0000927016-01-502919.txt : 20011009
0000927016-01-502919.hdr.sgml : 20011009
ACCESSION NUMBER: 0000927016-01-502919
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010924
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PAREXEL INTERNATIONAL CORP
CENTRAL INDEX KEY: 0000799729
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731]
IRS NUMBER: 042776269
STATE OF INCORPORATION: MA
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-27058
FILM NUMBER: 1743656
BUSINESS ADDRESS:
STREET 1: 195 WEST ST
CITY: WALTHAM
STATE: MA
ZIP: 02151
BUSINESS PHONE: 7814879900
MAIL ADDRESS:
STREET 1: 195 WEST ST
CITY: WALTHAM
STATE: MA
ZIP: 02154
10-K
1
d10k.txt
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
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
(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 Number)
195 WEST STREET
WALTHAM, MASSACHUSETTS 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 487-9900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant:
The aggregate market value of Common Stock held by nonaffiliates was
$261,320,640 as of September 13, 2001.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
As of September 13, 2001, there were 24,803,338 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on November 13, 2001 are incorporated by reference into
Part III of this report.
PAREXEL INTERNATIONAL CORPORATION
FORM 10-K ANNUAL REPORT
INDEX
PAGE
----
PART I.
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
PART III
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management 45
Item 13. Certain Relationships and Related Transactions 45
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K 45
SIGNATURES 49
PART I
ITEM 1. BUSINESS
GENERAL
PAREXEL International Corporation ("PAREXEL" or the "Company") is a leading
contract biopharmaceutical outsourcing company, providing a broad range of
knowledge-based contract research, medical marketing, consulting and technology
services to the worldwide pharmaceutical, biotechnology, and medical device
industries. The Company's primary objective is to help clients rapidly obtain
the necessary regulatory approvals for their products and quickly reach peak
sales. Over the past eighteen years, PAREXEL has developed significant expertise
in processes and technologies supporting this strategy. The Company's service
offerings include: clinical trials management, data management, biostatistical
analysis, medical marketing, clinical pharmacology, regulatory and medical
consulting, performance improvement, industry training and publishing, web-based
portal solutions, voice, data and imaging systems, and other drug development
consulting services. The Company believes that its integrated services, depth of
therapeutic area expertise, and sophisticated information technology, along with
its experience in global drug development and product launch services, represent
key competitive strengths.
The Company complements the research and development ("R&D") and marketing
functions of pharmaceutical, biotechnology, and medical device companies.
Through its clinical research and product launch services, PAREXEL seeks to help
clients maximize the return on their significant investments in research and
development by reducing the time and cost of clinical development and launch of
new products. Outsourcing these types of services to PAREXEL provides clients
with a variable cost alternative to the fixed costs associated with internal
drug development. Clients no longer need to staff to peak periods and can
benefit from PAREXEL's technical resource pool, broad therapeutic area
expertise, global infrastructure designed to expedite parallel, multi-country
clinical trials, and other advisory services focused on accelerating time-to-
market. The Company's vision is to integrate and build critical mass in the
complementary businesses of clinical research, medical marketing, drug
development consulting, and information technology products and services. The
Company seeks to provide significant benefits to sponsor clients from this
strategy, namely, a faster and less expensive development and launch process, as
well as a clinical development strategy that optimally supports the marketing
strategy for the new product.
The Company is one of the largest biopharmaceutical contract research
organizations ("CRO") in the world, based upon annual net revenue. Headquartered
near Boston, Massachusetts, the Company manages 54 locations and has
approximately 4,640 employees throughout 35 countries around the world. The
Company has established subsidiaries in the major health care markets around the
world, including the United States, Japan, Germany, the United Kingdom ("U.K."),
France, Italy, Spain, Sweden, Australia, South Africa, Argentina, Brazil,
Israel, Norway, The Netherlands, and Eastern Europe including Russia, Poland,
the Czech Republic, Lithuania and Hungary. The Company believes it is the second
largest CRO in both Europe and Japan, based upon annual net revenue. During
fiscal 2001, PAREXEL derived 41.1% of its revenue from its international
operations.
The Company was founded in 1983 as a regulatory consulting firm and is a
Massachusetts corporation. Josef H. von Rickenbach, Chairman of the Board and
Chief Executive Officer of PAREXEL, was a co-founder. Since its inception, the
Company has executed a focused growth strategy embracing internal expansion as
well as strategic acquisitions to expand or enhance the Company's portfolio of
services, geographic presence, therapeutic area knowledge, information
technology capabilities, and client relationships. Acquisitions have been and
will continue to be an important component of PAREXEL's growth strategy. The
Company has completed thirteen acquisitions over the past five fiscal years. In
September 2000, the company acquired a full-service clinical pharmacology unit
at Northwick Park Hospital in Harrow, U.K., and a majority interest in FARMOVS,
a clinical pharmacology research business and bioanalytical laboratory located
in Bloemfontein, South Africa. In July 2001, the Company acquired EDYABE, a
leading CRO in Latin America located in Argentina and Brazil.
In fiscal 2001, the Company created a new majority owned subsidiary, Perceptive
Informatics, Inc. ("Perceptive"), into which it transferred its informatics
operations in order to maximize its ability to create new technology-based
services. Perceptive provides a variety of web-based tools designed to
accelerate and enhance the clinical development and product launch processes, as
well as a range of voice and data systems and medical diagnostic services.
Through a combination of internally developed technology and partnerships with
other technology leaders, Perceptive is able to tailor solutions to meet each
client's particular needs, from developing overall technology strategies to
implementing new systems, to effectively accommodating legacy systems.
Perceptive is evolving its current series of Intranet/Extranet-based tools on an
ongoing basis, as well as developing new tools. The Company believes that
Perceptive has a leadership position in this area and expects this technology-
related business to be a key growth driver for the Company in the future.
3
SERVICES
The Company provides a broad range of knowledge based contract research, medical
marketing, consulting and technology services to the worldwide pharmaceutical,
biotechnology, and medical device industries. The Company is managed through
four reportable segments, namely, Clinical Research Services ("CRS"), the
PAREXEL Consulting Group ("PCG"), Medical Marketing Services ("MMS"), and
Perceptive. CRS constitutes the Company's core business and includes clinical
trials management, biostatistics and data management, as well as related medical
advisory and investigator site services. PCG provides technical expertise in
such disciplines as clinical pharmacology, regulatory affairs, compliance and
validation services, industry training, publishing, and management consulting.
These consultants identify options and propose solutions to address clients'
product development, registration, and commercialization issues. MMS provides a
full spectrum of market development, product development, targeted
communications, and strategic reimbursement services in support of product
launch. Perceptive provides a variety of web-based portal solutions designed to
accelerate and enhance the clinical development and product launch processes, as
well as a range of voice and data systems. It also offers a medical imaging
service supporting the use of advanced imaging techniques in clinical
development. Financial data on a business unit and geographic basis are
included in footnote 17 to the consolidated financial statements included in
Item 8 of this annual report.
CLINICAL RESEARCH SERVICES
Revenue from the clinical trials management, and biostatistical and data
management services that the Company's CRS business unit provides, represented
approximately $238.4 million, or 61.5%, of the Company's consolidated net
revenue for fiscal 2001.
Clinical Trials Management Services
PAREXEL offers complete services for the design, initiation and management of
clinical trials programs, a critical element in obtaining regulatory approval
for drugs. The Company has performed services in connection with trials in most
therapeutic areas, including Cardiology, Oncology, Infectious Diseases,
Neurology, Allergy/Immunology, Endocrinology/Metabolism, Gastroenterology,
Obstetrics/Gynecology, Orthopedics, Pediatrics, Psychiatry, and Transplantation.
PAREXEL's multi-disciplinary clinical trials group examines a product's existing
preclinical and clinical data to design clinical trials to provide evidence of
the product's safety and efficacy.
PAREXEL can manage every aspect of clinical trials, including study and protocol
design, placement, initiation, monitoring, report preparation and strategy
development. See "Government Regulation" for additional information. Most of the
Company's clinical trials management projects involve Phase II or III clinical
trials, which are generally larger, longer and more complex than Phase I trials.
Clinical trials are monitored for and with strict adherence to good clinical
practices ("GCP"). The design of efficient Case Report Forms ("CRFs"), detailed
operations manuals and site visits by PAREXEL's clinical research associates
seek to ensure that clinical investigators and their staff follow the
established protocols of the studies. The Company has adopted standard operating
procedures which are intended to satisfy regulatory requirements and serve as a
tool for controlling and enhancing the quality of PAREXEL's worldwide clinical
services.
Clinical trials represent one of the most expensive and time-consuming parts of
the overall drug development process. The information generated during these
trials is critical for gaining marketing approval from the Food and Drug
Administration ("FDA") or other regulatory agencies. PAREXEL's clinical trials
management group assists clients with one or more of the following steps:
. STUDY PROTOCOL DESIGN. The protocol defines the medical issues the study
seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol also defines the frequency and type of laboratory
and clinical measures that are to be tracked and analyzed. The protocol also
defines the number of patients required to produce a statistically valid
result, the period of time over which they must be tracked and the frequency
and dosage of drug administration. The study's success depends on the
protocol's ability to predict correctly the requirements of the regulatory
authorities.
. CRF DESIGN. Once the study protocol has been finalized, the CRF must be
developed. The CRF is the critical source document for collecting the
necessary clinical data as dictated by the study protocol. The CRF may change
at different stages of a trial. The CRFs for one patient in a given study may
consist of 100 or more pages.
4
. SITE AND INVESTIGATOR RECRUITMENT. The drug is administered to patients by
physicians, referred to as investigators, at hospitals, clinics, or other
locations, referred to as sites. Potential investigators may be identified
and solicited by the drug sponsor or the CRO. A significant portion of a
trial's success depends on the successful identification and recruitment of
experienced investigators with an adequate base of patients who satisfy the
requirements of the study protocol. The Company has access to several
thousand investigators who have conducted clinical trials for the Company.
The Company also provides additional services at the clinical investigator
site to assist physicians and expedite the clinical research process.
. PATIENT ENROLLMENT. The investigators, usually with the assistance of the
CRO, find and enroll patients suitable for the study. The speed with which
trials can be completed is significantly affected by the rate at which
patients are enrolled. Prospective patients are required to review
information about the drug and its possible side effects, and sign an
informed consent form to record their knowledge and acceptance of potential
side effects. Patients also undergo a medical examination to determine
whether they meet the requirements of the study protocol. Patients then
receive the drug and are examined by the investigator as specified by the
study protocol. Investigators are responsible for administering drugs to
patients, as well as examining patients and conducting necessary tests.
. STUDY MONITORING AND DATA COLLECTION. As patients are examined and tests are
conducted in accordance with the study protocol, data are recorded on CRFs.
CRFs are collected from study sites by specially trained persons known as
monitors. Monitors visit sites regularly to ensure that the CRFs are
completed correctly and that all data specified in the protocol are
collected. The monitors send completed CRFs to the study coordinating site,
where the CRFs are reviewed for consistency and accuracy before their data is
entered into an electronic database. The Company offers several remote data
entry ("RDE") technologies which significantly enhance both the quality and
timeliness of clinical data collection while achieving significant efficiency
savings. (See "Perceptive Informatics, Inc." below.) The Company's study
monitoring and data collection services comply with the FDA's adverse events
reporting guidelines.
. REPORT WRITING. The statistical analysis findings for data collected during
the trial together with other clinical data are included in a final report
generated for inclusion in a regulatory document.
. MEDICAL SERVICES. Throughout the course of a development program, PAREXEL's
physicians provide a wide range of medical research and consulting services
to improve the speed and quality of clinical research, including medical
supervision of clinical trials, compliance with medical standards and safety
regulations, medical writing, strategy development, and drug portfolio
management.
Biostatistical and Data Management Services
PAREXEL's data management professionals assist in the design of CRFs, as well as
training manuals for investigators, to ensure that data are collected in an
organized and consistent format in compliance with the study protocol. Databases
are designed according to the analytical specifications of the project and the
particular needs of the client. Prior to data entry, PAREXEL personnel screen
the data to detect errors, omissions and other deficiencies in completed CRFs.
The use of RDE technologies, to gather and report clinical data, expedites data
exchange while minimizing data collection errors as a result of more timely data
integrity verification. The Company provides clients with data abstraction, data
review and coding, data entry, database verification and editing and problem
data resolution.
The Company has extensive experience throughout the world in the creation of
scientific databases for all phases of the drug development process, including
the creation of customized databases to meet client-specific formats, integrated
databases to support new drug application submissions and databases in strict
accordance with FDA, European and Asian specifications.
PAREXEL's biostatistics professionals assist clients with all phases of drug
development, including biostatistical consulting, database design, data analysis
and statistical reporting. These professionals develop and review protocols,
design appropriate analysis plans and design report formats to address the
objectives of the study protocol as well as the client's individual objectives.
Working with the programming staff, biostatisticians perform appropriate
analyses and produce tables, graphs, listings and other applicable displays of
results according to the analysis plan. Frequently, PAREXEL's biostatisticians
represent clients during panel hearings at the FDA.
5
PAREXEL CONSULTING GROUP
The Company offers a number of consulting and advisory services in support of
the product development, regulatory and marketing processes. This group brings
together experts from relevant disciplines focused on designing meaningful
solutions and helping clients make the best business decisions with respect to
their product lifecycle strategies. This group also serves as a valuable
resource for the Company's internal operations. PCG includes KMI, Regulatory
Affairs, Clinical Pharmacology and the Information Products Group. The PCG
business comprised approximately $80.8 million, or 20.8%, of consolidated net
revenue for fiscal 2001.
KMI
KMI offers services in manufacturing and information technology to the
pharmaceutical, biopharmaceutical and medical device industries in the United
States and Europe. Employing an experienced team of former FDA investigators
and experienced engineers, the Company uses its established methodologies and
innovative information systems to assist clients in satisfying regulatory
standards for manufacturing and systems processes throughout the product
lifecycle.
KMI has a staff of senior consultants with extensive experience and recognized
expertise in good manufacturing practices ("GMP") compliance and FDA
requirements. KMI can evaluate clients' existing systems, help prepare for FDA
inspections, conduct new drug application ("NDA") integrity audits, and develop
regulatory correctional action plans.
KMI also has the resources and experience to test processes, laboratory systems,
automated unit operations, utilities, distributed control systems, and
information management systems for manufacturing, laboratory, clinical and
research applications for compliance with regulatory standards.
Regulatory Affairs
Before a product can be launched, it must be approved by the regulatory agency
in that particular country. PAREXEL provides comprehensive regulatory product
registration services for pharmaceutical and biotechnology products in major
jurisdictions in North America, Europe, and Japan. These services include
regulatory strategy formulation, document preparation and review, quality
assurance, and liaison with the FDA and other regulatory agencies. PAREXEL's
staff provides on-site GCP and GMP training sessions and conducts internal and
external quality control and quality assurance audits.
PAREXEL works closely with clients to devise regulatory strategies and
comprehensive registration programs. The Company's regulatory affairs experts
review existing published literature, assess the scientific background of a
product, assess the competitive and regulatory environment, identify
deficiencies and define the steps necessary to obtain registration in the most
expeditious manner. Through these services, the Company helps its clients
determine the feasibility of obtaining regulatory approval of a particular
product or product line in certain markets.
Clinical Pharmacology
Clinical pharmacology encompasses the early stages of clinical testing, when the
product is first evaluated to prove safety and efficacy. These tests vary from
"first in man" to "proof of concept studies" in Phases I and IIa of development.
See "Governmental Regulation" for additional information. Typical services
include drug development consulting, drug administration and monitoring, and
patient recruitment. PAREXEL's Clinical Pharmacology International Network
encompasses Berlin (Germany), Poitiers (France), Baltimore, Maryland (U.S.),
Bloemfontein (South Africa) and Harrow (U.K.). It also comprises two
bioanalytical laboratories in the Poitiers and Bloemfontein locations,
performing analyses according to Good Laboratory Practices ("GLP") principles.
With these units, PAREXEL offers multinational coverage of clinical pharmacology
services with a total of 250 dedicated beds (cooperating partners not included)
on four continents, including bioanalytical services. The Network cooperates
with a pharmageriatrics center in Germany; a unit which specializes in renal and
hepatic impairment operating in Poland, Hungary, and the Czech Republic; as well
as an operation in Japan for bridging studies.
