9 million, or 76.0%, from $14.4 million for the
three months ended December 31, 1995 to $25.4 million for the three months ended
December 31, 1996. This increase in direct costs was due to the increase in the
number of project-related personnel, hiring, facilities and information system
costs necessary to support the increased level of operations. Direct costs as a
percentage of net revenue decreased from 69.9% for the three months ended
December 31, 1995 to 68.2% for the three months ended December 31, 1996
primarily due to improved operating efficiencies within Europe.
Selling, general and administrative expenses increased by $3.4 million, or
81.1%, from $4.2 million for the three months ended December 31, 1995 to $7.7
million for the three months ended December 31, 1996. This increase was
primarily due to increased administrative personnel, hiring and facilities
costs, in line with management's objective of increasing infrastructure to
accommodate the Company's growth. Selling, general and administrative expenses
as a percentage of net revenue increased slightly from 20.6% for the three
months ended December 31, 1995 to 20.7% for the three months ended December 31,
1996.
Depreciation and amortization expense increased by $487,000, or 94.0%, from
$518,000 for the three months ended December 31, 1995 to $1.0 million for the
three months ended December 31, 1996. The increase is primarily due to increased
capital spending on computer equipment and facilities to support the increase in
project-related personnel.
Income from operations for the three months ended December 31, 1996 increased by
$1.7 million, or 116.1%, from $1.4 million for the three months ended December
31, 1995 to $3.1 million for the three months ended December 31, 1996.
Other income, net increased by $302,000 from $123,000 for the three months ended
December 31, 1995 to $425,000 for the three months ended December 31, 1996. This
increase resulted from higher average balances of cash, cash equivalents and
marketable securities due primarily to proceeds from the Company's public
offerings in fiscal 1996 and 1997.
The Company's effective income tax rate was 35.9% for the three months ended
December 31, 1996, compared to 39.0% for the three months ended December 31,
1995. This decrease was due to changes in the mix of taxable income from the
different jurisdictions in which the Company operates and the impact of
tax-exempt interest income on securities held by the Company.
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Six Months Ended December 31, 1996 Compared to Six Months Ended December 31,
- - ----------------------------------------------------------------------------
1995
- - ----
Net revenue increased by $31.6 million, or 81.9%, from $38.6 million for the six
months ended December 31, 1995 to $70.2 million for the six months ended
December 31, 1996. This increase was primarily due to net revenue increases of
$21.9 million and $8.9 million from North American and European operations,
respectively. This net revenue growth was primarily attributable to an increase
in the volume of clinical research projects serviced by the Company and, to a
lesser extent, the Company's four recent acquisitions. Excluding the four
acquisitions, the Company's net revenue for the six months ended December 31,
1996 increased by $26.3 million, or 68.2%, from the comparable prior year
period, primariy in the areas of clinical monitoring services and data
management and biostatistical analysis. There can be no assurance that the
Company can sustain this rate of increase in net revenue from continuing
operations in future periods. See "Risk Factors."
Direct costs increased by $21.3 million, or 79.3%, from $26.9 million for the
six months ended December 31, 1995 to $48.2 million for the six months ended
December 31, 1996. This increase in direct costs was due to the increase in the
number of project-related personnel, hiring, facilities and information system
costs necessary to support the increased level of operations. Direct costs as a
percentage of net revenue decreased from 69.6% for the six months ended December
31, 1995 to 68.6% for the six months ended December 31, 1996 primarily due to
improved operating efficiencies within Europe.
Selling, general and administrative expenses increased by $6.2 million, or
77.0%, from $8.1 million for the six months ended December 31, 1995 to $14.3
million for the six months ended December 31, 1996. This increase was primarily
due to increased administrative personnel, hiring and facilities costs, in line
with management's objective of increasing infrastructure to accommodate the
Company's growth. Selling, general and administrative expenses as a percentage
of net revenue decreased from 20.9% for the six months ended December 31, 1995
to 20.4% for the three months ended December 31, 1996 primarily due to
leveraging of infrastructure over an expanding revenue base.
Depreciation and amortization expense increased by $855,000, or 82.8%, from $1.0
million for the six months ended December 31, 1995 to $1.9 million for the six
months ended December 31, 1996. The increase is primarily due to increased
capital spending on computer equipment and facilities to support the increase in
project-related personnel.
Income from operations for the six months ended December 31, 1996 increased by
$3.2 million, or 123.9%, from $2.6 million for the six months ended December 31,
1995 to $5.8 million for the six months ended December 31, 1996.
Other income, net increased by $568,000 from $221,000 for the six months ended
December 31, 1995 to $789,000 for the six months ended December 31, 1996. This
increase resulted from higher average balances of cash, cash equivalents and
marketable securities due primarily to proceeds from the Company's public
offerings in fiscal 1996 and 1997.
The Company's effective income tax rate was 36.4% for the six months ended
December 31, 1996, compared to 39.9% for the six months ended December 31, 1995.
This decrease was due
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to changes in the mix of taxable income from the different jurisdictions in
which the Company operates and the impact of tax-exempt interest income on
securities held by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's clinical research and development contracts are generally fixed
price, with some variable components, and range in duration from a few months to
several years. The cash flows from contracts typically consist of a down payment
required to be paid at the time the contract is entered into and the balance in
installments over the contract's duration, in some cases on a milestone
achievement basis. Revenue from the contracts is generally recognized on a
percentage of completion basis as work is performed. Accordingly, cash receipts
do not necessarily correspond to costs incurred and revenue recognized on
contracts. The Company's cash flow is influenced by changes in the levels of
billed and unbilled receivables and advance billings. As a result, the number of
days revenue outstanding in accounts receivable, net of advance billings and the
related dollar values of these accounts, can vary due to the achievement of
contractual milestones and the timing and size of cash receipts. The number of
days revenue outstanding, net of advance billings, was 53 days at December 31,
1996, compared to 47 days at June 30, 1996. The increase in days revenue
outstanding from June 30, 1996 to December 31, 1996 was primarily due to the
timing of the achievement of project milestones and related billings, offset
partially by an increase in advance billings. Accounts receivable, net of the
allowance for doubtful accounts, increased from $39.3 million at June 30, 1996
to $53.4 million at December 31, 1996. Advance billings increased from $20.0
million at June 30, 1996 to $24.7 million at December 31, 1996 due to accounts
billed to clients in advance of revenue earned.