6
Information Products Group
The Company's Information Products Group ("IPG") offers a wide range of
specialized clinical consulting, training, and publication services to the
health care industry. IPG provides management consulting in the clinical
research area, offering a wide range of solutions that help pharmaceutical and
biotechnology companies improve their own in-house clinical performance. These
services include clinical process optimization, benchmarking and performance
management, outsourcing management, design and development of SOPs, human
performance assessment and management, technological analysis and
implementation, and clinical training.
IPG also provides conferences, seminars and educational materials, covering a
multitude of topics in the clinical research field. The publications group
produces several recognized periodicals and special publications covering
regulatory and drug development matters.
MEDICAL MARKETING SERVICES
Various pressures on the pharmaceutical industry have resulted in a greater
focus on quickly moving more compounds from clinical development into the
marketplace in order to maximize revenues and profits over limited patent lives.
MMS's strategy is to assist clients in achieving optimal market penetration for
their products by providing customized, integrated and expert product launch
services in the U.S. and Europe. The MMS business represented approximately
$56.4 million, or 14.6%, of consolidated net revenue in fiscal 2001.
The Company's experience indicates that clients need assistance in creating
awareness of products in the marketplace and in addressing the technical aspects
of launching their products, especially managing the simultaneous launch of
numerous products. MMS provides comprehensive, value-added pre and post-launch
services, including market and opinion leader development, product management,
and targeted communications support to clients. An integrated communications
plan can detail external and internal strategies, including communications
objectives, target audiences, communications priorities and timing, key
messages, key meetings and events, and target publications and media. Other
services include meetings and exhibitions planning, continuing medical education
programs to help keep medical professionals apprised of current medical
developments ("CME"), strategies for drug manufacturers regarding reimbursement
from insurance companies and managed care providers, and telecommunications and
call center support to answer specific questions about a client's particular
products.
PERCEPTIVE INFORMATICS, INC.
Perceptive, which was created by the Company in fiscal 2001, provides a variety
of tools designed to accelerate and enhance the drug development process and to
decrease time to peak sales. Perceptive's products and services can reduce the
amount of time needed to gather and analyze clinical trials data by using
software technology to automate this process. Perceptive currently offers a
portfolio of information technology solutions that include web solutions,
Interactive Voice Response Systems, ("IVRS"), electronic data capture, medical
diagnostics, and other related products and services that can be customized to
clients' needs. Perceptive's web solutions support clinical trials management,
viewing of clinical trials data, and the launch of new products. Perceptive
performs ongoing market surveillance to identify and support new technologies to
benefit clients as well as the Company's internal processes. The business
represented approximately $12.0 million, or 3.1%, of consolidated net revenue
for fiscal 2001.
INFORMATION SYSTEMS
The Company is committed to investing in information technology designed to help
the Company provide high quality services in a cost effective manner and to
manage its internal resources. The Company has built upon its information
technology network by developing a number of proprietary information systems
that address critical aspects of its business, such as project proposals/budget
generation, time information management, revenue and resource forecasting,
clinical data entry and management, and project management.
The Company's Information Services group is responsible for technology planning
and procurement, applications development, program management, operations, and
management of the Company's worldwide computer network. The Company's
information systems are designed to work in support of and reinforce the
Company's standard operating procedures. The Company's information technology
system is open and flexible, allowing it to be adapted to the multiple needs of
different clients and regulatory systems. This system also enables the Company
to respond quickly to client inquiries on the progress of projects and, in some
cases, to gain direct access to client data on client systems.
7
SALES AND MARKETING
PAREXEL's business development strategy is based on maintaining excellent
service-oriented relationships with its large client base. The Company's client
relations professionals, senior executives and project team leaders all share
responsibility for the maintenance of key client relationships and business
development activities. In addition to significant selling experience, most of
the Company's business development personnel have technical or scientific
backgrounds in the pharmaceutical industry.
The Company's marketing activities are coordinated by PAREXEL's global marketing
organization, with offices at its Corporate Headquarters in Massachusetts, as
well as in Media (Pennsylvania), and the U.K. The Company's marketing
communications activities consist primarily of brand management, collateral
development, participation in industry conferences, advertising, and public
relations.
CLIENTS
During fiscal 2001, the Company provided services to most of the top 20
pharmaceutical and top 10 biotechnology companies. The Company has in the past
derived, and may in the future derive, a significant portion of its net revenue
from a core group of major projects or clients. Concentrations of business in
the CRO industry are not uncommon and the Company is likely to continue to
experience such concentration in future years. In fiscal 2001, the Company's
five largest clients accounted for 37% of its consolidated net revenue, while in
fiscal 2000, the Company's five largest clients accounted for 45% of its
consolidated net revenue. In fiscal 2001 and 2000, one client, Novartis,
accounted for 10% and 21% of consolidated net revenue, respectively. The loss
of business from a significant client could materially and adversely affect the
Company's net revenue and results of operations.
BACKLOG
Backlog represents anticipated net revenue from work not yet completed or
performed under signed contracts, letter of intent agreements, and certain
verbal commitments. Once work commences, revenue is generally recognized over
the life of the contract on a percentage-of-completion basis. Backlog at June
30, 2001 was approximately $504.4 million, compared with $385.1 million at June
30, 2000.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to termination, revision, or delay. Clients
terminate or delay contracts for a variety of reasons including, among others,
the failure of products being tested to satisfy safety requirements, unexpected
or undesirable clinical results of the product, the clients' decision to forego
a particular study, insufficient patient enrollment or investigator recruitment
or production problems resulting in shortages of the drug. Generally, the
Company's contracts are terminable upon thirty to sixty days' notice by the
client. 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.
COMPETITION
The Company primarily competes against in-house departments of pharmaceutical
companies, other full service CROs, occasionally, small specialty CROs, and to a
lesser extend, universities, teaching hospitals, and other site organizations.
In addition, PAREXEL's Consulting, and Medical Marketing Services businesses
have a large and fragmented group of specialty service providers with which they
compete. PAREXEL's Perceptive business competes primarily with CROs and other
healthcare software companies. Some of the major CROs against which the Company
competes have 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 services, the
ability to organize and manage large-scale trials on a global basis, the
effectiveness in managing large and complex medical databases, the capability to
provide statistical and regulatory services, the ability to recruit
investigators and patients, the ability to integrate information technology with
systems to improve the efficiency of clinical research, an international
presence with strategically located facilities, financial viability, and price.
PAREXEL believes that it competes effectively in these areas.
The CRO industry is fragmented, with participants ranging from several hundred
small, limited-service providers to several large, full-service CROs with global
operations. PAREXEL believes that it is one of the largest full-service
biopharmaceutical CROs in the world, based on annual net revenue. Other large
CROs include Quintiles Transnational Corporation, Covance Inc., and PPDI. The
trend toward CRO industry consolidation, as well as pharmaceutical companies
outsourcing to a larger number of preferred CROs, has resulted in heightened
competition among the larger CROs for clients and acquisition candidates.
8
INTELLECTUAL PROPERTY
PAREXEL has developed certain computer software and related methodologies that
the Company has sought to protect through a combination of contracts, copyrights
and trade secrets; however, the Company does not consider the loss of exclusive
rights to any of this software or methodology to be material to the Company's
business.
EMPLOYEES
As of June 30, 2001, the Company had approximately 4,640 employees.
Approximately 46% of the employees are located in North America and 54% are
located throughout Europe and the Asia/Pacific region. The Company believes that
its relations with its employees are good.
The success of the Company's business depends on its ability to attract and
retain a qualified professional, scientific and technical staff. The level of
competition among employers for skilled personnel, particularly those with
Ph.D., M.D. or equivalent degrees, is high. The Company believes that its
multinational presence, which allows for international transfers, is an
advantage in attracting employees. In addition, the Company believes that the
wide range of clinical trials in which it participates allows the Company to
offer a broad experience to clinical researchers. There is no assurance that the
Company will be able to attract and retain qualified staff in the future.
GOVERNMENT REGULATIONS
PAREXEL provides clinical trial services for the drug, biologic and medical
device industries. Lack of success in obtaining approval of clinical trials can
adversely affect the business. Lack of success in obtaining marketing approval
or clearance for a product PAREXEL has provided clinical trial or other
regulatory services for can also adversely affect the business.
The services provided by PAREXEL are ultimately subject to FDA regulation in the
U.S. and comparable agencies in other countries. The Company is obligated to
comply with FDA requirements governing such activities as obtaining patient
informed consents, verifying qualifications of investigators, reporting
patients' adverse reactions to products and maintaining thorough and accurate
records. The Company must maintain source documents for each study for specified
periods, and such documents may be reviewed by the study sponsor and the FDA
during audits. Non-compliance with GCP can result in the disqualification of
data collected during a clinical trial.
The clinical investigation of new drugs, biologics and devices is highly
regulated by government agencies. The standard for the conduct of clinical
research and development studies comprises GCP, which stipulates procedures
designed to ensure the quality and integrity of data obtained from clinical
testing and to protect the rights and safety of clinical subjects. While GCP has
not been formally adopted by the FDA nor, with certain exceptions, by similar
regulatory authorities in other countries, some provisions of GCP have been
included in regulations adopted by the FDA. Furthermore, in practice, the FDA
and many other regulatory authorities require that study results submitted to
such authorities be based on studies conducted in accordance with GCP.
The FDA's regulatory requirements have served as the model for much of the
regulation for new drug development worldwide. As a result, similar regulatory
requirements exist in the other countries in which the Company operates. The
Company's regulatory capabilities include knowledge of the specific regulatory
requirements in various countries. The Company has managed simultaneous
regulatory submissions in more than one country for a number of drug sponsors.
Beginning in 1991, the FDA and corresponding regulatory agencies of Canada,
Japan and Western Europe commenced discussions to develop harmonized standards
for preclinical and clinical studies and the format and content of applications
for new drug approvals. Data from multinational studies adhering to GCP are now
generally acceptable to the FDA, Canadian and Western European regulators.
Effective April 1, 1997, Japan officially adopted GCP and legitimized the use of
CROs in conducting clinical research.
DRUGS AND BIOLOGICS
Before a new drug or biologic may be approved and marketed, the drug or biologic
must undergo extensive testing and regulatory review in order to determine that
the drug or biologic is safe and effective. It is not possible to estimate the
time in which preclinical, Phase I, II and III studies are completed with
respect to a given product, if at all, although the time period may last as long
as several years. The stages of this development process are as follows:
9
Preclinical Research (approximately 1 to 3.5 years). In vitro ("test tube") and
animal studies in accordance with GLP to establish the relative toxicity of the
drug or biologic over a wide range of doses and to detect any potential to cause
birth defects or cancer. If results warrant continuing development of the drug
or biologic, the results of the studies are submitted to the FDA by the
manufacturer as part of an Investigational New Drug Application ("IND"), which
must be reviewed and cleared by the FDA before proposed clinical testing can
begin. An IND must include, among other things, preclinical data, chemistry,
manufacturing and control information, and an investigative plan, and be allowed
to become effective by the FDA before such trials may begin. There can be no
assurance that submission of an IND will result in the ability to commence
clinical trials.
Clinical Trials (approximately 3.5 to 6 years)
. Phase I-Basic safety and pharmacology testing in approximately 20
to 80 human subjects, usually healthy volunteers, includes studies
to determine metabolic and pharmacologic action of the product in
humans, how the drug or biologic works, how it is affected by other
drugs, how it is tolerated and absorbed, where it goes in the body,
how long it remains active, and how it is broken down and
eliminated from the body.
. Phase II-Basic efficacy (effectiveness) and dose-range testing,
sometimes in 100 to 200 patients afflicted with a specific disease
or condition for which the product is intended for use, to further
test safety, begin evaluating effectiveness, optimize dosage
amounts, determine dose schedules, and typically, to determine
routes of administration. If Phase II studies yield satisfactory
results and no hold is placed on further studies by the FDA, Phase
III studies can be commenced.
. Phase III-Larger scale, multi-center comparative clinical trials
conducted with patients afflicted with a target disease in order to
provide enough data for a valid statistical test of safety and
effectiveness required by the FDA and others and to provide a basis
for product labeling. When results from Phase II or Phase III show
special promise in the treatment of a serious condition for which
existing therapeutic options are limited or of minimal value, the
FDA may allow the sponsor to make the new drug available to a
larger number of patients through the regulated mechanism of a
Treatment Investigational New Drug ("TIND"), which may span late
Phase II, Phase III, and FDA review. Although a TIND may enroll and
collect a substantial amount of data from tens of thousands of
patients, they are not granted in all cases.
The FDA receives reports on the progress of each phase of clinical testing and
may require the modification, suspension, or termination of clinical trials if,
among other things, an unreasonable risk is presented to patients or if the
design of the trial is insufficient to meet its stated objective.
NDA or Biologic License Application ("BLA") Preparation and Submission. Upon
completion of Phase III trials, the sponsor assembles the statistically analyzed
data from all phases of development, along with the chemistry and manufacturing
data and the proposed labeling, among other things, into a single large
document, the NDA or BLA, which today comprises, on average, roughly 100,000
pages.
FDA Review of NDA or BLA. Careful scrutiny of data from all phases of
development (including a TIND) to confirm that the manufacturer has complied
with regulations and that the drug or biologic is safe and effective for the
specific use (or "indication") under study. The FDA may refuse to accept the
NDA or BLA for filing and substantive review if certain administrative and
content criteria are not satisfied and even after accepting the submission for
review, the FDA may also require additional testing or information before
approval of an NDA or BLA. The FDA must deny approval of an NDA or BLA if
applicable regulatory requirements are not ultimately satisfied.
Post-Marketing Surveillance and Phase IV Studies. Federal regulation requires
the sponsor to collect and periodically report to the FDA additional safety and
efficacy data on the drug or biologic for as long as the manufacturer markets
the product (post-marketing surveillance). If the product is marketed outside
the U.S., these reports must include data from all countries in which the
product is sold. Additional studies, Phase IV, may be undertaken after initial
approval to find new uses for the product, to test new dosage formulations, or
to confirm selected non-clinical benefits, e.g., increased cost-effectiveness or
improved quality of life. Product approval may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
10
MEDICAL DEVICES
Unless a medical device is exempted from premarket submission and clearance, FDA
approval or clearance of the device is required before the product may be
marketed in the United States. In order to obtain clearance for marketing, a
manufacturer must demonstrate substantial equivalence to a similar legally
marketed product by submitting a premarket notification, 510(k), to the agency.
The FDA may require preclinical and clinical data to support a substantial
equivalence determination, and there can be no assurance the FDA will find a
device substantially equivalent. Clinical trials can take extended periods of
time to complete. In addition, if the FDA requires an approved Investigational
Device Exemption ("IDE") before clinical device trials may commence, there can
be no guarantee that the agency will approve the IDE. An IDE approval process
could also result in significant delay.
After submission of a premarket notification containing, among other things, any
data collected, the FDA may find the device substantially equivalent and the
device may be marketed. If the FDA finds that a device is not substantially
equivalent, the manufacturer may request that the FDA make a risk-based
classification to place the device in Class I or Class II. However, if a timely
request for risk-based classification is not made, or if the FDA determines that
a Class III designation is appropriate, an approved pre-market approval
application ("PMA") will be required before the device may be marketed.
The PMA approval process is lengthy, expensive, and typically requires, among
other things, extensive data from preclinical testing and a well-controlled
clinical trial or trials that demonstrate a reasonable assurance of safety and
effectiveness. There can be no assurance that review will result in timely or
any PMA approval. There may also be significant conditions on approval,
including limitations on labeling and advertising claims and the imposition of
post-market testing, tracking, or surveillance requirements.
POTENTIAL LIABILITY AND INSURANCE
PAREXEL's clinical research services focus on the testing of experimental drugs
on human volunteers pursuant to a study protocol. Clinical research involves a
risk of liability for personal injury or death to patients due, among other
reasons, to possible unforeseen adverse side effects or improper administration
of the new drug. PAREXEL does not provide healthcare services directly to
patients. Rather, physician investigators are responsible for administrating
drugs and evaluating patients. Many of these patients are already seriously ill
and are at risk of further illness or death.
The Company believes that the risk of liability to patients in clinical trials
is mitigated by various regulatory requirements, including the role of
institutional review boards ("IRBs") and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed and
approved by the IRB at each study site. An IRB is an independent committee that
includes both medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trial. The IRB monitors the protocol and
measures designed to protect patients, such as the requirement to obtain
informed consent.
To reduce its potential liability, PAREXEL is generally successful in
incorporating indemnity provisions into its contracts with clients and with
investigators hired by the Company on behalf of its clients. These indemnities
generally do not, however, protect PAREXEL against certain of its own actions,
such as those involving negligence. Moreover, these indemnities are contractual
arrangements that are subject to negotiation with individual clients, and the
terms and scope of such indemnities can vary from client to client and from
study to study. Finally, the financial performance of these indemnities is not
secured, so that the Company bears the risk that an indemnifying party may not
have the financial ability to fulfill its indemnification obligations. PAREXEL
could be materially and adversely affected if it were required to pay damages or
incur defense costs in connection with an uninsured claim that is outside the
scope of an indemnity or where the indemnity, although applicable, is not
performed in accordance with its terms.
The Company currently maintains an errors and omissions professional liability
insurance policy. There can be no assurance that this insurance coverage will be
adequate, or that insurance coverage will continue to be available on terms
acceptable to the Company.
11
RISK FACTORS
The statements included in this annual report, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations", may
contain "forward-looking statements", within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the adequacy of the Company's existing capital
resources and future cash flows from operations, and statements regarding
expected financial results, future growth and customer demand. For this
purpose, any statements that are not statements of historical fact may be deemed
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "intends", "appears", "will" and
similar expressions are intended to identify forward-looking statements. The
Company's actual operating performance, actual expense savings and other
operating improvements resulting from recent restructurings, and actual future
results may differ significantly from the results indicated by the forward-
looking statements. These factors are discussed below in greater detail. In
addition, the forward-looking statements included in this annual report
represent the Company's estimates as of the date of this annual report. While
the Company may elect to update these forward-looking statements at some point
in the future, the Company specifically disclaims any obligation to do so.
These forward-looking statements should not be relied upon as representing the
Company's estimates or views as of any date subsequent to the date of this
annual report.
THE LOSS, MODIFICATION, OR DELAY OF LARGE CONTRACTS MAY NEGATIVELY IMPACT THE
COMPANY'S FINANCIAL PERFORMANCE
Generally, the Company's clients can terminate their contracts with the Company
upon thirty to sixty days' notice or can delay execution of services. Clients
terminate or delay their contracts for a variety of reasons, including, but not
limited to:
. merger or potential merger related activities;
. failure of products being tested to satisfy safety requirements;
. products having unexpected or undesired clinical results;
. client decisions to forego a particular study, perhaps for economic
reasons;
. insufficient patient enrollment in a study;
. insufficient investigator recruitment; or
. production problems which cause shortages of the product.
In addition, the Company believes that FDA regulated companies may proceed with
fewer clinical trials or conduct them without the assistance of contract
research organizations if they are trying to reduce costs as a result of
budgetary limits or changing priorities. These factors may cause such companies
to cancel contracts with contract research organizations. 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's financial performance. The Company has in the
past experienced contract cancellations, which have had a material adverse
effect on the Company's financial results.
THE COMPANY'S OPERATING RESULTS HAVE FLUCTUATED BETWEEN QUARTERS AND YEARS AND
MAY CONTINUE TO FLUCTUATE IN THE FUTURE
The Company's quarterly and annual operating results have varied, and will
continue to vary. Factors that cause these variations include:
. the level of new business authorizations in a particular quarter or
year;
. the timing of the initiation, progress, or cancellation of significant
projects;
. exchange rate fluctuations between quarters or years;
. the mix of services offered in a particular quarter or year;
. the timing of the opening of new offices;
. the timing of other internal expansion costs;
. the timing and amount of costs associated with integrating acquisitions;
and
. the timing and amount of startup costs incurred in connection with the
introduction of new products, services or subsidiaries.
A high percentage of the Company's operating costs are fixed. Therefore, the
timing of the completion, delay or loss of contracts, or the progress of client
projects, can cause the Company's operating results to vary substantially
between reporting periods.
12
THE COMPANY DEPENDS ON A SMALL NUMBER OF INDUSTRIES AND CLIENTS FOR ALL OF ITS
BUSINESS
The Company depends on research and development expenditures by pharmaceutical
and biotechnology companies to sustain a large part of its business. The
Company's operations could be materially and adversely affected if:
. its clients' businesses experience financial problems or are affected by
a general economic downturn;
. consolidation in the pharmaceutical or biotechnology industries leads to
a smaller client base for the Company; or
. its clients reduce their research and development expenditures.
Furthermore, the Company has benefited in the past from the tendency of
pharmaceutical companies to outsource large clinical research projects. If this
tendency slows or reverses, the Company's operations would be materially and
adversely affected. In fiscal 2001, the Company's five largest clients accounted
for 37% of its consolidated net revenue, and one client accounted for 10% of
consolidated net revenue. In fiscal 2000, the Company's five largest clients
accounted for 45% of its consolidated net revenue, and one client accounted for
21% of consolidated net revenue. The Company could suffer a material adverse
effect if it lost or experienced a material reduction in the business of a
significant client. The Company has had in the past experienced contract
cancellation with a significant client, which have had an adverse effect on the
Company's financial results.
THE COMPANY'S BUSINESS HAS EXPERIENCED SUBSTANTIAL EXPANSION IN THE PAST AND THE
COMPANY MUST PROPERLY MANAGE THAT EXPANSION
The Company's business has expanded substantially in the past. Rapid expansion
could strain the Company's operational, human and financial resources. In order
to manage 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, sales, professional, scientific
and technical operating personnel.
The Company will face additional risks in expanding its foreign operations.
Specifically, the Company may find it difficult to:
. assimilate differences in foreign business practices, exchange rates and
regulatory requirements;
. operate amid political and economic instability;
. hire and retain qualified personnel; and
. overcome language, tariff and other barriers.
If an acquired business does not meet the Company's performance expectations,
the Company may have to restructure the acquired business or write-off the value
of some or all of the assets of the acquired business. If the Company fails to
properly manage its expansion, the Company could experience a material adverse
effect on its business and operations.
THE COMPANY MAY NOT BE ABLE TO MAKE STRATEGIC ACQUISITIONS IN THE FUTURE
The Company's growth depends in part on its ability to make strategic
acquisitions. The Company has made a number of acquisitions and will continue to
review future acquisition opportunities. The Company may not be able to acquire
companies on acceptable terms and conditions. Additionally, the Company faces
several obstacles in connection with the acquisitions it consummates, including:
. difficulties and expenses associated with assimilation of the operations
and services or products of the acquired companies;
. diversion of management's attention from other business concerns; and
. the loss of some or all of the key employees of the acquired company.
In the event that the operations of an acquired business do not meet the
Company's performance expectations, the Company may have to restructure the
acquired business or write-off the value of some or all of the assets of the
acquired business.
13
THE COMPANY RELIES ON HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL WHO
MAY NOT REMAIN WITH THE COMPANY
The Company relies on a number of key executives, including Josef H. von
Rickenbach, its Chairman and Chief Executive Officer. The Company does not have
employment agreements with all of its senior officers and if any of these key
executives leave the Company, it could have a material adverse effect on the
Company. In addition, in order to compete effectively, the Company must attract
and maintain qualified sales, professional, scientific and technical operating
personnel. Competition for these skilled personnel, particularly those with a
medical degree, a Ph.D. or equivalent degrees is intense. The Company may not be
successful in attracting or retaining key personnel.
THE COMPANY MAY NOT HAVE ADEQUATE INSURANCE AND MAY HAVE SUBSTANTIAL EXPOSURE TO
PAYMENT OF PERSONAL INJURY CLAIMS
Clinical research services primarily involve the testing of experimental drugs
or other regulated FDA products on consenting human volunteers pursuant to a
study protocol. Such services involve a risk of liability for personal injury or
death to patients who participate in the study or who use a product approved by
regulatory authorities after the clinical research has concluded, due to, among
other reasons, possible unforeseen adverse side effects or improper
administration of the new product by physicians. In certain cases, these
patients are already seriously ill and are at risk of further illness or death.
Although many of the Company's CRS contracts with clients include indemnity
provisions and the Company has lost insurance, the Company's financial stability
could be materially and adversely affected if the Company had to pay damages or
incur defense costs in connection with a claim that is outside the scope of an
indemnity or insurance coverage. The Company's financial stability could also be
materially and adversely affected in cases where the indemnity, although
applicable, is not performed in accordance with its terms. Additionally, the
Company could be adversely and materially affected if its liability exceeds the
amount of its insurance. The Company may not be able to continue to secure
insurance on acceptable terms.
THE COMPANY'S STOCK PRICE IS VOLATILE AND COULD DECLINE
The market price of the Company's common stock has fluctuated widely in the past
and may continue to do so in the future in response to quarter-to-quarter
variations in:
. operating results;
. earnings estimates by analysts;
. market conditions in the industry;
. prospects of health care reform;
. changes in government regulations; and
. general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may adversely affect the
market price of the Company's common stock. Since the Company's common stock has
traded in the past at a relatively high price-earnings multiple, due in part to
analysts' expectations of earnings growth, the price of the stock could quickly
and substantially decline as a result of even a relatively small shortfall in
earnings from, or a change in, analysts' expectations. Investors in the
Company's common stock must be willing to bear the risk of such fluctuations in
earnings and stock price.
THE COMPANY'S BUSINESS DEPENDS ON CONTINUED COMPREHENSIVE GOVERNMENTAL
REGULATION OF THE DRUG, MEDICAL DEVICE AND BIOTECHNOLOGY PRODUCT DEVELOPMENT
PROCESS
In the United States, governmental regulation of the drug, medical device and
biotechnology product development process continues to be complicated, extensive
and demanding. While the FDA and the Congress have attempted to streamline this
process by providing for industry user fees that fund additional reviewer hires
and better management of the regulatory review process, the FDA still requires
extensive clinical studies and other documentation to demonstrate the efficacy
and safety of these products before they can be approved for marketing. The
United States, Europe and Japan have collaborated in the 11-year-long
International Conference on Harmonization ("ICH"), the purpose of which is to
eliminate duplicative or conflicting regulations in the three regions. The ICH
process has resulted in over 50 harmonized technical guidelines that have been
accepted in all three regions and have led to a clarification of the regulatory
requirements for approval. However there has been no meaningful reduction of
the amount of evidence required by these governments for granting marketing
approval. The ICH partners have agreed on a common format for marketing
applications (the Common Technical Document) that is accepted in the three
regions
14
as of July 2001. The new format does not affect the amount of data to be
collected and submitted, but does eliminate the need to tailor the format to
each region, although there remain some region-specific sections. This may
reduce the demand for the Company's services that tailor the marketing
applications to local requirements.
In Europe, governmental authorities have approved common standards for clinical
testing of new drugs throughout the European Union by adopting GCP standards and
by promulgating the European Union Clinical Trials Directive; this Directive
will eliminate by 2004 inter-country differences in the process that authorizes
clinical trials and will make it more uniform and streamlined, though increasing
the safeguards for patient protection. In the past several years, Japan also has
adopted GCP through legislation and has legitimatized the use of CROs. The
Company's business could be materially and adversely affected by relaxed
government regulatory requirements or simplified drug, medical device or
biotechnology approval procedures, since such actions would eliminate much of
the demand for the Company's services. In addition, if the Company was unable to
comply with significant applicable regulation, the relevant governmental
agencies could terminate the Company's ongoing research or disqualify its
research data.
THE COMPANY FACES INTENSE COMPETITION
The Company primarily competes against in-house departments of drug companies,
other full service contract research organizations, and to a lesser extent,
universities, teaching hospitals and other site organizations. Some of these
competitors have greater capital, technical and other resources than the
Company. Contract research organizations generally compete on the basis of:
. previous experience;
. medical and scientific expertise in specific therapeutic areas;
. quality of services;
. the ability to organize and manage large-scale clinical trials on a
global basis;
. the ability to manage large and complex medical databases;
. the ability to provide statistical and regulatory services;
. the ability to recruit investigators and patients;
. the ability to integrate information technology with systems to improve
the efficiency of contract research;
. an international presence with strategically located facilities;
. financial strength and stability; and
. price.
The contract research organization industry is fragmented, with several hundred
small, limited-service providers and several large, full-service contract
research organizations with global operations. The Company competes against
large contract research organizations, including Quintiles Transnational
Corporation, Covance Inc., and PPDI for both clients and acquisition candidates.
In addition, the Company competes for research contracts arising out of the
consolidation within the drug industry and the growing tendency of drug
companies to outsource to a smaller number of preferred contract research
organizations.
The Company May Lose Business Opportunities as a Result 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 drug companies. In the past, the U.S. Congress has entertained
several comprehensive health care reform proposals. The proposals were generally
intended to expand health care coverage for the uninsured and reduce the growth
of total health care expenditures. While the U.S. Congress did not adopt any
comprehensive reform proposals, members of Congress may raise similar proposals
in the future. If any of these proposals are approved by the U.S. Congress,
pharmaceutical, medical device and biotechnology companies may react by spending
less on research and development. If this were to occur, the Company would have
fewer business opportunities. The Company is unable to predict the likelihood
that health care reform proposals will be enacted into law or the effect such
laws would have on the Company's business.
Many governments outside the U.S. have also reviewed or undertaken health care
reform. The Company cannot predict the impact that any pending or future foreign
health care reform proposals may have on its business in other countries.
15
THE COMPANY IS SUBJECT TO CURRENCY TRANSLATION RISKS
The Company derived approximately 41% of its net revenue for fiscal year 2001
from operations outside of North America, compared with 40% for the same period
in the prior fiscal year. Since the Company's revenue and expenses from foreign
operations are usually denominated in local currencies, the Company is subject
to exchange rate fluctuations between local currencies and the United States
dollar. To the extent that the Company cannot shift this currency translation
risk to other parties, the Company's operating results could be materially and
adversely affected. The Company occasionally enters into foreign exchange
forward contracts to offset the impact of currency fluctuations.
THE COMPANY'S DEVELOPMENT OF ITS PERCEPTIVE INFORMATICS BUSINESS MAY NEGATIVELY
IMPACT RESULTS IN THE SHORT TERM
The Company is currently making investments in its technology subsidiary,
Perceptive Informatics, Inc., but does not expect such subsidiary to become
profitable in the immediate future. The Company may need to make additional
investments in this subsidiary in the future in order to achieve its objectives.
The profitability of this subsidiary depends, in part, on customer acceptance
and use of its products and services and its ability to compete against rival
products and services. There can be no assurance that this subsidiary will be
profitable in the future or that any revenue resulting from it will be
sufficient to offset the Company's investments in this division.
THE COMPANY FACES THE RISKS OF LIABILITY, INCREASED COSTS OR LIMITATION OF
SERVICE OFFERINGS AS A RESULT OF PROPOSED AND FINAL LAWS AND REGULATIONS
The confidentiality and release of patient-specific information are subject to
government regulation. Additional legislation governing the possession, use and
dissemination of medical record information and other personal health
information has been proposed or adopted at both the state and federal levels.
Proposed and final federal regulations governing patient-specific information
may require the Company to implement new security measures that may result in
substantial expenditures or limit its ability to offer some of its products and
services. Additionally, states may adopt health information legislation or
regulations that contain privacy and security provisions that are more
burdensome than the federal regulations. There is also a risk of civil or
criminal liability if the Company is found to be responsible for any violations
of applicable laws, regulations or duties relating to the use, privacy or
security of health information.
ITEM 2. PROPERTIES
PAREXEL maintains 54 locations in 35 countries around the world. The Company
leases all but one of its facilities. The Company's principal executive and
administrative offices are located in Waltham, Massachusetts. The Waltham
facilities encompass approximately 193,000 square feet and, in addition to the
executive and administrative offices, serve the CRS unit in all aspects of its
business and the PCG unit in regulatory affairs. Also in North America, the
Company leases facilities for its CRS business unit in Chicago, Raleigh-Durham
and San Diego. CRS shares leased space in Philadelphia with the Information
Products Group of PCG. MMS leases facilities in Centerville, Stamford and
Hackensack.
In Europe, the Company maintains offices in Berlin, London and Paris, having
approximately 135,000, 89,000 and 43,000 square feet, respectively. CRS shares
this leased space in Berlin, London and Paris with PCG, and occupies offices in
Frankfurt, Sheffield, Guildford, and Amsterdam. MMS' principal European offices
are located in Worthing, United Kingdom with other facilities near Paris,
France.