Unrestricted cash and cash equivalents increased by $50.3 million during the six
months ended December 31, 1996 as a result of $56.4 million in cash provided by
financing activities, partially offset by $182,000 and $5.6 million in cash used
by operating and investing activities, respectively, and a $314,000 unfavorable
effect of exchange rate changes.
Net cash used by operating activities resulted from net income, excluding
non-cash expenses, of $6.1 million and increases in billed and unbilled
receivables of $11.4 million and other current assets of $1.0 million, partially
offset by an increase in accounts payable, advance billings, and other current
liabilities of $456,000, $4.1 million, and $1.4 million, respectively.
Investing activities consisted primarily of capital expenditures of $7.4 million
related to facility expansion and investments in information technology,
partially offset by net proceeds from the sale of marketable securities.
Financing activities consisted primarily of net proceeds of $57.2 million from
the Company's December 1996 follow-on public offering, slightly offset by
repayments of long-term debt of $3.0 million. Debt repayments included $2.3
million to retire third-party debt assumed during the August 1996 S&FA
acquisition.
The Company has domestic and foreign line of credit arrangements with banks
totaling approximately $7.5 million and a capital lease line of credit with a
U.S. bank for $2.4 million. At
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December 31, 1996 the Company had approximately $9.2 million in available credit
under these arrangements.
The Company's primary cash needs on both a short-term and long-term basis are
for the payment of salaries and fringe benefits, hiring and recruiting
expenses, business development costs, capital expenditures and facility-related
expenses. The Company believes that its existing capital resources, together
with cash flows from operations and borrowing capacity under its existing lines
of credit, will be sufficient to meet its foreseeable cash needs. In the future,
the Company will continue to consider acquiring businesses to enhance its
service offerings, therapeutic base and global presence. Any such acquisitions
may require additional external financings 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 assurance that such financings will be available on
terms acceptable to the Company.
The foregoing statements include forward-looking statements which involve risks
and uncertainties. The Company's actual experience may differ materially from
that discussed above. Factors that might cause such a difference include, but
are not limited to, those discussed in "Risk Factors" as well as future events
that have the effect of reducing the Company's available cash balances, such as
unexpected operating losses or capital expenditures or cash expenditures related
to possible future acquisitions.
RECENT EVENT
On January 28, 1997, the Board of Directors of the Company declared a
two-for-one stock split of the Company's common stock, payable in the form of a
stock dividend. All stockholders of record as of the close of business on
February 7, 1997, will receive one additional share of stock for each share
owned. Issuance of the stock dividend is expected to occur on or about
February 21, 1997.
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RISK FACTORS
In addition to the other information in this report, the following risk factors
should be considered carefully in evaluating the company and its business.
Information provided by the Company from time to time may contain certain
"forward-looking" information, as that term is defined by (i) the Private
Securities Litigation Reform Act of 1995 (the "Act") and (ii) in releases made
by the Securities and Exchange Commission (the "SEC"). These risk factors are
being provided pursuant to the provisions of the Act and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act.
LOSS OR DELAY OF LARGE CONTRACTS. Most of the Company's contracts are terminable
upon 60 to 90 days' notice by the client. Clients terminate or delay contracts
for a variety of reasons, including among others the failure of products being
tested to satisfy safety requirements, unexpected or undesired clinical results
of the product, the client's decision to forego a particular study, insufficient
patient enrollment or investigator recruitment or production problems resulting
in shortages of the drug. In addition, the Company believes that several
factors, including the potential adverse impact of health care reform, have
caused pharmaceutical companies to apply more stringent criteria to the decision
to proceed with clinical trials and therefore may result in a greater
willingness of these companies to cancel contracts with CROs. The loss or delay
of a large contract or the loss or delay of multiple contacts could have a
material adverse effect on the financial performance of the Company.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results have been subject to variation, and will continue to be subject to
variation, depending upon factors such as the initiation and progress of
significant projects, acquisitions, exchange rate fluctuations, the mix of
services offered, the opening of new offices, and the startup costs incurred
in connection with the introduction of new products and services. In addition,
during the third quarters of fiscal 1993 and 1995, the Company's results of
operations were affected by a non-cash restructuring charge and a non-cash
write-down due to the impairment of long-lived assets, respectively. Because a
high percentage of the Company's operating costs is relatively fixed,
variations in the initiation, completion, delay or loss of contracts, or in the
progress of clinical trials can cause material adverse variations in quarterly
operating results.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS. The Company's revenues are highly
dependent on research and development expenditures by the pharmaceutical and
biotechnology industries. The Company's operations could be materially and
adversely affected by general economic downturns in its clients' industries, the
impact of the current trend toward consolidation in these industries or any
decrease in research and development expenditures. Furthermore, the Company has
benefited to date from the increasing tendency of pharmaceutical and
biotechnology companies to outsource large clinical research projects. A
reversal or slowing of this trend would have a material adverse effect on the
Company.
The Company believes that concentrations of business in the CRO industry are not
uncommon. The Company has experienced such concentration in the past and may
experience such
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concentration in future years. No client accounted for 10% or more of
consolidated net revenue in fiscal 1996, however, one client accounted for 11.2%
and 10.1% of consolidated net revenue for the three months and the six months
ended December 31, 1996, respectively. In fiscal 1996 and the six months ended
December 31, 1996, the Company's top five clients accounted for 32.0% and 39.8%,
respectively, of the Company's consolidated net revenue. The loss of business
from a significant client could have a material adverse effect on the Company.