ITEM 3. LEGAL PROCEEDINGS
At various times in late 1998 and 1999, the Company was named as one of many
defendants in approximately twenty-three (23) lawsuits in the state trial courts
of New Jersey and Pennsylvania. This litigation related to a drug for which the
Company provided clinical research services. These actions were brought by
individual plaintiffs and not as class actions. Generally, the claims against
the Company in these actions include negligence, breach of express and implied
warranty, strict liability, fraud, civil conspiracy, and negligent and
intentional infliction of emotional distress. Over the past year, the Company
has been dismissed from all but one of these lawsuits without any payment by the
Company to any of the respective plaintiffs. The Company has provided notice of
these matters to its insurance carriers.
16
On or about June 8, 2000, a complaint was filed in the United States District
Court for the Southern District of New York against the Company and four of its
directors by two arbitrageurs, Elliott Associates, L.P. and Westgate
International L.P. The complaint alleged violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5, Section 20(a) of the Exchange
Act and asserted state law claims for fraud and negligent misrepresentation. On
November 28, 2000, the United States District Court for the Southern District of
New York granted the Company's Motion to Dismiss all counts of the complaint.
The time period to appeal this decision has expired. On or about April 23,
2001, a complaint was filed by the arbitrageurs, Elliott Associates, L.P. and
Elliott International, L.P. f/k/a Westgate International, L.P., in the Supreme
Court of the State of New York in connection with the same matter alleging
claims of common law fraud under the laws of New York against the Company and
seeking monetary damages. No directors of the Company were named in the state
court action. On August 10, 2001, the Company filed a motion to dismiss all
counts of the state court complaint. The Company intends to vigorously defend
the state court matter. The Company has provided notice of this matter to its
insurance carrier.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRXL". The table below shows the high and low sales prices of the
common stock for each quarter of the fiscal years ended June 30, 2000 and 2001.
2000 High Low
First Quarter $13.50 $ 8.03
Second Quarter $12.56 $ 7.62
Third Quarter $15.44 $ 8.12
Fourth Quarter $10.37 $ 8.25
2001 High Low
First Quarter $11.75 $ 8.50
Second Quarter $10.88 $ 8.06
Third Quarter $17.25 $ 9.94
Fourth Quarter $20.00 $11.69
As of September 13, 2001, there were approximately 94 stockholders of record.
The number does not include shareholders for whom shares were held in a
"nominee" or "street" name.
The Company has never declared or paid any cash dividends on its Common Stock
and does not anticipate paying any cash dividend in the foreseeable future. The
Company intends to retain future earnings for the development and expansion of
its business.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data and
number of employees) 2001 2000 1999 1998 1997
OPERATIONS
Net revenue $ 387,560 $378,150 $348,486 $285,442 $203,676
Income (loss) from operations (6,860)(1) 2,983(2) 20,564(3) 13,301(4) 7,119
Net income (loss) (825) 4,388 15,622 9,319 12,803
Diluted earnings (loss) per Share $ (0.03) $ 0.17 $ 0.62 $ 0.38 $0.56
FINANCIAL POSITION
Cash, cash equivalents and marketable securities $ 60,949 $ 90,530 $ 89,957 $ 76,634 $104,339
Working capital 117,210 123,680 132,757 118,937 113,997
Total assets 367,812 351,940 333,565 261,758 240,544
Long-term debt 12 104 79 36 136
Stockholders' equity $ 177,822 $186,133 $192,032 $168,380 $147,448
OTHER DATA
Purchase of property and equipment $ 18,145 $ 19,089 $ 18,910 $ 27,736 $ 25,112
Depreciation and Amortization $ 21,453 $ 21,934 $ 17,932 $ 15,114(5) $ 7,710
Number of employees 4,640 4,200 4,198 3,705 2,928
Weighted average shares used in computing
diluted earnings (loss) per share 24,767 25,140 25,128 24,825 22,822
(1) The Statement of Operations for the year ended June 30, 2001 includes a
restructuring charge of $7.2 million taken in the fourth quarter. These charges
included $3.1 million of employee severance and related costs for eliminating
approximately 125 managerial and staff positions worldwide (44% in the U.S. and
56% in Europe), $3.9 million related to consolidation and abandonment of certain
facilities (40% in the U.S. and 60% in Europe), and approximately $0.3 million
primarily related to miscellaneous costs associated with the Company's fourth
quarter restructuring plan. Additionally, the Company recorded net restructuring
and other charges of $0.7 million during the first quarter of fiscal 2001. This
consisted of a $1.5 million reduction
18
in previously accrued restructuring charges due to changes in estimates related
to the third quarter 2000 restructuring, offset by $0.8 million for exiting a
consulting business location in the U.S.
(2) The Statement of Operations for the year ended June 30, 2000 includes $13.1
million related to restructuring and other charges taken in the third quarter,
consisting primarily of severance and lease termination costs and $1.0 million
related to accelerated depreciation expense due to changes in the estimated
useful lives of leasehold improvements on abandoned leased facilities.
(3) Income from operations for the year ended June 30, 1999 includes $4.7
million in nonrecurring charges including $1.9 million in costs related to the
terminated merger agreement with Covance Inc. and $2.8 million in leasehold
abandonment charges resulting primarily from the consolidation of certain
facilities in North America and Europe.
(4) Income from operations for the year ended June 30, 1998 includes $13.6
million of nonrecurring charges, including $10.3 million pertaining to
acquisitions.
(5) Depreciation and amortization for the year ended June 30, 1998 includes a
noncash charge of $1.7 million to reflect a change in estimate in the remaining
useful lives of certain computer equipment as a result of integration activities
of acquired companies and the Company's program to upgrade and standardize its
information technology platform.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company is a leading contract biopharmaceutical outsourcing company,
providing a broad range of knowledge-based contract research, medical marketing,
consulting and technology services to the worldwide pharmaceutical,
biotechnology and medical device industries. The Company's primary objective is
to help clients rapidly obtain the necessary regulatory approvals for their
products and quickly reach peak sales. Over the past eighteen years, PAREXEL has
developed significant expertise in processes and technologies supporting this
strategy. The Company's service offerings include: clinical trials management,
data management, biostatistical analysis, medical marketing, clinical
pharmacology, regulatory and medical consulting, performance improvement,
industry training and publishing, web-based portal solutions, voice, data and
imaging systems, and other drug development consulting services. The Company
believes that its integrated services, depth of therapeutic area expertise, and
sophisticated information technology, along with its experience in global drug
development and product launch services, represent key competitive strengths.
The Company is managed through four reportable segments, namely, CRS, PCG, MMS
and Perceptive. CRS constitutes the Company's core business and includes
clinical trials management, biostatistics and data management, as well as
related medical advisory and investigator site services. PCG provides technical
expertise in such disciplines as clinical pharmacology, regulatory affairs,
industry training, publishing, and management consulting. These consultants
identify options and propose solutions to address clients' product development,
registration, and commercialization issues. MMS provides a full spectrum of
market development, product development, and targeted communications services in
support of product launch. Perceptive provides a variety of web-based portal
solutions designed to accelerate and enhance the clinical development and
product launch processes, as well as a range of voice and data systems. It also
offers a medical imaging service supporting the use of advanced imaging
techniques in clinical development.
Most of the Company's contracts are fixed price, with some variable components,
and range in duration from a few months to several years. Cash flow from these
contracts typically consists of a down payment required to be paid at the time
of contract execution with the balance due in installments over the contract's
duration, usually on a milestone achievement basis. Revenue from these
contracts is generally recognized on a percentage of completion basis as work is
performed. As a result, cash receipts do not necessarily correspond to costs
incurred and revenue recognized on contracts. Some of the Company's other
contracts are per diem or fee-for-service contracts, and revenue is recognized
upon completion of work performed.
19
Generally, the Company's clients can terminate their contracts with the Company
upon thirty to sixty days' notice or can delay execution of services. Clients
may terminate or delay contracts for a variety of reasons, including, among
others: merger or potential merger related activities involving the client, the
failure of products being tested to satisfy safety requirements, unexpected or
undesired clinical results of the product, client cost reductions as a result of
budgetary limits or changing priorities, the client's decision to forego a
particular study, insufficient patient enrollment or investigator recruitment,
or production problems resulting in shortages of the product.
As is customary in the industry, the Company routinely subcontracts with
independent physician investigators in connection with clinical trials and other
third party service providers for laboratory analysis and other specialized
services. These fees are not reflected in net revenue or expenses since such
fees are guaranteed by customers on a "pass through basis," without risk or
reward to the Company.
Direct costs primarily 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 primarily 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
QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the
two years ended June 30, 2001.
For the year ended June 30, 2001
(in thousands, except per share data) First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net revenue $88,215 $94,324 $98,322 $106,699
Income (loss) from operations (1) (1,113) 194 684 (6,625)
Net income (loss) (101) 957 1,899 (3,580)
Diluted earnings (loss) per share 0.00 0.04 0.08 (0.15)
For the year ended June 30, 2000
(in thousands, except per share data) First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- --------
Net revenue $91,768 $97,957 $97,253 $ 91,172
Income (loss) from operations (2) 5,667 6,319 (9,129) 126
Net income (loss) 3,870 5,065 (5,910) 1,363
Diluted earnings (loss) per share 0.15 0.21 (0.24) 0.05
(1) The Statement of Operations for the year ended June 30, 2001 includes a
restructuring charge of $7.2 million taken in the fourth quarter. These charges
included $3.1 million of employee severance and related costs for eliminating
approximately 125 managerial and staff positions worldwide (44% in the U.S. and
56% in Europe), $3.9 million related to consolidation and abandonment of certain
facilities (40% in the U.S. and 60% in Europe), and approximately $0.3 million
primarily related to miscellaneous costs associated with the Company's fourth
quarter restructuring plan. Additionally, the Company recorded net restructuring
and other charges of $0.7 million during the first quarter of fiscal 2001. This
consisted of a $1.5 million reduction in previously accrued restructuring
charges due to changes in estimates related to the third quarter 2000
restructuring, offset by $0.8 million for exiting a consulting business location
in the U.S.
(2) The Statement of Operations for the year ended June 30, 2000 includes $13.1
million related to restructuring and other charges taken in the third quarter,
consisting primarily of severance and lease termination costs and $1.0 million
related to accelerated depreciation expense due to changes in the estimated
useful lives of leasehold improvements on abandoned leased facilities.
20
ACQUISITIONS AND IMPACT OF RESTRUCTURING AND OTHER CHARGES
On September 29, 2000, the Company acquired a clinical pharmacology unit located
in Northwick Park Hospital in Harrow, U.K. The fair value of the assets
acquired and the amount the Company paid for this transaction were nominal. As
such, there was no goodwill recorded for this transaction.
Effective September 1, 2000, the Company acquired a majority interest in
FARMOVS, a clinical pharmacology research business and bioanalytical laboratory
located in Bloemfontein, South Africa for approximately $3.0 million. In
connection with this transaction, the Company recorded approximately $2.0
million related to the excess cost over the fair value of the interest in the
net assets acquired. Goodwill is being amortized using a straight-line method
over 15 years.
On September 1, 1999, the Company acquired CEMAF S.A., a Phase I clinical
research and bioanalytical laboratory located in Poitiers, France. The Company
acquired the business and related facilities for an initial cash payment of
approximately $3.0 million in a transaction accounted for as a purchase business
combination. In connection with this transaction, the Company paid an additional
amount of approximately $3.0 million to purchase certain buildings in May 2000.
This amount is reflected in property and equipment on the Company's balance
sheet as of June 30, 2000. In accordance with the terms of the asset purchase
agreement, the Company is obligated to make additional payments in contingent
purchase price if CEMAF achieves certain established annual earnings targets in
each fiscal year through June 30, 2002. No payments were required in fiscal 2001
and 2000. The remaining maximum contingent obligation is $3.2 million. In
connection with recording the assets and liabilities acquired, the Company
recorded approximately $2.4 million related to the excess cost over the fair
value of the net assets acquired. Goodwill is being amortized using the
straight-line method over 25 years.
During the year ended June 30, 2001, the Company recorded restructuring and
other charges in the fourth quarter totaling $7.2 million due to a decision to
consolidate some of the Company's operating facilities. The $7.2 million
consisted of $3.1 million of employee severance and related costs for
eliminating approximately 125 managerial and staff positions worldwide (44% in
the U.S. and 56% in Europe), $3.9 million related to consolidation and
abandonment of certain facilities (40% in the U.S. and 60% in Europe), and
approximately $0.3 million primarily related to miscellaneous costs associated
with the Company's fourth quarter restructuring plan.
Additionally, the Company recorded net restructuring and other charges of $0.7
million during the first quarter of fiscal 2001. This consisted of a $1.5
million reduction in previously accrued restructuring charges due to changes in
estimates related to the third quarter 2000 restructuring, offset by $0.8
million for exiting a consulting business location in the U.S.
The Company anticipates it will complete all restructuring actions during fiscal
2002. While these actions are intended to improve the Company's competitive
position, there can be no assurances as to their ultimate success or that
additional restructuring actions will not be required.
During the three months ended March 31, 2000, the Company announced that
Novartis, a key client, reduced the amount of work outsourced to the CRS
business segment, due to Novartis' reprioritization of its research pipeline. As
a result, the Company estimated that total revenue for fiscal 2000 and 2001
would be reduced by $50 million to $55 million in the aggregate.
Consequently, during the year ended June 30, 2000, the Company recorded
restructuring and other charges of $13.1 million. These charges included $7.2
million for employee severance costs related to the Company's decision to
eliminate approximately 475 managerial and staff positions in order to reduce
personnel costs as a result of a material dollar volume of contract
cancellations. The charges also included $4.3 million for lease termination
costs related to continued efforts to consolidate certain facilities and reduce
excess space in certain locations, in addition to a benefit derived from a
change in the Company's original estimate of when certain facilities would be
sublet. The remaining charges, totaling $1.6 million, primarily related to the
write-off of certain intangible assets and other investments, which were not
expected to produce future value.
During the year ended June 30, 1999, the Company recorded restructuring charges
of $4.7 million. Included in the total was a $1.9 million charge related to a
terminated merger agreement with Covance Inc. and $2.8 million in leasehold
abandonment charges resulting primarily from the consolidation of certain
facilities in North America and Europe.
21
FISCAL YEAR ENDED JUNE 30, 2001 COMPARED WITH THE FISCAL YEAR ENDED JUNE 30,
2000
Net revenue increased $9.4 million, or 2.5%, to $387.6 million for fiscal 2001
from $378.2 million for 2000. This growth was primarily attributable to an
increase in the volume of projects serviced by the Company due in part to
acquisitions completed during fiscal 2001. In fiscal 2001, net revenue from
North American and Asian operations increased 1.3% and 76.0%, respectively, over
the prior year while net revenue from European operations was flat. On a
segment basis, CRS net revenue decreased $24.3 million, or 9.3%, from the prior
year primarily due to the decision to break out Perceptive as a separate
reportable segment during fiscal year 2001 and the impact of project
cancellations and delays. PCG net revenue increased $14.3 million, or 21.5%,
from the prior year due to $7.9 million derived from acquisitions completed in
fiscal 2001 and increased projects serviced by the business. MMS net revenue
increased $7.5 million, or 15.3%, mainly due to increased projects serviced by
the business. Perceptive net revenue was $12.0 million in fiscal 2001.
Perceptive net revenue was included within CRS in fiscal 2000, and therefore, no
comparative data is available.