DEPENDENCE ON GOVERNMENT REGULATION. The Company's business depends on the
comprehensive government regulation of the drug development process. In the
United States, the general trend has been in the direction of continued or
increased regulation, although the FDA recently announced regulatory changes
intended to streamline the approval process for biotechnology products by
applying the same standards as are in effect for conventional drugs. In Europe,
the general trend has been toward coordination of common standards for clinical
testing of new drugs, leading to changes in the various requirements currently
imposed by each country. Changes in regulation, including a relaxation in
regulatory requirements or the introduction of simplified drug approval
procedures, as well as anticipated regulation, could materially and adversely
affect the demand for the services offered by the Company. In addition, failure
on the part of the Company to comply with applicable regulations could result in
the termination of ongoing research or the disqualification of data, either of
which could have a material adverse effect on the Company.
POTENTIAL ADVERSE IMPACT OF HEALTH CARE REFORM. Numerous governments have
undertaken efforts to control growing health care costs through legislation,
regulation and voluntary agreements with medical care providers and
pharmaceutical companies. In the last several years, several comprehensive
health care reform proposals were introduced in the U.S. Congress. The intent of
the proposals was generally, to expand health care coverage for the uninsured
and reduce the growth of total health care expenditures. While none of the
proposals was adopted, health care reform may again be addressed by the U.S.
Congress. Implementation of government health care reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies, resulting in a decrease of the business opportunities available to
the Company. Management is unable to predict the likelihood of health care
reform proposals being enacted into law or the effect such law would have on the
Company.
Many European governments have also reviewed or undertaken health care reform.
For example, German health care reform legislation, which was implemented on
January 1, 1993, contributed to an estimated 15% decline in German
pharmaceutical industry sales in calendar 1993 and led several clients to
cancel contracts with the Company. Subsequent to these events, in the third
quarter of fiscal 1993, the Company restructured its German operations and
incurred a restructuring charge of approximately $3.3 million. In addition, in
the third quarter of fiscal 1995, the Company's results of operations were
affected by a non-cash write-down due to the impairment of long-lived assets of
PAREXEL GmbH, the Company's German subsidiary, of approximately $11.3 million.
The Company cannot predict the impact that any pending or future health care
reform proposals may have on the Company's business in Europe.
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COMPETITION; CRO INDUSTRY CONSOLIDATION. The Company primarily competes against
in-house departments of pharmaceutical companies, full service CROs and, to a
lesser extent, universities and teaching hospitals. Some of these competitors
have substantially greater capital, technical and other resources than the
Company. CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to organize and manage large-scale trials on a global
basis, the ability to manage large and complex medical databases, the ability to
provide statistical and regulatory services, the ability to recruit
investigators, the ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence with
strategically located facilities, financial viability and price. There can be no
assurance that the Company will be able to compete favorably in these areas.
The CRO industry is highly fragmented, with participants ranging from several
hundred small, limited-service providers to several large, full-service CROs
with global operations. The trend toward CRO industry consolidation has resulted
in heightened competition among the larger CROs for clients and acquisition
candidates. In addition, consolidation within the pharmaceutical industry as
well as a trend by pharmaceutical companies of outsourcing among fewer CROs has
led to heightened competition for CRO contracts.
MANAGEMENT OF BUSINESS EXPANSION; NEED FOR IMPROVED SYSTEMS; ASSIMILATION OF
FOREIGN OPERATIONS. The Company's business and operations have experienced
substantial expansion over the past 10 years. The Company believes that such
expansion places a strain on operational, human and financial resources. In
order to manage such expansion, the Company must continue to improve its
operating, administrative and information systems, accurately predict its future
personnel and resource needs to meet client contract commitments, track the
progress of ongoing client projects and attract and retain qualified management,
professional, scientific and technical operating personnel. Expansion of foreign
operations also may involve the additional risks of assimilating differences in
foreign business practices, hiring and retaining qualified personnel, and
overcoming language barriers. In the event that the operation of an acquired
business does not live up to expectations, the Company may be required to
restructure the acquired business or write-off the value of some or all of the
assets of the acquired business. In fiscal 1993 and 1995, the Company's results
of operations were materially and adversely affected by write-offs associated
with the Company's acquired German operations. Failure by the Company to meet
the demands of and to manage expansion of its business and operations could have
a material adverse effect on the Company's business.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company has made a number of
acquisitions, including four since June 1, 1996, and will continue to review
future acquisition opportunities. No assurances can be given that acquisition
candidates will continue to be available on terms and conditions acceptable to
the Company. Acquisitions involve numerous risks, including, among other things,
difficulties and expenses incurred in connection with the acquisitions and the
subsequent assimilation of the operations and services or products of the
acquired companies, the difficulty of operating new (albeit related) businesses,
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 also may involve the additional risks of assimilating differences
14
<PAGE> 16
in foreign business practices and overcoming language barriers. In the event
that the operations of an acquired business do not live up to expectations, the
Company may be required to restructure the acquired business or write-off the
value of some or all of the assets of the acquired business. In fiscal 1993 and
1995, the Company's results of operations were materially and adversely affected
by write-offs associated with the Company's acquired German operations. There
can be no assurance that any acquisition will be successfully integrated into
the Company's operations.
DEPENDENCE ON PERSONNEL. The Company relies on a number of key executives,
including Josef H. von Rickenbach, its President, Chief Executive Officer and
Chairman, upon whom the Company maintains key man life insurance. Although the
Company has entered into agreements containing non-competition restrictions with
its senior officers, the Company does not have employment agreements with most
of these persons and the loss of the services of any of the Company's key
executives could have a material adverse effect on the Company. The Company's
performance also depends on its ability to attract and retain qualified
professional, scientific and technical operating staff. The level of competition
among employers for skilled personnel, particularly whose with M.D., Ph.D. or
equivalent degrees, is high. There can be no assurance the Company will be able
to continue to attract and retain qualified staff. In addition, the cost of
recruiting skilled personnel has increased and there can be no assurance that
such costs will not continue to rise.
POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE. Clinical research
services involve the testing of new drugs on human volunteers pursuant to a
study protocol. Such testing involves a risk of liability for personal injury or
death to patients due to, among other reasons, possible unforeseen adverse side
effects or improper administration of the new drug. Many of these patients are
already seriously ill and are at risk of further illness or death. 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 outside the scope of an
indemnity or insurance coverage, or if the indemnity, although applicable, is
not performed in accordance with its terms or if the Company's liability exceeds
the amount of applicable insurance. In addition, there can be no assurance that
such insurance will continue to be available on terms acceptable to the Company.
ADVERSE EFFECT OF EXCHANGE RATE FLUCTUATIONS. Approximately 38.4% and 35.2% of
the Company's net revenue for fiscal 1996 and the six months ended December 31,
1996, respectively, were derived from the Company's operations outside of North
America. Since the revenue and expenses of the Company's foreign operations are
generally denominated in local currencies, exchange rate fluctuations between
local currencies and the United States dollar will subject the Company to
currency translation risk with respect to the results of its foreign operations.
To the extent the Company is unable to shift to its clients the effects of
currency fluctuations, these fluctuations could have a material adverse effect
on the Company's results of operations. The Company does not currently hedge
against the risk of exchange rate fluctuations.
15
<PAGE> 17
VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock is
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings estimates by analysts, market conditions
in the industry, prospects of health care reform, changes in government
regulation and general economic conditions. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have been unrelated to the operating performance of particular companies. These
market fluctuations may adversely affect the market price of the Company's
Common Stock. Because the Company's Common Stock currently trades at a
relatively high price-earnings multiple, due in part to analysts' expectations
of continued earnings growth, even a relatively small shortfall in earnings
from, or a change in, analysts' expectations may cause an immediate and
substantial decline in the Company's stock price. Investors in the Company's
Common Stock must be willing to bear the risk of such fluctuations in earnings
and stock price.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK. The Company's
Restated Articles of Organization and Restated By-Laws contain provisions that
may make it more difficult for a third party to acquire, or may discourage a
third party from acquiring, the Company. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of the
Company's Common Stock. In addition, shares of the Company's Preferred Stock may
be issued in the future without further stockholder approval and upon such terms
and condition, and having such rights, privileges and preferences, as the Board
of Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could adversely affect the market
price of the Common Stock and could have the effect of making it more difficult
for a third party to acquire, or discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
16
<PAGE> 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 14, 1996, the Company held its Annual Meeting of
Stockholders.
(b) Not applicable.
(c) At the meeting, the stockholders of the Company voted:
(1) to elect the following persons to serve as Class I
directors, to serve for a three-year term (until the Annual
Meeting of Stockholders in 1999). The votes cast were as
follows:
For Withheld
--- --------
Patrick J. Fortune, Ph.D. 7,519,458 14,929
Prof. Dr. med. Werner M. Herrmann 7,522,605 11,782
(2) to approve an amendment to the Company's 1995 Stock Plan to
increase the number of shares available for issuance from
500,000 shares to 1,000,000 shares. The votes cast were as
follows:
For Against Abstain Non-votes
--- ------- ------- ---------
4,092,202 2,725,079 7,397 709,709
(3) to approve an amendment to the Company's Restated Articles
of Organization increasing the number of authorized shares
of Common Stock, par value $.01 per share, of the Company
from 25,000,000 shares to 50,000,000 shares. The votes cast
were as follows.
For Against Abstain Non-votes
--- ------- ------- ---------
6,980,825 398,356 9,606 145,600
(4) to ratify the selection of Price Waterhouse LLP as
independent auditors for the fiscal year ending June 30,
1997. The votes cast were as follows:
For Against Abstain
--- ------- -------
7,529,745 3,727 915
17
<PAGE> 19
Item 5. Other Information
On January 6, 1997, the Company announced the appointment of Mr. James
M. Karis to the position of Chief Operating Officer and President of
Worldwide Research Operations. Prior to joining the Company, Mr. Karis
held a number of senior management positions, most recently as Chief
Operating Officer of Pharmaco International, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1--Restated Articles of Organization of the Company, as
amended
Exhibit 10.1--Employment Agreement dated December 30, 1996
between James M. Karis and the Company
Exhibit 11--Statement re Computation of Earnings Per Common and
Common Equivalent Share
Exhibit 27--Financial Data Schedule
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on this 12th day of February, 1997.
PAREXEL International Corporation
By: /s/ Josef H. von Rickenbach
-----------------------------------------------
Josef H. von Rickenbach
President, Chief Executive Officer and Chairman
By: /s/ William T. Sobo, Jr.
-----------------------------------------------
William T. Sobo, Jr.
Senior Vice President, Chief Financial Officer
19
<PAGE> 21
EXHIBIT NO. PAGE
- - ----------- ----
3.1 Restated Articles of Organization of the Company, as amended 21
10.1 Employment Agreement dated December 30, 1996 between
James M. Karis and the Company 38
11 Computation of Earnings Per Common and Common Equivalent Share 41
27 Financial Data Schedule 42
20
<PAGE> 1
THE COMMONWEALTH OF MASSACHUSETTS EXHIBIT 3.1
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth FEDERAL INDENTIFICATION
ONE ASHBURTON PLACE, BOSTON, MASS 02108 No. 04-2776269
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
---------------
We, Josef H. von Rickenbach ,President and
--------------------------------------------------------
William T. Sobo, Jr. , Clerk of
--------------------------------------------------------
PAREXEL International Corporation
- - -------------------------------------------------------------------------------
(Name of Corporation)
located at 195 West Street, Waltham, MA 02154
--------------------------------------------------------------------
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on November 3, 1995, by
vote of SEE ATTACHMENT 1
________shares of ___________________out of___________ shares outstanding,
(Class of Stock)
________shares of ___________________out of___________ shares outstanding, and
(Class of Stock)
________shares of ___________________out of___________ shares outstanding,
(Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to
vote and of each class or series of stock adversely affected thereby:
1. The name by which the corporation shall be known is: -
PAREXEL International Corporation
2. The purposes for which the corporation is formed are as follows: -
To provide clinical research and development services to the
worldwide pharmaceutical, biotechnology and medical device
industries, and to do any and all acts and things permitted to be
done by business corporations under the provisions of Chapter 156B,
as amended, of the General Laws of Massachusetts.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
21
<PAGE> 2
<TABLE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- - -------------- ---------------- ---------------- ---------
<S> <C> <C> <C>
Preferred None 5,000,000 $0.01
Common None 25,000,000 $0.01
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
See continuation sheet 4
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See continuation sheet 6
*If there are no such provisions, state "None".