Direct costs increased $21.2 million, or 8.1%, to $282.1 million for fiscal 2001
from $260.9 million in fiscal 2000 mainly as a result of business growth, the
decision to invest in Perceptive, and employee retention programs. On a segment
basis, CRS direct costs decreased $11.1 million, or 6.4%, to $162.4 million for
fiscal 2001 from $173.5 million for fiscal 2000 primarily due to lower labor and
related costs associated with lower revenue and Perceptive's direct costs being
reported as part of CRS in the comparable prior year period. PCG direct costs
increased $12.8 million, or 24.7%, to $64.8 million for fiscal 2001 from $52.0
million for fiscal 2000 and MMS direct costs increased $3.2 million, or 9.1%, to
$38.6 million for fiscal 2001 from $35.4 million for fiscal 2000. The higher
direct costs for PCG and MMS were principally due to an increased level of
hiring and personnel costs associated with acquisitions and increased projects
serviced by those businesses in fiscal 2001. Perceptive direct costs were $16.2
million in fiscal 2001 and were included within CRS in fiscal 2000, and
therefore, no comparative data is available. As a percentage of net revenue,
direct costs increased to 68.1% and 80.2% in fiscal 2001 from 66.1% and 78.1% in
fiscal 2000 for CRS and PCG, respectively, due in part to the cost of expanded
employee retention programs. MMS direct costs as a percentage of net revenue
decreased to 68.4% in fiscal 2001 from 72.3% in fiscal 2000, primarily due to
improved cost management. Perceptive direct costs as a percentage of net
revenue were 135.5% in fiscal 2001.
Selling, general, and administrative ("SG&A") expenses increased $4.8 million,
or 6.0%, to $84.4 million for fiscal 2001 from $79.6 million in 2000. The
increase in SG&A was principally due to higher personnel costs associated with
new hires and employee retention programs, increased facilities-related expenses
and increased professional fees associated, in part, with the Company's
restatement of its fiscal 2000 financial statements. As a percentage of net
revenue, SG&A remained relatively flat at 21.8% in fiscal 2001 compared with
21.1% in fiscal 2000.
The Company had approximately 4,640 employees at the end of fiscal 2001 compared
with 4,200 at the end of fiscal 2000. The PCG and MMS businesses accounted for
84% of the total increase. This increase was primarily due to acquisitions in
the PCG operation and new hires to accommodate new projects in PCG, MMS and
Perceptive, partially offset by reductions in staff due to restructuring in the
CRS business segment.
Depreciation and amortization ("D&A") expense remained the same at $21.5 million
in fiscal 2001 when compared with fiscal 2000. As a percentage of net revenue,
D&A decreased to 5.5% in fiscal 2001 from 5.7% in fiscal 2000.
The Company's loss from operations was $6.9 million in fiscal 2001 versus income
of $3.0 million in fiscal 2000. Excluding restructuring and other charges,
income from operations decreased $15.0 million, or 87.9%, to $2.1 million in
fiscal 2001 from $17.1 million in fiscal 2000. Excluding these charges, income
from operations as a percentage of net revenue decreased to 0.5% in fiscal 2001
from 4.5% in fiscal 2000. The decrease was primarily due to higher direct
costs and SG&A expenses as noted above.
Interest income decreased $1.7 million in fiscal 2001 from $4.4 million in
fiscal 2000 mainly due to lower investment levels in fiscal 2001, as compared
with fiscal 2000. Other income increased $3.6 million in fiscal 2001 from $1.5
million in fiscal 2000 as a result of higher foreign exchange gains.
The Company had an effective tax rate of 142.5% in fiscal 2001 and 48.2% in
fiscal 2000. This increase was primarily attributable to changes in the mix of
taxable income within the different geographic jurisdictions in which the
Company operates, the utilization of previously unbenefitted net operating
losses in certain foreign jurisdictions (primarily Germany), and the impact of
restructuring and other charges the Company took in fiscal 2001. Without the
impact of restructuring and other charges, the effective tax rate would have
been 41.8% in fiscal 2001 and 39.0% in fiscal 2000. As of June 30, 2001, $1.1
million of net operating loss carryforward tax rate benefit remains.
22
FISCAL YEAR ENDED JUNE 30, 2000 COMPARED WITH THE FISCAL YEAR ENDED JUNE 30,
1999
Net revenue increased $29.7 million, or 8.5%, to $378.2 million for fiscal 2000
from $348.5 million for fiscal 1999. This net revenue growth was primarily
attributable to an increase in the volume of projects serviced by the Company.
In fiscal 2000, net revenue from North American and Asian operations increased
14% and 61%, respectively, over the prior year while net revenue from European
operations was flat. On a segment basis, fiscal 2000 net revenue from CRS and
PCG increased by 9.7% and 15.4%, respectively, over the prior year. Net revenue
from the MMS segment decreased by 4.7%, compared with the prior year due to not
having fiscal 2000 counterpart to a large 1999 project.
Direct costs increased $27.2 million, or 11.7%, to $260.9 million for fiscal
2000 from $233.7 million for fiscal 1999. On a segment basis, CRS direct costs
increased $22.2 million to $173.5 million for fiscal 2000 from $151.3 million;
PCG direct costs increased $10.8 million to $52.0 million from $41.2 million;
and MMS direct costs decreased $5.8 million to $35.4 million from $41.2 million.
The higher direct costs for CRS and PCG were primarily due to an increased level
of hiring and personnel costs coupled with related facilities and information
systems costs necessary to support growth in realized and expected levels of
operations. As a percentage of net revenue, direct costs increased to 66.1% and
78.1% in fiscal 2000 from 63.2% and 71.5% in 1999 for CRS and PCG, respectively.
Direct costs for MMS decreased as a percentage of net revenue to 72.3% in fiscal
2000 from 80.2% in fiscal 1999 due to improved cost management and the absence
of certain wind-down costs incurred on a project in fiscal 1999.
Selling, general, and administrative ("SG&A") expenses increased by $7.9
million, or 11.0%, to $79.6 million for fiscal 2000 from $71.7 million in fiscal
1999. This rise was primarily due to increased personnel hiring and facilities
costs, directly connected to the infrastructure build-up required to accommodate
the Company's realized and expected growth. As a percentage of net revenue, SG&A
expenses increased to 21.0% in fiscal 2000 from 20.6% in fiscal 1999.
Depreciation and amortization expense increased $3.7 million, or 20.4%, to $21.6
million for fiscal 2000 from $17.9 million for fiscal 1999. This increase was
due principally to an increase in capital spending on information technology and
facility improvements necessary to support higher operating levels. In addition,
the Company recorded accelerated depreciation charges in conjunction with the
reduction in estimated useful lives of leasehold improvements on abandoned
facilities related to the Company's restructuring efforts. As a percentage of
net revenue, depreciation and amortization expense increased to 5.7% in fiscal
2000 from 5.1% in fiscal 1999.
Income from operations decreased $17.6 million, or 85.4%, to $3.0 million in
fiscal 2000 from $20.6 million in fiscal 1999. Excluding restructuring and other
charges, income from operations decreased $11.6 million, or 40.4%, to $17.1
million for fiscal 2000 from $28.7 million in fiscal 1999. Excluding the impact
of these charges, income from operations decreased to 4.5% of net revenue for
fiscal 2000 from 8.2% in 1999, primarily due to higher direct and SG&A expenses,
as noted above.
Interest income increased $1.4 million in fiscal 2000 primarily due to higher
average cash balances and the mix between taxable and tax-exempt securities held
during the year. Other income increased $0.8 million primarily due to realized
foreign exchange gains and the sale of a minority investment in a company.
The Company's effective income tax rate increased to 48.2% in fiscal 2000 from
34.8% in fiscal 1999. This increase was primarily attributable to changes in the
mix of taxable income within the different geographic jurisdictions in which the
Company operated in fiscal 2000 compared with fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and growth,
including acquisition costs, with cash flow from operations and proceeds from
the sale of equity securities. Investing activities primarily reflect
acquisition costs and capital expenditures for information systems enhancements
and leasehold improvements.
Most of the Company's contracts are fixed price, with some variable components,
and range in duration from a few months to several years. Cash flow from these
contracts typically consists of a down payment required to be paid at the time
of contract execution with the balance due in installments over the contract's
duration, usually on a milestone achievement basis. Revenue from these
contracts is generally recognized on a percentage of completion basis as work is
performed. As a result, cash receipts do not necessarily correspond to costs
incurred and revenue recognized on contracts. Some of the Company's other
contracts are per diem or fee-for-service contracts, and revenue is recognized
upon completion of work performed.
23
The Company's operating cash flow is heavily influenced by changes in the levels
of billed and unbilled receivables and advance billings. These account balances
as well as days sales outstanding in accounts receivable, net of advance
billings, can vary based on contractual milestones and the timing and size of
cash receipts. Days sales outstanding in accounts receivable, net of advance
billings, was 67 days at June 30, 2001 compared with 55 days at June 30, 2000.
Accounts receivable, net of the allowance for doubtful accounts, increased to
$206.9 million at June 30, 2001 from $160.0 million at June 30, 2000 due to
administrative issues as a result of heavy turnover in the Company's North
America billing operation. The Company believes most of the related issues have
now been addressed and the Company expects improved performance going forward.
Advance billings increased to $93.6 million at June 30, 2001 from $86.2 million
at June 30, 2000.
Net cash used by operating activities totaled $5.6 million compared with $29.8
million provided from operations in fiscal 2000. The net use of cash in fiscal
year 2001 was primarily related to a $46.0 million increase in accounts
receivable, a $1.7 million increase in net current and other assets, which was
partly offset by depreciation and amortization of $21.5 million, an increase in
accounts payable of $6.3 million, higher advance billings of $7.4 million, and
an increase in net current and other liabilities of $7.5 million. The net cash
provided from operations in fiscal 2000 consisted primarily of a $21.9 million
in depreciation and amortization, a $4.1 million increase in accounts payable, a
$13.3 million increase in advance billing, a $3.5 million increase in net other
liabilities, which was offset by a $11.1 million increase in accounts
receivable, and a $7.9 million increase in net current and other assets.
Net cash provided by investing activities for fiscal 2001 totaled $13.4 million
and consisted of net proceeds of $33.6 million from the sale of marketable
securities, which was offset by $17.2 million used in equipment purchases and
$3.0 million used for the acquisition of FARMOVS. In fiscal 2000, net cash used
in investing activities totaled $32.2 million comprised of $9.4 million of net
cash used to purchase marketable securities, $18.5 million used in equipment
purchase, $3.0 million used to acquire CEMAF and $1.3 million used in other
miscellaneous investing activities.
Net cash provided by financing activities totaled $0.4 million for fiscal 2001
and consisted of $2.3 million from the issuance of common stock, which was
offset primarily by $1.9 million used to repurchase the Company's common stock.
In fiscal 2000, net cash used in financing activities was $4.6 million and
consisted of $6.2 million used to repurchase the Company's common stock and $0.8
million used for repayment of debt, offset by $2.4 million from the issuance of
common stock. Under a stock repurchase program approved by the Board of
Directors in September 1999, the Company acquired 210,000 and 631,000 shares of
its common stock at a total cost of $1.9 million and $6.2 million in fiscal 2001
and fiscal 2000, respectively.
The Company's primary cash needs are for the payment of salaries and fringe
benefits, hiring and recruiting expenses, business development costs,
acquisition-related costs, capital expenditures, and facility-related expenses.
The Company believes that its existing capital resources together with cash flow
from operations and borrowing capacity under existing lines of credit will be
sufficient to meet its foreseeable cash needs. In the future, the Company will
consider acquiring businesses to enhance its service offerings, expand its
therapeutic expertise, and/or increase its global presence. Any such
acquisitions may 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 assurance that such financing will be available
on terms acceptable to the Company.
MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency rates, interest rates, and other relevant
market rate or price changes. In the ordinary course of business, the Company is
exposed to various market risks, including changes in foreign currency exchange
rates and interest rates, and the Company regularly evaluates its exposure to
such changes. The Company's overall risk management strategy seeks to balance
the magnitude of the exposure and the costs and availability of appropriate
financial instruments. The Company occasionally purchases securities with seven-
day put options that allow the Company to sell the underlying securities in
seven days at par value. The Company uses these derivative financial instruments
on a limited basis to shorten contractual maturity dates, thereby managing
interest rate risk. The Company does not hold derivative instruments for trading
purposes.
24
Foreign Currency Exchange Rates
The Company derived approximately 41% of its net revenue for fiscal 2001, 40% of
its net revenue for fiscal 2000, and 43% of its net revenue for fiscal 1999,
from operations outside of North America. The Company does not have significant
operations in countries in which the economy is considered to be highly
inflationary. The Company's financial statements are denominated in U.S.
dollars, and accordingly, changes in the exchange rate between foreign
currencies and the U.S. dollar will affect the translation of such subsidiaries'
financial results into U.S. dollars for purposes of reporting the Company's
consolidated financial results.
The Company may be subject to foreign currency transaction risk when the
Company's foreign subsidiaries enter into contracts denominated in the local
currency of the foreign subsidiary. Because expenses of the foreign subsidiaries
are generally paid in the local currency, such foreign subsidiaries' local
currency earnings are not materially affected by fluctuations in exchange rates.
In cases where the Company contracts for a multi-country clinical trial and a
significant portion of the contract expenses are in a currency other than the
contract currency, the Company seeks to contractually shift to its clients the
effect of fluctuations in the relative values of the contract currency and the
currency in which the expenses are incurred. During fiscal 2001, the Company
recorded foreign exchange gains of $5.0 million. To the extent the Company is
unable to shift the effects of currency fluctuations to its clients, these
fluctuations could have a material effect on the Company's results of
operations. The Company occasionally enters into foreign exchange forward
contracts to offset the impact of currency fluctuations. These foreign exchange
forward contracts generally have maturity dates ranging from one to six months.
The Company does not expect gains or losses on these contracts to have a
material impact on its financial results (see note 2 to the Consolidated
Financial Statements).
Conversion to the Euro Currency
On January 1, 1999, a new currency, the euro, became the legal currency for 11
of the 15 member countries of the European Economic Community. Between January
1, 1999 and January 1, 2002, governments, companies and individuals may conduct
business in the member countries in both the euro and existing national
currencies. On January 1, 2002, the euro will become the sole currency in the
member countries. PAREXEL conducts business in seven of the member countries
and has converted two of the member countries in fiscal 2001. Conversion to the
euro currency did not create a material effect on the Company's financial
results of operations in fiscal 2001. The Company is planning on converting the
remaining five member countries in fiscal 2002, the result of which may or may
not have a material effect to the Company's financial condition in fiscal 2002.
INFLATION
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible
Assets". SFAS 142 requires, among other things, the cessation of goodwill
amortization. In addition, the standard includes provisions for the
reclassification to goodwill of certain existing intangible assets, reassessment
of the useful lives of existing intangible assets, reclassification of certain
intangible assets out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. Early application is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not previously been issued. The Company has adopted SFAS 142
effective with fiscal year 2002 and anticipates an elimination of goodwill
amortization of approximately $0.2 million per quarter to the Company's
financial results of operations.
Also in June 2001, the FASB issued SFAS No. 141, "Business Combinations"." SFAS
No. 141 requires that all business combinations be accounted for under the
purchase method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The Company has adopted SFAS 141
effective with fiscal year 2002 and does not anticipate a significant impact on
the Company's financial results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation" ("FIN 44"). FIN 44 clarifies the
application of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to
25
Employees" for certain issues such as the definition of an employee for the
purposes of applying Opinion 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination, among other issues. FIN 44 does not address any issues related to
the application of the fair value method in FASB Statement No. 123, "Accounting
for Stock-based Compensation." FIN 44 was adopted by the Company in fiscal 2001
and had no impact to the Company's financial results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. SAB 101 was delayed
by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26, 2000.
SAB 101 was adopted by the Company in fiscal 2001. The adoption of SAB 101 did
not have a significant impact to revenue recognition for the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new standards
for the recognition of gains and losses on derivative instruments and provides
guidance as to whether a derivative may be accounted for as a hedging
instrument. Gain or loss from hedging transactions may be wholly or partially
recorded in earnings or comprehensive income as part of a cumulative translation
adjustment, depending upon the classification of the hedge transaction. Gain or
loss on a derivative instrument not classified as a hedging instrument is
recognized in earnings in the period of change. SFAS No. 133 was adopted by the
Company in fiscal 2001 and did not have a significant impact to the Company's
financial results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please see "Market Risk" under ITEM 7 above.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30,
----------------------------
($ in thousands, except per share data) 2001 2000 1999
NET REVENUE $387,560 $378,150 $348,486
-------- -------- --------
Costs and expenses:
Direct costs 282,081 260,885 233,650
Selling, general and administrative 84,424 79,611 71,690
Depreciation and amortization 21,453 21,583 17,932
Restructuring and other charges 6,462 13,088 4,650
-------- -------- --------
TOTAL COSTS 394,420 375,167 327,922
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS (6,860) 2,983 20,564
-------- -------- --------
Interest income 2,677 4,370 3,018
Interest expense (96) (419) (351)
Other income (expense), net 5,151 1,531 720
-------- -------- --------
TOTAL OTHER INCOME 7,732 5,482 3,387
-------- -------- --------
Income before provision for
income taxes 872 8,465 23,951
Provision for income taxes 1,243 4,077 8,329
Minority interest 454 -- --
-------- -------- --------
NET INCOME (LOSS) $ (825) $ 4,388 $ 15,622
======== ======== ========
Earnings (loss) per share:
Basic $ (.03) $ 0.18 $ 0.63
Diluted $ (.03) $ 0.17 $ 0.62
Weighted average shares outstanding:
Basic 24,767 24,981 24,848
Diluted 24,767 25,140 25,128
The accompanying notes are an integral part of the consolidated financial
statements.