22
<PAGE> 3
ATTACHMENT 1
PAREXEL INTERNATIONAL CORPORATION
SHAREHOLDER VOTES
4,887,980 shares of capital stock out of 4,939,507 shares outstanding
--------- ------------- ---------
818,888 shares of common stock out of 843,658 shares outstanding
------- ------------ -------
4,069,092 shares of preferred stock out of 4,095,849 shares outstanding
--------- --------------- ---------
23
<PAGE> 4
CONTINUATION SHEET 4
--------------------
4. A description of the voting, dividend, liquidation and conversion rights of
the different classes of the corporation's stock is set forth below.
The shares of Common Stock, $.01 par value per share, authorized under
these Restated Articles of Organization shall be designated the "Common Stock".
The shares of Preferred Stock authorized under these Restated Articles of
Organization shall be designated the "Preferred Stock".
A. Issuance of Preferred Stock in Series.
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors may
determine. Each series shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes. Except as to the
relative preferences, powers, qualifications, rights and privileges referred to
in paragraph B below, in respect of any or all of which there may be variations
between different series, all shares of Preferred Stock shall be identical.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purpose of voting by classes.
B. Authority to Establish Variations Between Series of Preferred
Stock.
The Board of Directors is expressly authorized, subject to the limitations
prescribed by law and the provisions of these Restated Articles of Organization,
to provide by adopting a vote or votes, a certificate of which shall be filed in
accordance with the Business Corporation Law of the Commonwealth of
Massachusetts, for the issue of the Preferred Stock in one or more series, each
with such designations, preferences, voting powers, qualifications, special or
relative rights and privileges as shall be stated in the vote or votes creating
such series. The authority of the Board of Directors with respect to each such
series shall include without limitation of the foregoing the right to determine
and fix:
(1) the distinctive designation of such series and the number of shares to
constitute such series;
(2) the rate at which dividends on the shares of such series shall be
declared and paid, or set aside for payment, whether dividends at the rate so
determined shall be cumulative, and whether the shares of such series shall be
entitled to any participating or other dividends in addition to dividends at the
rate so determined, and if so on what terms;
(3) the right, if any, of the corporation to redeem shares of the
particular series and, if redeemable, the price, terms and manner of such
redemption;
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<PAGE> 5
(4) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such series shall be entitled
to receive upon any voluntary or involuntary liquidation, dissolution or winding
up of the corporation;
(5) the terms and conditions, if any, upon which shares of such series
shall be convertible into, or exchangeable for, shares of stock of any other
class or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(6) the obligation, if any, of the corporation to retire or purchase
shares of such series pursuant to a sinking fund or fund of a similar nature or
otherwise, and the terms and conditions of such obligation;
(7) voting rights, if any;
(8) limitations, if any, on the issuance of additional shares of such
series or any shares of any other series of Preferred Stock; and
(9) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the Board of Directors may deem advisable and
are not inconsistent with law and the provisions of these Articles.
C. Statement of Voting Powers, Qualifications, Special or Relative
Rights and Privileges in Respect of Shares of Common Stock.
After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of paragraph B above)
shall have been met and after the corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as sinking funds
or redemption or purchase accounts (fixed in accordance with the provisions of
said paragraph B), then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to time by the
Board of Directors.
After distribution in full of the preferential amount (fixed in accordance
with the provisions of said paragraph B) to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding up of the corporation,
the holders of the Common Stock shall be entitled to receive all the remaining
assets of the corporation, tangible and intangible, of whatever kind available
for distribution to the stockholders ratably in proportion to the number of
shares of Common Stock held by them respectively.
Except as may otherwise be required by law or the provision of these
Articles, or by the Board of Directors pursuant to authority granted in these
Articles, each holder of Common Stock shall have one vote in respect of each
share of stock held by him in all matters voted upon by the stockholders.
4-2
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<PAGE> 6
CONTINUATION SHEET 6
--------------------
6. Other provisions for the conduct and regulation of the business and affairs
of the corporation, for its voluntary dissolution, or for limiting, defining, or
regulating the powers of the corporation, or of its directors or stockholders,
or of any class of stockholders, are as follows:
A. Board of Directors.
------------------
1. NUMBER, ELECTION AND QUALIFICATION. A Board of Directors shall
be elected by the stockholders at the annual meeting. The number of directors
shall be fixed by the stockholders (except as that number may be enlarged by the
Board of Directors acting pursuant to Section 3 of this Article), but shall be
not less than three, except that whenever there shall be only two stockholders
the number of directors shall be not less than two and whenever there shall be
only one stockholder or prior to the issuance of any stock, there shall be at
least one director, and shall be not more than thirteen. Notwithstanding the
foregoing provisions, at any time that the corporation has a class of equity
securities registered under the Securities and Exchange Act of 1934, as amended,
(the "Exchange Act"), then:
(i) The number of directors shall be fixed only by vote of
the Board of Directors.
(ii) The directors of the corporation shall be classified
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible; the term of office of those of
the first class ("Class I Directors") to continue until the first annual meeting
following the date the corporation first has a class of equity securities
registered under the Exchange Act and until their successors are duly elected
and qualified; the term of office of those of the second class ("Class II
Directors") to continue until the second annual meeting following the date the
corporation first has a class of equity securities registered under the Exchange
Act and until their successors are duly elected and qualified; and the term of
office of those of the third class ("Class III Directors") to continue until the
third annual meeting following the date the corporation first has a class of
equity securities registered under the Exchange Act and until their successors
are duly elected and qualified. At each annual meeting of the corporation, the
successors to the class of directors whose term expires at that meeting shall be
elected to hold office for a term continuing until the annual meeting held in
the third year following the year of their election and until their successors
are duly elected and qualified.
2. VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from the enlargement of the Board, may
be filled by the stockholders or, in the absence of stockholder action, by the
directors. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is chosen and qualified or until his earlier
death, resignation or removal.
3. ENLARGEMENT OF THE BOARD. The Board of Directors may be
enlarged by the stockholders at any meeting or by vote of a majority of the
directors then in office.
6-1
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<PAGE> 7
4. TENURE. Except as otherwise provided by law, these Restated
Articles of Organization or the By-laws, directors shall hold office until the
next annual meeting of stockholders and until their successors are chosen and
qualified. Any director may resign by delivering his written resignation to the
corporation at its principal office or the President, Clerk or Secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
5. REMOVAL. A director may be removed from office (a) with or
without cause by the vote of the holders of a majority of the shares entitled to
vote in the election of Directors, provided that the directors of a class
elected by a particular class of stockholders may be removed only by the vote of
the holders of a majority of the shares of the particular class of stockholders
entitled to vote for the election of such Directors; or (b) for cause by vote of
a majority of the Directors then in office. A director may be removed for cause
only after a reasonable notice and opportunity to be heard before the body
proposing to remove him.
B. Liability of Directors.
----------------------
The corporation eliminates the personal liability of each director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that, to the extent provided by applicable law, this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 61 or 62 or
successor provisions of the Massachusetts Business Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
This provision shall not eliminate or limit the liability of a director of the
corporation for any act or omission occurring prior to the date on which this
provision becomes effective. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
C. Indemnification.
---------------
1. ACTIONS, SUITS AND PROCEEDINGS. The corporation shall indemnify
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of the corporation, or is or
was serving, or has agreed to serve, at the request of the corporation, as a
director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan of the corporation
(all such persons being referred to hereafter as an "Indemnitee"), or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, unless the Indemnitee shall be finally adjudicated in such action,
suit or proceeding not to have acted in good faith in the reasonable belief that
his action was in the best interests of the
6-2
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<PAGE> 8
corporation or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Notwithstanding anything to the
contrary in this Article, except as set forth in Section 5 below, the
corporation shall not indemnify an Indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
corporation.
2. SETTLEMENTS. The right to indemnification conferred in this
Article shall include the right to be paid by the corporation for amounts paid
in settlement of any such action, suit or proceeding and any appeal therefrom,
and all expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless and to the extent
it is determined pursuant to Section 5 below that the Indemnitee did not act in
good faith in the reasonable belief that his action was in the best interests of
the corporation or, to the extent such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
3. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to
his right to be indemnified, the Indemnitee must notify the corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving his for which indemnify will or could be sought. With respect to any
action, suit, proceeding or investigation of which the corporation is so
notified, the corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
corporation to the Indemnitee of its election so to assume such defense, the
corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the such
claim, other than as provided below in this Section 3. The Indemnitee shall have
the right to employ his own counsel in connection with such claim, but the fees
and expenses of such counsel incurred after notice from the corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which case the fees and expenses
of counsel for the Indemnitee shall be at the expense of the corporation, except
as otherwise expressly provided by this Article. The corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
4. ADVANCE OF EXPENSES. Subject to the provisions of Section 5
below, in the event that the corporation does not assume the defense pursuant to
Section 3 of this Article of any action, suit, proceeding or investigation of
which the corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the corporation in advance of the final disposition of such matter,
PROVIDED, HOWEVER, that the
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<PAGE> 9
payment of such expenses incurred by an Indemnitee in advance of the final
disposition of such matter shall be made only upon receipt of an undertaking by
or on behalf of the Indemnitee to repay all amounts so advanced in the event
that it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the corporation as authorized in this Article. Such undertaking
may be accepted without reference to the financial ability of the Indemnitee to
make such repayment.
5. PROCEDURE FOR INDEMNIFICATION. In order to obtain
indemnification or advancement of expenses pursuant to Section 1, 2 or 4 of this
Article, the Indemnitee shall submit to the corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within sixty days after receipt by the corporation of
the written request of the Indemnitee, unless the corporation determines, by
clear and convincing evidence, within such sixty-day period that the Indemnitee
did not meet the applicable standard of conduct set forth in Section 1 or 2, as
the case may be. Such determination shall be made in each instance by (a) a
majority vote of a quorum of the directors of the corporation, (b) a majority
vote of a quorum of the outstanding shares of stock of all classes entitled to
vote for directors, voting as a single class, which quorum shall consist of
stockholders who are not at that time parties to the action, suit or proceeding
in question, (c) independent legal counsel (who may be regular legal counsel to
the corporation), or (d) a court of competent jurisdiction.
6. REMEDIES. The right to indemnification or advances as granted
by this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the corporation denies such request, in whole or in part, or if
no disposition thereof is made within the sixty-day period referred to above in
Section 5. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the corporation. Neither the failure of the corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
corporation pursuant to Section 5 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met such applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the corporation.
7. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of
this Article or of the relevant provisions of Chapter 156B of the Massachusetts
General Laws or any other applicable laws shall affect or diminish in any way
the rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
6-4
29
<PAGE> 10
8. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or directors or otherwise, both as to action in his official capacity and as to
action in any other capacity while holding office for the corporation, and shall
continue as to an Indemnitee who has ceased to be a director or officer, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Article shall be deemed to prohibit,
and the corporation is specifically authorized to enter into, agreements with
officers and directors providing indemnification rights and procedures different
from those set forth in this Article. In addition, the corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the corporation or other
persons serving the corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
9. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
10. INSURANCE. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another organization or employee benefit plan
against any expense, liability or loss incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under
Chapter 156B of the Massachusetts General Laws.