27
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
--------
($ in thousands, except per share data) 2001 2000
ASSETS
Current assets:
Cash and cash equivalents $ 57,590 $ 53,508
Marketable securities 3,359 37,022
Accounts receivable, net 206,904 159,955
Prepaid expenses 10,025 10,186
Deferred tax assets 13,987 15,370
Other current assets 3,022 4,024
-------- --------
Total current assets 294,887 280,065
Property and equipment, net 39,888 43,829
Goodwill and other intangible assets, net 12,787 11,330
Deferred income taxes 14,899 12,278
Other assets 5,351 4,438
-------- --------
Total Assets $367,812 $351,940
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 232 $ 269
Accounts payable 26,296 19,587
Advance billings 93,577 86,223
Other current liabilities 57,572 50,306
-------- --------
Total current liabilities 177,677 156,385
Long-term debt 12 104
Other liabilities 9,733 9,318
-------- --------
Total liabilities 187,422 165,807
-------- --------
Commitments (Note 15)
Minority interest in subsidiary 2,568 -
Stockholders' equity:
Preferred stock--$.01 par value; shares authorized:
5,000,000; none issued and outstanding - -
Common stock--$.01 par value; shares authorized:
50,000,000 at June 30, 2001 and 2000; shares
issued: 25,636,220 at June 30, 2001 and
25,399,570, at June 30, 2000; shares outstanding:
24,775,220 at June 30, 2001 and 24,719,158 at
June 30, 2000 257 254
Additional paid-in capital 164,141 162,057
Treasury stock, at cost (8,165) (6,424)
Retained earnings 39,220 40,173
Accumulated other comprehensive loss (17,631) (9,927)
-------- --------
Total stockholders' equity 177,822 186,133
-------- --------
Total liabilities and stockholders' equity $367,812 $351,940
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
28
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------
Accum.
Other
Retained Compre- Total Compre-
Addt'l Treasury Earnings hensive Stock- hensive
($ in thousands, Number Par Paid-in Stock, (Accum. (Loss) holders' Income/
except per share data) Of Shares Value Capital At Cost Deficit) Income Equity (Loss)
--------- ----- ------- ------- ------- ------ ------ ------
Balance at June 30, 1998 24,628,225 $ 246 $149,939 $ (18) $20,163 $ (1,950) $168,380 $ 8,198
=======
Shares issued under stock option/
purchase plans 275,256 3 4,145 4,148
Income tax benefit from exercise
of stock options 765 765
Acquisition (Note 3) 199,568 2 4,744 4,746
Net unrealized loss on marketable
Securities (4) (4) (4)
Foreign currency translation adjustment (1,625) (1,625) (1,625)
Net income 15,622 15,622 15,622
--------------------------------------------------------------------------------------
Balance at June 30, 1999 25,103,049 $ 251 $159,593 $ (18) $35,785 $ (3,579) $192,032 $13,993
=======
Shares issued under stock option/
purchase plans 267,109 3 2,354 2,357
Income tax benefit from exercise
of stock options 110 110
Shares repurchased (651,000) (6,406) (6,406)
Net unrealized gain on marketable
securities 2 2 2
Foreign currency translation adjustment (6,350) (6,350) (6,350)
Net income 4,388 4,388 4,388
--------------------------------------------------------------------------------------
Balance at June 30, 2000 24,719,158 $ 254 $162,057 $(6,424) $40,173 $ (9,927) $186,133 $(1,960)
=======
Shares issued under stock option/
purchase plans 266,062 3 1,874 1,877
Income tax benefit from exercise
of stock options 227 227
Shares repurchased (210,000) (1,758) (1,758)
Foreign currency translation adjustment (7,704) (7,704) (7,704)
Retirement of treasury stock (17) 17
Elimination of net income of
subsidiary for change in fiscal year (128) (128)
Net loss (825) (825) (825)
--------------------------------------------------------------------------------------
Balance at June 30, 2001 24,775,220 $ 257 $164,141 $(8,165) $39,220 $(17,631) $177,822 $(8,529)
======================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
29
PAREXEL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30,
----------------------------
($ in thousands) 2001 2000 1999
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (825) $ 4,388 $ 15,622
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Minority interest in net income of consolidated subsidiary 454 -- --
Depreciation and amortization 21,453 21,934 17,932
(Gain) loss on disposal of assets (108) 1,638 (647)
Allowance for doubtful accounts 875 (1,427) 65
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable (46,901) (9,726) (36,035)
Deferred tax assets 1,383 (1,359) (6,142)
Prepaid expenses and other current assets 1,163 (1,439) 899
Other assets (4,265) (5,122) (5,892)
Accounts payable 6,316 4,114 2,700
Advance billings 7,354 13,339 23,033
Other current liabilities 7,049 3,541 11,168
Other liabilities 415 (68) 6,421
---------- --------- ---------
Net cash provided (used) by operating activities (5,637) 29,813 29,124
---------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of marketable securities (93,120) (83,090) (76,641)
Proceeds from sale of marketable securities 126,735 73,670 86,168
Purchase of property and equipment (18,145) (19,089) (18,910)
Acquisition of a business, net of cash acquired (2,994) (3,000) 633
Proceeds from sale of assets 915 587 1,287
Other investing activities -- (1,244) (921)
---------- --------- ---------
Net cash provided (used) by investing activities 13,391 (32,166) (8,384)
---------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,878 2,357 4,148
Payments to repurchase common stock (1,758) (6,225) --
Net borrowings (repayments) under line of credit (37) (787) 1,057
Net borrowings (repayments) of long-term debt (92) 25 (2,378)
Proceeds from issuance of subsidiary's common stock 386 -- --
---------- --------- ---------
Net cash provided (used) by financing activities 377 (4,630) 2,827
---------- --------- ---------
Elimination of net loss of a subsidiary for change in fiscal year (128) -- --
Effect of exchange rate changes on cash and cash equivalents (3,921) (1,514) (1,503)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 4,082 (8,497) 22,064
Cash and cash equivalents at beginning of year 53,508 62,005 39,941
---------- --------- ---------
Cash and cash equivalents at end of year $ 57,590 $ 53,508 $ 62,005
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 50 $ 22 $ 84
Income taxes $ 3,202 $ 14,159 $ 7,201
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Income tax benefit from exercise of stock options $ 227 $ 110 $ 765
Common stock issued in connection with acquisitions -- -- $ 4,746
The accompanying notes are an integral part of the consolidated financial
statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
The Company is a leading contract biopharmaceutical outsourcing company,
providing a broad range of knowledge-based contract research, medical marketing,
consulting and technology services to the worldwide pharmaceutical,
biotechnology and medical device industries. The Company's primary objective is
to help clients rapidly obtain the necessary regulatory approvals for their
products and quickly reach peak sales. Over the past eighteen years, PAREXEL has
developed significant expertise in processes and technologies supporting this
strategy. The Company's service offerings include: clinical trials management,
data management, biostatistical analysis, medical marketing, clinical
pharmacology, regulatory and medical consulting, performance improvement,
industry training and publishing, web-based portal solutions, voice, data and
imaging systems, and other drug development consulting services.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of PAREXEL
International Corporation, its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
The Company changed the fiscal year end for one of its subsidiaries, MMS, from
May 31 to June 30. The effect of this change resulted in the reduction of
retained earnings in the amount of $128 thousand during fiscal 2001.
Reclassifications
Certain fiscal 2000 amounts have been reclassified to conform with the fiscal
2001 presentation.
Accounting 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, liabilities, revenue and expenses, and
disclosures of contingent assets and liabilities. Actual results may differ from
those estimates.
Revenue
Fixed price contract revenue is recognized using the percentage-of-completion
method based on the ratio that costs incurred to date bear to estimated total
costs at completion. Revenue from other contracts is recognized as services are
provided. Revenue related to contract modifications is recognized when
realization is assured and the amounts are reasonably determinable. Adjustments
to contract cost estimates are made in the periods in which the facts that
require the revisions become known. When the revised estimate indicates a loss,
such loss is provided in the current period in its entirety. Unbilled accounts
receivable represents revenue recognized in excess of amounts billed. Advance
billings represent amounts billed in excess of revenue recognized.
As is customary in the industry, the Company routinely subcontracts with
independent physician investigators in connection with clinical trials and other
third party service providers for laboratory analysis and other specialized
services. Revenue and expenses are reported net of these fees since such fees
are granted by customers on a "pass-through basis" without risk or reward to the
Company.
Cash, Cash Equivalents, Marketable Securities, and Financial Instruments
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Marketable securities
include securities purchased with original maturities of greater than three
months. Marketable securities are classified as "available for sale" and are
carried at fair market value. Unrealized gains and losses are recorded as part
of stockholders' equity.
The fair value of the Company's financial instruments are not materially
different from their carrying amounts at June 30, 2001 and 2000.
31
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations of
credit risk include trade accounts receivable. However, such risk is limited due
to the large number of clients and their international dispersion. In addition,
the Company maintains reserves for potential credit losses and such losses, in
the aggregate, have not exceeded management expectations. In fiscal 2001 and
2000, one client, Novartis, accounted for 10% and 21% of consolidated net
revenue, respectively.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method based on estimated useful lives of 40 years for buildings,
3 to 8 years for computer hardware and software, and 5 years for office
furniture, fixtures and equipment. Leasehold improvements are amortized over the
lesser of the estimated useful lives of the improvements or the remaining lease
term. Repair and maintenance costs are expensed as incurred.
Intangible Assets
Intangible assets consist principally of goodwill attributable to acquired
businesses. Goodwill represents the excess of the cost of businesses acquired
over the fair value of the related net assets at the date of acquisition for
acquisitions accounted for under the purchase method. Intangible assets are
amortized using the straight-line method over their expected useful lives
ranging from five to twenty-five years.
Intangible assets of $12.7 million and $13.1 million, included in Other Assets,
are net of accumulated amortization of $2.4 million and $1.6 million as of June
30, 2001 and 2000, respectively. Amortization expense was $0.8 million, $1.5
million, and $0.6 million for the fiscal years ended June 30, 2001, 2000, and
1999, respectively.
Income Taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences, utilizing current tax rates, of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for the
estimated future tax effects of deductible temporary differences and tax
operating loss and credit carryforwards. Deferred income tax expense represents
the change in the net deferred tax asset and liability balances.
Foreign Currency
Assets and liabilities of the Company's international operations are translated
into U.S. dollars at exchange rates in effect on the balance sheet date and
equity accounts are translated at historical exchange rates. Income and expense
items are translated at average exchange rates in effect during the year.
Translation adjustments are accumulated under other comprehensive loss as a
separate component of stockholders' equity in the consolidated balance sheet.
Transaction gains and losses are included in the determination of net income in
the consolidated statements of operations.
Earnings Per Share
Earnings per share has been calculated in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is calculated based on the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is calculated based on the weighted average number of common
shares and dilutive common equivalent shares assumed outstanding during the
period.
Stock-Based Compensation
The Company accounts for employee stock awards using the intrinsic value based
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation expense is
recognized because the exercise price of the Company's stock options was equal
to the market price of the underlying stock on the date of grant. The Company
has adopted the provisions of SFAS No. 123, "Accounting for Stock-based
Compensation" for disclosure purposes only.
32
Financial Instruments
From time to time the Company enters into forward exchange contracts in its
management of foreign currency exposures.
Realized gains or losses on forward exchange contracts, acquired for the purpose
of reducing exposure to currency fluctuations associated with expected cash
flows denominated in currencies other than the functional currencies, are
reflected in other income expenses. Forward exchange contracts are marked to
market with the unrealized gain or loss reflected in other income (expenses).
Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 142 requires, among other things, the cessation of goodwill
amortization. In addition, the standard includes provisions for the
reclassification to goodwill of certain existing intangible assets, reassessment
of the useful lives of existing intangible assets, reclassification of certain
intangible assets out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. Early application is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not previously been issued. The Company has adopted SFAS 142
effective with fiscal year 2002 and anticipates an elimination of goodwill
amortization of approximately $0.2 million per quarter to the Company's
financial results of operations.
Also in June 2001, the FASB issued SFAS No. 141, "Business Combinations"." SFAS
No. 141 requires that all business combinations be accounted for under the
purchase method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The Company has adopted SFAS 141
effective with fiscal year 2002 and does not anticipate a significant impact on
the Company's financial results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation" ("FIN 44"). FIN 44 clarifies the
application of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" for certain issues such as the definition of an employee
for the purposes of applying Opinion 25, the criteria for determining whether a
plan qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination, among other issues. FIN 44 does not address any issues related to
the application of the fair value method in FASB Statement No. 123, "Accounting
for Stock-based Compensation." FIN 44 was adopted by the Company in fiscal 2001
and had no impact to the Company's financial results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. SAB 101 was delayed
by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26, 2000. SAB
101 was adopted by the Company in fiscal 2001. The adoption of SAB 101 did not
have a significant impact to revenue recognition for the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new standards
for the recognition of gains and losses on derivative instruments and provides
guidance as to whether a derivative may be accounted for as a hedging
instrument. Gain or loss from hedging transactions may be wholly or partially
recorded in earnings or comprehensive income as part of a cumulative translation
adjustment, depending upon the classification of the hedge transaction. Gain or
loss on a derivative instrument not classified as a hedging instrument is
recognized in earnings in the period of change. SFAS No. 133 was adopted by the
Company in fiscal 2001 and did not have a significant impact to the Company's
financial results of operations.
NOTE 3. ACQUISITIONS
July 2001
Effective July 1, 2001, the Company acquired EDYABE, a contract research
organization in Latin America, with offices in Argentina and Brazil, for
approximately $1.7 million. Excess cost over the fair value of the interest in
the net assets acquired will be classified as goodwill on the Company's balance
sheet.
33
Fiscal 2001
On September 29, 2000, the Company acquired a clinical pharmacology unit located
in Northwick Park Hospital in Harrow, U.K. The fair value of the assets acquired
and the amount the Company paid for this transaction were nominal. As such,
there was no goodwill recorded for this transaction.
Effective September 1, 2000, the Company acquired a majority interest in
FARMOVS, a clinical pharmacology research business and bioanalytical laboratory
located in Bloemfontein, South Africa for approximately $3.0 million. In
connection with this transaction, the Company recorded approximately $2.0
million related to the excess cost over the fair value of the interest in the
net assets acquired. Goodwill is being amortized using a straight-line method
over 15 years.
Fiscal 2000
On September 1, 1999, the Company acquired CEMAF S.A., a leading Phase I
clinical research and bioanalytical laboratory located in Poitiers, France. The
Company acquired the business and related facilities for an initial cash payment
of approximately $3.0 million in a transaction accounted for as a purchase
business combination. In connection with this transaction, the Company paid an
additional amount of approximately $3.0 million to purchase certain buildings in
May 2000. This amount is reflected in property and equipment on the Company's
balance sheet as of June 30, 2000. In accordance with the terms of the asset
purchase agreement, the Company is obligated to make additional payments in
contingent purchase price if CEMAF achieves certain established annual earnings
targets in each fiscal year through June 30, 2002. No payments were required in
fiscal 2001 and 2000. The remaining maximum contingent obligation is $3.2
million. In connection with recording the assets and liabilities acquired, the
Company recorded approximately $2.4 million related to the excess cost over the
fair value of the net assets acquired. Goodwill is being amortized using the
straight-line method over 25 years.