11. MERGER OR CONSOLIDATION. If the corporation is merged into or
consolidated with another corporation and the corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
12. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
6-5
30
<PAGE> 11
13. SUBSEQUENT LEGISLATION. If the Massachusetts General Laws are
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws, as so amended.
D. Location of Stockholders' Meetings.
----------------------------------
Meetings of the stockholders of the corporation may be held anywhere in
the United States.
E. Amendment of By-Laws.
--------------------
The directors of the corporation may make, amend or repeal the By-laws in
whole or in part, except with respect to any provision thereof which by law or
the By-laws requires action by the stockholders.
F. Issuance of Shares.
------------------
The whole or any part of the authorized but unissued shares of capital
stock of the corporation may be issued at any time or from time to time by the
Board of Directors without further action by the stockholders.
G. Corporation As Partner.
----------------------
The corporation may become a partner in any business.
H. Certain Actions by Majority Vote.
--------------------------------
The corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon (or if there are two or more classes of stock entitled
to vote as separate classes, then by vote of a majority of each such class of
stock outstanding) may (i) authorize any amendment to the Restated Articles of
Organization, (ii) authorize the sale, lease or exchange of all or substantially
all of the corporation's property and assets, including its goodwill and (iii)
approve a merger or consolidation of the corporation with or into any other
corporation, provided that such amendment, sale, lease, exchange, merger or
consolidation shall have been approved by the Board of Directors or by a vote of
two-thirds of the stock outstanding and entitled to vote thereon (or if there
are two or more classes of stock entitled to vote as separate classes, then by
vote of a majority of each such class of stock outstanding).
6-6
31
<PAGE> 12
*We further certify that the foregoing restated articles of organization effect
no amendments to the articles of organization of the corporation as heretofore
amended, except amendments to the following articles Articles 2, 3 and 4
--------------------------
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
Article 2 has been amended to describe the business of the Corporation as
it exists today.
Articles 3 and 4 have been amended to delete all references to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J
Preferred Stock.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 28th day of November in the year 1995.
---- -------- ----
/s/ Joseph H. von Rickenbach
- - -------------------------------------------------------------------
President
Josef H. von Rickenbach
/s/ William T. Sobo, Jr.
- - ------------------------------------------------------------------ Clerk
William T. Sobo, Jr.
32
<PAGE> 13
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within restated articles
of organization and, the filing fee in the
amount of $500 having been paid, said articles
are deemed to have been filed with me this 28th
day of November, 1995.
-------- ----
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO:
Heather M. Stone, Esq.
Testa, Hurwitz & Thibeault
High Street Tower
Boston, MA 02110
Telephone: (617) 248-7000
33
<PAGE> 14
FEDERAL IDENTIFICATION
NO. 04-2776269
------------
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Josef H. von Rickenbach , *President,
---------------------------------------------
and William T. Sobo, Jr. , *Clerk,
---------------------------------------------
of PAREXEL International Corporation ,
---------------------------------------------------------------------
(Exact name of corporation)
located at 195 West Street, Waltham, Massachusetts 02154 ,
-------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
- - -----------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on NOVEMBER
14, 1996, by vote of:
6,957,230 shares of Common of 8,449,102 shares outstanding,
- - ----------- ------------------- -----------
(type, class & series, if any)
shares of of shares outstanding, and
- - ----------- ------------------- -----------
(type, class & series, if any)
shares of of shares outstanding, and
- - ----------- ------------------- -----------
(type, class & series, if any)
1**being at least a majority of each type, class or series outstanding and
entitled to vote thereon.
*Delete the inapplicable words. **Delete the inapplicable clause.
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8
1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions
to more than one article may be made on a single sheet as long as each
article requiring each addition is clearly indicated.
34
<PAGE> 15
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
<TABLE>
The total presently authorized is:
<CAPTION>
- - ----------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- - ----------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: None Common: 25,000,000 $.01
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Preferred: None Preferred: 5,000,000 $.01
- - ----------------------------------------------------------------------------
Change the total authorized to:
<CAPTION>
- - ----------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- - ----------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: None Common: 50,000,000 $.01
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Preferred: None Preferred: 5,000,000 $.01
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
</TABLE>
35
<PAGE> 16
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: .
--------------------------
SIGNED UNDER THE PENALTIES OF PERJURY, this 14th day of November , 1996 ,
------ ----------- ---
/s/ Josef H. von Rickenbach , *President,
- - ------------------------------------------------------
/s/ William T. Sobo, Jr. , *Clerk
- - ------------------------------------------------------
*Delete the inapplicable words.
36
<PAGE> 17
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
--------------------------------------------
I hereby approve the within Articles of Amendment
and, the filing fee in the amount of $25,000 having
been paid, said articles are deemed to have been
filed with me this 15TH day of NOVEMBER 1996.
Effective date:
-------------------------------
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Mary T. Hornby
---------------------------------------
Testa,
---------------------------------------
Hurwitz & Thibeault LLP,
---------------------------------------
125 High Street
Boston, MA 02110
---------------------------------------
37
<PAGE> 1
EXHIBIT 10.1
PAREXEL INTERNATIONAL CORPORATION
195 WEST STREET
WALTHAM, MA 02154
December 30, 1996
Mr. James M. Karis
8 Cicero Lane
Austin, Texas 78746
Dear Jim:
This letter confirms our offer to you for the position of Chief Operating
Officer, President of Worldwide Research Operations, for PAREXEL International
Corporation. You will be based in our Waltham office and will report to Josef
von Rickenbach, Chairman, President and CEO, with a start date of December 31,
1996. The terms of this offer are defined below:
SALARY AND INCENTIVE COMPENSATION
- - ---------------------------------
* Your semi-monthly salary will be $10,000.00. Our company policy is to
review employees annually, however, you will receive a six month review of
your performance.