Fiscal 1999
On March 31, 1999, the Company acquired the stock of Groupe PharMedicom S.A. in
exchange for approximately 199,600 shares of the Company's common stock in a
transaction accounted for as a purchase business combination. Groupe PharMedicom
S.A. is a leading French provider of post-regulatory services to pharmaceutical
manufacturers. The Company recorded approximately $8.5 million related to the
excess cost over the fair value of the net assets acquired. Goodwill is being
amortized using the straight-line method over 25 years.
NOTE 4. INVESTMENTS
Cash equivalents as of June 30, 2001 and 2000, consisted of the following:
($ IN THOUSANDS) 2001 2000
---- ----
Money market instruments $ 938 $ 2,665
Municipal and corporate debt securities -- 12,374
Repurchase agreements 7,409 10,436
------ -------
$8,347 $25,475
====== =======
34
Available-for-sale securities included in marketable securities at June 30, 2001
and 2000, consisted of the following:
($ IN THOUSANDS) 2001 2000
---- ----
Municipal securities and other $3,359 $36,337
Federal government securities -- 380
Corporate debt securities -- 305
------ -------
$3,359 $37,022
====== =======
On June 30, 2001, all available-for-sale securities will mature on varying dates
within one year.
The Company's investments are reflected at fair market value. During fiscal
2001, gross realized gains totaled $0.3 million and gross realized losses
totaled $0.3 million. During fiscal 2000, gross realized gains totaled $2.2
million and gross realized losses totaled $2.0 million. Unrealized gains and
losses as of June 30, 1999 were not material.
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 2001 and 2000, consisted of the following:
($ IN THOUSANDS) 2001 2000
---- ----
Billed $124,285 $ 87,057
Unbilled 87,194 76,598
Allowance for doubtful accounts (4,575) (3,700)
-------- --------
$206,904 $159,955
======== ========
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2001 and 2000, consisted of the following:
($ IN THOUSANDS) 2001 2000
---- ----
Computer and office equipment $ 55,409 $ 48,960
Computer software 22,236 19,445
Furniture and fixtures 19,882 19,283
Leasehold improvements 9,856 8,512
Buildings 5,675 6,012
Other 997 1,763
-------- --------
114,055 103,975
Less accumulated depreciation
and amortization 74,167 60,146
-------- --------
$ 39,888 $ 43,829
======== ========
Depreciation and amortization expense relating to property and equipment was
$20.6 million, $20.1 million, and $17.3 million for the years ended June 30,
2001, 2000, and 1999, respectively. The depreciation expense for the year ended
June 30, 2001 includes $0.9 million of accelerated depreciation due to changes
in the estimated useful lives of leasehold improvements on abandoned leased
facilities.
35
NOTE 7. OTHER CURRENT LIABILITIES
Other current liabilities at June 30, 2001 and 2000, consisted of the following:
($ IN THOUSANDS) 2001 2000
---- ----
Accrued compensation and withholding $24,864 $16,166
Income taxes payable (receivable) (28) 11,351
Other 32,736 22,789
------- -------
$57,572 $50,306
======= =======
NOTE 8. RESTRUCTURING AND OTHER CHARGES
During the year ended June 30, 2001, the Company recorded restructuring and
other charges in the fourth quarter totaling $7.2 million. These charges
included $3.1 million of employee severance and related costs for eliminating
approximately 125 managerial and staff positions worldwide (44% in the U.S. and
56% in Europe), $3.9 million related to consolidation and abandonment of certain
facilities (40% in the U.S. and 60% in Europe), and approximately $0.3 million
primarily related to miscellaneous costs associated with the Company's fourth
quarter restructuring plan. Additionally, the Company recorded net restructuring
and other charges of $0.7 million during the first quarter of fiscal 2001. This
consisted of a $1.5 million reduction in previously accrued restructuring
charges due to changes in estimates related to the third quarter 2000
restructuring, offset by $0.8 million for exiting a consulting business location
in the U.S. Fiscal year 2001 activity against the restructuring charge accrual
was as follows:
Balance, Gross Payments/ Balance,
June 30, 2000 Provisions Adjustments June 30, 2001
------------- ---------- ------------ -------------
Employee severance costs $4,183 $3,070 $(4,468) $2,785
Facilities related charge 4,976 3,891 (3,158) 5,709
Other charges (15) 269 (12) 242
------ ------ ------- ------
$9,144 $7,230 $(7,638) $8,736
====== ======= ====== ======
During the three months ended March 31, 2000, the Company announced that
Novartis, a key client, reduced the amount of work outsourced to the CRS
business segment, due to Novartis' reprioritization of its research pipeline. As
a result, the Company estimated that total revenue for fiscal 2000 and 2001
would be reduced by $50 million to $55 million in the aggregate.
Consequently, during the year ended June 30, 2000, the Company recorded
restructuring and other charges of $13.1 million. These charges included $7.2
million for employee severance costs related to the Company's decision to
eliminate approximately 475 managerial and staff positions in order to reduce
personnel costs as a result of a material dollar volume of contract
cancellations. The charges also included $4.3 million for lease termination
costs related to continued efforts to consolidate certain facilities and reduce
excess space in certain locations, in addition to a benefit derived from a
change in the Company's original estimate of when certain facilities would be
sublet. The remaining charges, totaling $1.6 million, primarily related to the
write-off of certain intangible assets and other investments, which were not
expected to produce future value.
During the year ended June 30, 1999, the Company recorded restructuring charges
of $4.7 million. Included in the total was a $1.9 million charge related to a
terminated merger agreement with Covance Inc. and $2.8 million in leasehold
abandonment charges resulting primarily from the consolidation of certain
facilities in North America and Europe.
NOTE 9. CREDIT ARRANGEMENTS
The Company has foreign lines of credit with banks totaling approximately $3.3
million. These lines are used as overdraft protection and bear interest at
rates ranging from 5% to 8%. The lines of credit are payable in demand and are
secured by the assets of PAREXEL International Corporation. At June 30, 2001,
$0.7 million was outstanding under these credit arrangements and included in
accounts and notes payable. At June 30, 2001, $2.6 million was available under
these lines of credit.
36
NOTE 10. STOCKHOLDERS' EQUITY
As of June 30, 2001 and 2000, there were 5,000,000 shares of preferred stock,
$0.01 per share, authorized; but none were issued or outstanding. Preferred
stock may be issued at the discretion of the Board of Directors (without
stockholder approval) with such designations, rights and preferences as the
Board of Directors may determine.
In September 1999, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to $20 million of the Company's common stock.
Repurchases are made in the open market subject to market conditions. The
Company acquired 210,000 shares at a total cost of $1.8 million during the
fiscal year ended June 30, 2001 and 651,000 shares at a total cost of $6.4
million during the fiscal year ended June 30, 2000.
NOTE 11. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income for the period by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares plus the dilutive effect of outstanding stock
options and shares issuable under the employee stock purchase plan.
Approximately 3.6 million outstanding stock options were excluded from the
calculation of diluted earnings per share for fiscal 2001 because they were
anti-dilutive. However, these options could be dilutive in the future.
The following table is a summary of shares used in calculating basic and diluted
earnings per share:
YEARS ENDED JUNE 30,
--------------------
(IN THOUSANDS) 2001 2000 1999
---- ---- ----
Weighted average number of shares outstanding, used
in computing basic earnings per share 24,767 24,981 24,848
Dilutive common stock options -- 159 280
------ ------ ------
Weighted average shares used in computing
diluted earnings per share 24,767 25,140 25,128
====== ====== ======
Stock options to purchase 1.6 million and 1.3 million shares of common stock
outstanding at June 30, 2000, and 1999, respectively, were not included in the
computation of weighted average shares outstanding for diluted earnings per
share because the stock options' exercise price was greater than the average
market price of the Company's common stock during the year.
NOTE 12. STOCK AND EMPLOYEE BENEFIT PLANS
The Stock Option Committee of the Board of Directors is responsible for
administration of the Company's stock option plans and determines the term of
each option, the option exercise price, the number of option shares granted, and
the rate at which options become exercisable.
1998 Stock Plan
In February 1998, the Company adopted the 1998 Nonqualified, Non-officer Stock
Option Plan (the "1998 Plan") which provides for the grant of nonqualified
options to purchase up to an aggregate of 500,000 shares of common stock to any
employee or consultant of the Company who is not an executive officer or
director of the Company. In January 1999, the Company's Board of Directors
approved an increase in the number of shares issuable under the 1998 Plan to
1,500,000 shares. Options under the 1998 Plan expire in eight years from the
date of grant and vest at dates ranging from the issuance date to five years.
1995 Stock Plan
The 1995 Stock Plan ("1995 Plan") provides for the grant of incentive stock
options for the purchase of up to an aggregate of 3,028,674 shares of common
stock to directors, officers, employees, and consultants to the Company. Options
under the 1995 Plan expire eight years from the date of grant and vest over
ninety days to five years.
37
In November 1996, the stockholders of the Company approved an amendment to
increase the number of shares issuable under the 1995 Plan by 500,000 shares.
In November 1997, the stockholders of the Company approved an amendment to the
1995 Plan. In connection therewith, the Company terminated the 1995 Non-Employee
Director Stock Option Plan (the "Director Plan") and transferred all remaining
shares under the Director Plan to the 1995 Plan, without increasing the
aggregate number of shares available for grant under all of the Company's stock
option plans.
In November 1999, the Company's stockholders approved an amendment to increase
the number of shares issuable under the 1995 Plan by 800,000 shares. All
amendments made in November 1996, November 1997, and November 1999 are reflected
in the 3,028,674 shares noted above.
Employee Stock Purchase Plans
In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the "Purchase Plan"). Under the Purchase Plan, employees had the opportunity to
purchase common stock at 85% of the average market value on the first or last
day of the plan period (as defined by the Purchase Plan), whichever was lower,
up to specified limits. An aggregate of 600,000 shares could have been issued
under the Purchase Plan. The Purchase Plan terminated in fiscal 2000.
In March 2000, the Board of Directors of the Company adopted the 2000 Employee
Stock Purchase Plan (the "2000 Purchase Plan"). Under the 2000 Purchase Plan,
employees have the opportunity to purchase common stock at 85% of the average
market value on the first or last day of the plan period (as defined by the
Purchase Plan), whichever is lower, up to specified limits. An aggregate of
approximately 800,000 shares may be issued under the 2000 Purchase Plan.
Stock Options of Subsidiary
In August 2000, Perceptive Informatics, Inc. ("Perceptive") adopted the 2000
Stock Incentive Plan ("the Plan") to grant rights to purchase up to an aggregate
of 3,530,000 shares of Perceptive common stock. Under the Plan, Perceptive may
grant to its employees, officers, directors, consultants and advisors, options,
restricted stock awards, or other stock-based awards. As of June 30, 2001,
Perceptive was not publicly traded and the shares outstanding under this plan
were 2,689,971.
Aggregate stock option activity for all plans, excluding Perceptive's Plan for
the three years ended June 30, 2001 is as follows:
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- -----
Outstanding at June 30, 1998 2,065,535 $22.13
Granted 648,700 22.10
Exercised (128,344) 8.35
Canceled (227,631) 25.26
---------
Outstanding at June 30, 1999 2,358,260 22.55
Granted 945,850 9.88
Exercised (56,718) 4.75
Canceled (588,897) 21.77
---------
Outstanding at June 30, 2000 2,658,495 18.38
Granted 1,400,500 11.17
Exercised (83,297) 6.82
Canceled (381,175) 19.27
---------
Outstanding at June 30, 2001 3,594,523 $15.76
---------
Exercisable at June 30, 2001 1,292,204
Available for future grant 726,402
---------
38
Summary information related to options outstanding and exercisable as of June
30, 2001 is as follows:
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF LIFE EXERCISE AS OF EXERCISE
PRICES JUNE 30, 2001 (YEARS) PRICE JUNE 30, 2001 PRICE
------ ------------- ------- -------- ------------- -----
$ 0.01 - $10.00 1,113,305 6.3 $ 8.70 264,552 $ 6.58
$10.01 - $20.00 1,408,207 6.5 $12.92 331,431 $16.23
$20.01 - $30.00 751,901 4.9 $24.06 549,697 $23.78
$30.01 - $37.81 321,110 4.1 $32.50 146,524 $32.94
---------- ---------
3,594,523 1,292,204
========== =========
The fair value for options granted was estimated at the time of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for the three years ended June 30, 2001: Risk free interest rates of
5.52% in fiscal 2001, 6.10% in fiscal 2000 and 4.58% in fiscal 1999, dividend
yield of 0.0% for each year, volatility factor of the expected market price of
the Company's common stock of 67% for fiscal 2001, 72% for fiscal 2000, and 71%
for fiscal 1999, and an average holding period of five years. During fiscal
2001, 2000 and 1999, the weighted-average grant-date fair value of the stock
options granted during the fiscal year was $6.43, $6.30, and $17.20 per share,
respectively.
If the compensation cost for the Company's stock options and the Purchase Plan
had been determined based on the fair value at the date of grant, as prescribed
in SFAS No. 123, the Company's net income and net income per share would have
been as follows:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------
2001 2000 1999
---- ---- ----
Pro forma net income (loss) $(4,893) $(1,057) $9,214
Pro forma income (loss) per diluted
weighted average share $ (0.20) $ (0.04) $ 0.37
As stock options vest over several years and additional stock option grants are
expected to be made each year, the above pro forma disclosures are not
necessarily representative of pro forma effects on results of operations for
future years.
401(K) PLAN
The Company sponsors an employee savings plan ("the Plan") as defined by Section
401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers
substantially all employees in the U.S. who elect to participate. Participants
have the opportunity to invest on a pre-tax basis in a variety of mutual fund
options. The Company matches 100% of each participant's voluntary contributions
up to 3% of gross salary per payroll period. Company contributions vest to the
participants in 20% increments for each year of employment and become fully
vested after five years of continuous employment. Company contributions to the
Plan were $2.4 million, $2.4 million, and $1.8 million, for the years ended June
30, 2001, 2000, and 1999, respectively.
NOTE 13. FINANCIAL INSTRUMENTS
As of June 30, 2001, the notional contract amount of outstanding forward
exchange contracts were approximately $8.0 million.
While it is not the Company's intention to terminate the above derivative
financial instruments, fair values were estimated based on market rates, which
represented the amounts that the Company would receive or pay if the instruments
were terminated at the balance sheet date. These fair values indicated that the
termination of forward exchange contracts at June 30, 2001 would have resulted
in approximately a $0.1 million gain.
At June 30, 2001, maturities of the Company's forward exchange contracts were
one to six months.
39
NOTE 14. INCOME TAXES
Domestic and foreign income before income taxes for the three years ended June
30, was as follows:
($ IN THOUSANDS) 2001 2000 1999
---------------- ---- ---- ----
Domestic $ 8,119 $16,205 $ 3,475
Foreign (7,247) (7,740) 20,476
------- ------- ------- -------
$ 872 $ 8,465 $23,951
======= ======= =======
The provisions for income taxes for the three years ended June 30, was as
follows:
($ IN THOUSANDS) 2001 2000 1999
---------------- ---- ---- ----
Current:
Federal $ 4,362 $ 5,389 $ 2,801
State 1,324 2,015 1,506
Foreign 733 1,338 7,359
------- ------- -------
$ 6,419 8,742 11,666
------- ------- -------
Deferred:
Federal (2,088) (1,087) (2,526)
State (55) (362) (842)
Foreign (3,033) (3,216) 31
------- ------- -------
(5,176) (4,665) (3,337)
------- ------- -------
$ 1,243 $ 4,077 $ 8,329
======= ======= =======
The Company's consolidated effective income tax rate differed from the U.S.
federal statutory income tax rate as set forth below:
($ IN THOUSANDS) 2001 2000 1999
---- ---- ----
Income tax expense computed at the federal
statutory rate $ 145 $2,963 $8,383
State income taxes, net of federal benefit 871 953 994
Foreign rate differential 1,406 498 (629)
Use of foreign net operating loss carryforwards (2,838) (776) (532)
Foreign losses without current benefit 668 983 291
Foreign permanent tax adjustments 257 202 191
U.S. permanent tax adjustments (130) (124) (287)
U.S. separate return limitation year loss -- (154) 160
Other 864 (468) (242)
------- ------ ------
$ 1,243 $4,077 $8,329
======= ====== ======
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings have been
permanently reinvested. Such taxes, if any, are not expected to be significant.