* In addition, you will be eligible to receive a bonus of up to 40% of your
annual salary in accordance with the provisions of PAREXEL's Management
Incentive Plan FY97. In FY97, the bonus will be paid quarterly and
pro-rated based on your start date in your first full quarter of
employment.
* Subject to the approval of the Stock Option Committee of the Board of
Directors of PAREXEL, you will receive an option to purchase 35,000 shares
of PAREXEL's Common Stock, at an exercise price equal to the fair market
value per share of PAREXEL's Common Stock on the date of grant. The option
will vest and become exercisable in accordance with the provisions set
forth in the applicable stock option agreement and, subject to the approval
of the Stock Option Committee, the stock option agreement will contain
provisions with respect to accelerated vesting in the event of a change in
control of PAREXEL resulting from a merger or consolidation of PAREXEL with
or into another corporation or the sale of all or substantially all of
PAREXEL's assets in which your employment is terminated or you are not
offered a comparable position with the successor company, all as more fully
set forth in the stock option agreement.
BENEFITS
- - --------
PAREXEL presently offers a benefits package including health, dental, life and
disability insurance. PAREXEL's Group Term Life Insurance Plan provides a
benefit of two times earnings (earnings include salary and commissions but not
bonuses) to a maximum coverage of
38
<PAGE> 2
James M. Karis Page 2 December 30, 1996
$300,000.00. PAREXEL also offers a 401(k) program that allows immediate
participation by new employees. Participants may contribute up to 15% of salary
(capped at $9,240.00) and PAREXEL will match up to 3% of salary to a maximum of
$3,000.00 annually. You will be eligible for four weeks vacation in your first
year, with additional weeks added based on completed years of employment (capped
at five weeks). We offer seven paid holidays with four additional paid floating
holidays.
PAREXEL also offers an Employee Stock Purchase Plan (ESPP) to all regular
employees working more than 20 hours/week enabling them to purchase shares of
PAREXEL Common Stock at a discount through payroll deductions. The Company is
quoted on the Nasdaq National Market under the symbol "PRXL". Employees are
eligible to enroll at the beginning of each ESPP payment period in March and
September.
RELOCATION
- - ----------
PAREXEL will provide you and your family with the following relocation
assistance:
* A total relocation assistance payment of $100,000.00 to cover such items
as:
- Legal fees for selling your current residence.
- Commissions on the sale of your current residence.
- Costs associated with the purchase of a new home in
Massachusetts, including legal fees, deed recording fees, tax and
title search, title insurance and administration costs of
securing a loan.
- Cost of transportation of household goods and personal
possessions from Texas to Massachusetts.
This relocation assistance will be provided to you as follows:
- $20,000.00 will be paid following completion of ninety days of
employment.
- $40,000.00 will be paid upon the closing of the sale of your
current residence in Austin, Texas.
- $40,000.00 will be paid upon the closing of the purchase of a new
home in Massachusetts.
* PAREXEL will provide you with up to six (6) round-trip airline tickets to
Austin, Texas to visit with your family prior to their relocation.
* PAREXEL will provide you with $1,000.00 a month for a period of up to nine
months towards your temporary housing in Massachusetts.
39
<PAGE> 3
James M. Karis Page 3 December 30, 1996
The payment for some of these expenses may be considered compensation, thus
affecting your taxable income. The company will work with you to minimize
overall taxation. You may want to seek financial assistance with the preparation
of your annual tax return. Should you terminate your employment at PAREXEL
within twelve (12) months of your employment start date, you will be required to
repay in full the relocation assistance payment provided to you by PAREXEL.
In the event that your employment at PAREXEL is terminated by PAREXEL other than
for cause, you will be entitled to receive six (6) months of salary continuation
at your base rate in effect at the time of termination. Such payments shall be
subject to all applicable federal, state and local taxes.
We are pleased that you have accepted our offer of employment and look forward
to working with you and assisting you in contributing to the organization. As a
condition of your employment, you will be required to sign a "Key Employee
Agreement" on your first day of employment. PAREXEL's Key Employee Agreement
contains provisions related to, among other things, confidentiality, inventions,
developments and non-competition. In addition, you will be required to abide by
PAREXEL's "Statement of Company Policy Regarding Insider Trading." Please find
attached a copy of our Key Employee Agreement and Statement of Company Policy
Regarding Insider Trading.
If you have any questions in the interim, please feel free to contact me at
(617) 487-9900.
Sincerely,
/s/ Josef H. von Rickenbach
Josef von Rickenbach
Chairman, President and CEO
40
<PAGE> 1
EXHIBIT 11
PAREXEL INTERNATIONAL CORPORATION
<TABLE>
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
<CAPTION>
Three months ended Six months ended
------------------ ----------------
December 31, December 31,
------------ ------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income attributable to common shares $ 956 $ 2,273 $ 1,698 $ 4,209
======= ======= ======= =======
Weighted average common shares outstanding
a. Shares attributable to common stock
outstanding 11,762 17,491 10,962 17,130
b. Shares attributable to common stock options
and preferred stock warrants pursuant to
APB 15, paragraph 38(b) 700 508 668 498
------- ------- ------- -------
Weighted average common shares outstanding 12,462 17,999 11,630 17,628
======= ======= ======= =======
Net income per share $ 0.08 $ 0.13 $ 0.15 $ 0.24
======= ======= ======= =======
</TABLE>
41
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 67,413
<SECURITIES> 27,722
<RECEIVABLES> 55,359
<ALLOWANCES> 1,987
<INVENTORY> 0
<CURRENT-ASSETS> 157,127
<PP&E> 27,590
<DEPRECIATION> 11,478
<TOTAL-ASSETS> 175,101
<CURRENT-LIABILITIES> 46,683
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 126,314
<TOTAL-LIABILITY-AND-EQUITY> 175,101
<SALES> 0
<TOTAL-REVENUES> 70,199
<CGS> 0
<TOTAL-COSTS> 48,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 489
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 6,620
<INCOME-TAX> 2,411
<INCOME-CONTINUING> 4,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,209
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