40
Significant components of the Company's net deferred tax asset as of June 30,
2001 and 2000 were as follows:
($ IN THOUSANDS) 2001 2000
---- ----
Deferred tax assets:
Foreign loss carryforwards $ 7,529 $ 8,061
Accrued expenses 14,162 16,140
Allowance for doubtful accounts 1,028 558
Deferred contract profit 6,836 6,699
Other 192 118
------- -------
Gross deferred tax assets 29,747 31,576
Deferred tax asset valuation allowance (1,055) (3,636)
------- -------
Total deferred tax assets 28,692 27,940
------- -------
Deferred tax liabilities:
Property and equipment (3,423) (4,822)
Other (4,160) (4,224)
------- -------
Total deferred tax liabilities (7,583) (9,046)
------- -------
$21,109 $18,894
======= =======
The net deferred tax assets and liabilities are included in the consolidated
balance sheets as of June 30, 2001 and 2000, as follows:
($ IN THOUSANDS) 2001 2000
---- ----
Other current assets $13,987 $15,370
Other assets 14,705 12,570
Other current liabilities (1,794) (1,007)
Other liabilities (5,789) (8,039)
------- -------
$21,109 $18,894
======= =======
The net deferred tax asset includes a tax effect of approximately $7.6 million
for foreign tax loss carryforwards available to offset future liabilities for
foreign income taxes. Substantially all of the foreign tax losses are carried
forward indefinitely, subject to certain limitations. A valuation allowance has
been established for certain of the future foreign income tax benefits primarily
related to income tax loss carryforwards and temporary differences based on
management's assessment that it is more likely than not that such benefits will
not be realized. In fiscal 2001, the valuation allowance decreased by $2.5
million due to the use of foreign net operating loss carryforwards. As of June
30, 2001, $1.1 million of net operating loss carryforward tax rate benefit
remains. The ultimate realization of the remaining loss carryforwards is
dependent upon the generation of sufficient taxable income in respective
jurisdictions.
NOTE 15. LEASE COMMITMENTS
The Company leases its facilities under operating leases that include renewal
and escalation clauses. Total rent expense was $23.7 million, $20.3 million, and
$17.3 million for the years ended June 30, 2001, 2000, and 1999, respectively.
Future minimum lease payments due under noncancellable operating leases totaled
$22.3 million, $21.9 million, $20.2 million, $18.8 million, $17.1 million, and
$52.0 million for fiscal 2002, 2003, 2004, 2005, 2006 and thereafter,
respectively. These future minimum lease payments are offset by future sublease
payments totaling $3.2 million and $1.4 million for fiscal 2002 and 2003,
respectively.
41
NOTE 16. RELATED PARTY TRANSACTIONS
During the year ended June 30, 2001, a member of the Company's Board of
Directors was also a director of one of the Company's customers. Revenue
recognized in fiscal 2001 and accounts receivable balance at June 30, 2001 from
this customer was $25.7 million and $5.9 million, respectively. Related party
amounts included in accounts receivable were on standard terms and manner of
settlement. Also during the year ended June 30, 2001, certain members of the
Company's Board of Directors were affiliated with certain companies in which
PAREXEL made investments. The total sum of all these investments by PAREXEL was
$0.9 million. At June 30, 1999, certain members of the Company's Board of
Directors were associated with certain of the Company's customers. Net revenue
recognized from these customers was $25.3 million in fiscal 1999.
NOTE 17. GEOGRAPHIC AND SEGMENT INFORMATION
Financial information by geographic area for the three years ended June 30, 2001
is as follows:
($ IN THOUSANDS) 2001 2000 1999
Net revenue:
North America $228,351 $225,478 $198,236
United Kingdom 62,055 65,444 79,312
Europe 83,896 79,695 66,250
Asia/Pacific 13,258 7,533 4,688
-------- -------- --------
$387,560 $378,150 $348,486
-------- -------- --------
Income (loss) from operations:
North America $ 3,107 $ 5,979 $ 1,060
United Kingdom (10,126) (4,162) 16,545
Europe (760) 2,012 3,368
Asia/Pacific 919 (846) (409)
-------- -------- --------
$ (6,860) $ 2,983 $ 20,564
-------- -------- --------
Identifiable assets:
North America $171,735 $199,762 $218,625
United Kingdom 69,673 65,028 54,360
Europe 115,674 81,348 58,086
Asia/Pacific 10,730 5,802 2,494
-------- -------- --------
$367,812 $351,940 $333,565
-------- -------- --------
The Company is managed through four reportable segments, namely, Clinical
Research Services ("CRS"), PAREXEL Consulting Group ("PCG"), Medical Marketing
Services ("MMS"), and Perceptive Informatics, Inc. ("Perceptive"). CRS
constitutes the Company's core business and includes clinical trials management,
biostatistics and data management, as well as related medical advisory and
investigator site services. PCG provides technical expertise in such disciplines
as clinical pharmacology, regulatory affairs, industry training, publishing, and
management consulting. These consultants identify options and propose solutions
to address clients' product development, registration, and commercialization
issues. MMS provides a full spectrum of market development, product development,
targeted communications, and strategic reimbursement services in support of
product launch. Perceptive provides a variety of web-based portal solutions
designed to accelerate and enhance the clinical development and product launch
processes, as well as a range of voice and data systems. It also offers a
medical imaging service supporting the use of advanced imaging techniques in
clinical development.
42
The Company evaluates its segment performance and allocates resources based on
revenue and gross profit (net revenue less direct costs), while other operating
costs are evaluated on a geographical basis. Accordingly, the Company does not
include selling, general, and administrative expenses, depreciation and
amortization expense, interest income (expense), other income (expense), and
income tax expense in segment profitability. The accounting policies of the
reportable segments are the same as those described in Note 2.
($ IN THOUSANDS) CRS PCG MMS PERCEPTIVE * TOTAL
--- --- --- ------------ -----
Net revenue:
2001 $238,381 $80,796 $56,397 $11,986 $387,560
2000 $262,698 $66,525 $48,927 -- $378,150
1999 $239,502 $57,633 $51,351 -- $348,486
Gross profit:
2001 $ 75,955 $15,987 $17,795 $(4,258) $105,479
2000 $ 89,154 $14,562 $13,549 -- $117,265
1999 $ 88,227 $16,422 $10,187 -- $114,836
* The Company began reporting Perceptive as a fourth business segment in the
first quarter of fiscal 2001. Perceptive was reported as part of CRS in fiscal
2000 and information is not available to break out Perceptive from CRS in fiscal
2000.
43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of PAREXEL International Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 45 present fairly, in all material
respects, the financial position of PAREXEL International Corporation and its
subsidiaries at June 30, 2001 and June 30, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14 (a) (2) on page 46 present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, MA
August 14, 2001
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item may be found under the captions "Elections
of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement for the Company's 2001 Annual
Meeting of Stockholders. Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found under the captions
"Directors' Compensation," "Compensation Committee Interlocks and Insider
Participation," "Executive Compensation," "Employment Agreements," "Stock
Performance Graph" and "Compensation Committee and Stock Option Committee Report
on Executive Compensation" in the Proxy Statement for the Company's 2001 Annual
Meeting of Stockholders. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
for the Company's 2001 Annual Meeting of Stockholders. Such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement for the Company's
2001 Annual Meeting of Stockholders. Such information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS. The following financial statements and
supplementary data are included in Item 8 of this report.
FINANCIAL STATEMENTS FORM 10-K PAGE
-------------------- --------------
Report of Independent Accountants 44
Consolidated Statements of Operations for each of the
three years ended June 30, 2001 27
Consolidated Balance Sheets at June 30, 2001 and 2000 28
Consolidated Statements of Stockholders' Equity for
each of the three years ended June 30, 2001 29
Consolidated Statements of Cash Flows for each of the
three years ended June 30, 2001 30
Notes to Consolidated Financial Statements 31-43
45
(2) FINANCIAL STATEMENT SCHEDULES:
For the three years ended June 30, 2001:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
Notes thereto.
(3) EXHIBITS
EXHIBIT NO. DESCRIPTION
-----------
3.1 Amended and Restated Articles of Organization of the Company, as
amended (filed as Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended December 31, 1996 and
incorporated herein by this reference).
3.2 Amended and Restated By-laws of the Company.
4.1 Specimen certificate representing the Common Stock of the Company
(filed as Exhibit 4.1 to the Registrant's Registration Statement
on Form S-1 (File No. 33-97406) and incorporated herein by this
reference).
10.1* Agreement dated June 30, 1993 between Prof. Dr. med. Werner M.
Herrmann and PAREXEL GmbH Independent Pharmaceutical Research
Organization, as amended, as of April 1, 1998 (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998 and incorporated herein by this
reference).
10.2* Letter Agreement effective as of July 1, 1997 between Prof. Dr.
med. Werner M. Herrmann and the Company, as amended as of April
1, 1998(filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 1998 and
incorporated herein by this reference).
10.3* Form of Stock Option Agreement of the Company (filed as Exhibit
10.9 to the Registrant's Registration Statement on Form S-1 (File
No. 333-1188) and incorporated herein by reference).
10.4* 1986 Incentive Stock Option Plan of the Company (filed as Exhibit
10.10 to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this reference).
10.5* 1987 Stock Plan of the Company (filed as Exhibit 10.11 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
10.6* 1989 Stock Plan of the Company (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1 (File No.
33-97406) and incorporated herein by this reference).
46
10.7* Second Amended and Restated 1995 Stock Plan of the Company (filed
as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K
for the Fiscal Year Ended June 30, 1998 and incorporated herein
by this reference).
10.8* 1995 Non-Employee Director Stock Option Plan of the Company
(filed as Exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and incorporated herein
by this reference).
10.9* Corporate Plan for Retirement of the Company (filed as Exhibit
10.16 to the Registrant's Registration Statement on Form S-1
(File No. 33-97406) and incorporated herein by this reference).
10.10 First Amendment dated as of January 3, 1992 to the Lease dated
June 14, 1991 between 200 West Street Limited Partnership and The
Company (filed as Exhibit 10.25 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and incorporated herein
by this reference).
10.11 Second Amendment dated as of June 28, 1993 to the lease dated
June 14, 1991 between 200 West Street Limited Partnership and the
Company (filed as Exhibit 10.28 to the Registrant's Registration
Statement on Form S-1 (File No. 33-97406) and incorporated herein
by this reference).
10.12.1* Letter of employment dated July 6, 1993 between Barry R. Philpott
and the Company (filed as Exhibit 10.29 to the Registrant's
Registration Statement on Form S-1 (File No. 33-97406) and
incorporated herein by this reference).
10.12.2* Letter dated November 15, 2000, modifying terms of Letter of
Employment of Barry R. Philpott.
10.13* 1998 Non-Qualified, Non-Officer Stock Option Plan, as amended
(filed as Exhibit 10.16 to the registrant's Annual Report on form
10-K for the year ended June 30, 1999 and incorporated herein by
this reference).
10.14** Amended and Restated Employment Agreement dated December 6, 1999
between Josef H. von Rickenbach and the Company (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended December 31, 1999 and incorporated herein by this
reference).
10.15* Change in Control Agreement dated October 20, 1998 between Barry
R. Philpott and the Company (filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1998 and incorporated herein by this reference).
10.16* Third Amendment to Lease dated November 17, 1998 between Boston
Properties Limited Partnership and the Company (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended December 31, 1998 and incorporated herein by this
reference).
47
10.17 Lease dated November 17, 1998 between Boston Properties Limited
Partnership and the Company (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
December 31, 1998 and incorporated herein by this reference).
10.18 Lease dated June 14, 1991 between 200 West Street Limited
Partnership and the Company (filed as Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the year ended June
30, 2000 and incorporated herein by this reference).
10.19.1* Employment Agreement dated August 30, 1996 between Ulf Schneider
and the PAREXEL GmbH (filed as Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by this reference).
10.19.2* Amendment to Employment Agreement, dated November 22, 1999,
between Ulf Schneider and PAREXEL GmbH.
10.19.3* Amendment to Employment Agreement, dated June 21, 2000 between
Ulf Schneider and PAREXEL GmbH.
10.20* Employment Agreement dated December 15, 1997 between Paule Dapres
and the Company (filed as Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by this reference).
10.21 Fourth Amendment dated August 28, 2000 to the lease dated
November 17, 1998 between Boston Properties Limited Partnership
and the Company (filed as Exhibit 10.22 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by this reference).
10.22* Change of Control/Severance Agreement, dated as of April 9, 2001,
by and between the Company and Carl A. Spalding.
10.23* Change of Control/Severance Agreement, date a of April 3, 2001,
by and between the Company and James F. Winschel, Jr.
21.1 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
(B) Reports on Form 8-K: No reports on Form 8-K for the quarter ended
June 30, 2001.
* denotes management contract or any compensatory plan, contract or arrangement.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PAREXEL INTERNATIONAL CORPORATION
By: /s/ Josef H. von Rickenbach Dated: September 24, 2001
-----------------------------------
Josef H. von Rickenbach
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title(s) Date
/s/ Josef H. von Rickenbach
-------------------------------
Josef H. von Rickenbach Chairman of the Board and Chief September 24, 2001
Executive Officer (principal executive
officer)
/s/ Carl A. Spalding
-------------------------------
Carl A. Spalding President and Chief Operating Officer September 24, 2001
/s/ James F. Winschel, Jr.
-------------------------------
James F. Winschel, Jr. Senior Vice President and Chief September 24, 2001
Financial Officer (principal financial and
accounting officer)
/s/ A. Dana Callow, Jr.
-------------------------------
A. Dana Callow, Jr. Director September 24, 2001
/s/ A. Joseph Eagle
-------------------------------
A. Joseph Eagle Director September 24, 2001
/s/ Patrick J. Fortune
-------------------------------
Patrick J. Fortune Director September 24, 2001
/s/ Prof. Werner M. Herrmann
-------------------------------
Prof. Werner M. Herrmann Director September 24, 2001
/s/ Serge Okun
-------------------------------
Serge Okun Director September 24, 2001
/s/ William T. Sobo, Jr.
-------------------------------
William T. Sobo, Jr. Director September 24, 2001
/s/ William U. Parfet
-------------------------------
William U. Parfet Director September 24, 2001
49
SCHEDULE II
PAREXEL INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ in thousands)
Balance at Charged to Balance at
beginning costs and Charged to Deductions end of
Description of year expenses other accounts and write-offs year
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Year ended June 30, 1999 5,062 533 -- (468) 5,127
Year ended June 30, 2000 5,127 607 -- (2,034) 3,700
Year ended June 30, 2001 3,700 1,117 -- (242) 4,575
DEFERRED TAX ASSET
VALUATION ALLOWANCE:
Year ended June 30, 1999 2,613 950 -- -- 3,563
Year ended June 30, 2000 3,563 73 -- -- 3,636
Year ended June 30, 2001 3,636 -- (2,581) 1,055
50
EX-3.2
3
dex32.txt
AMENDED AND RESTATED BY-LAWS OF THE COMPANY
Exhibit 3.2
PAREXEL INTERNATIONAL CORPORATION
**************
SECOND AMENDED AND RESTATED
BY-LAWS
Adopted ______, 2001
**************
ARTICLE I
---------
Stockholders
------------
1. Annual Meeting. The normal meeting of stockholders shall be held on the
--------------
second Thursday in November in each year (or if that be a legal holiday in the
place where the meeting is to be held, on the next succeeding full business day)
at 2:00 p.m., unless a different date or hour for such meeting is fixed by the
Directors or the Chief Executive Officer and stated in the notice of the
meeting. The purposes for which the annual meeting is to be held, in addition to
those prescribed by law, by the Articles of Organization or by these By-laws,
may be specified by the Directors or the Chief Executive Officer.
2. Special Meetings. Special meetings of stockholders may be called by the
----------------
Chief Executive Officer or by the Directors. Upon written application of one or
more stockholders who hold at least 10% in interest of the capital stock
entitled to vote at a meeting, a special meeting shall be called by the Clerk,
or in the case of the death, absence, incapacity or refusal of the Clerk, by
another officer. Notwithstanding the immediately preceding sentence, if the
corporation has a class of voting stock registered under the Securities Exchange
Act of 1934, as amended, upon written application of one or more stockholders
who hold at least 33-1/3% in interest of the capital stock entitled to vote at a
meeting, a special meeting shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer.
-2-
3. Place of Meetings. All meetings of stockholders shall be held at the
-----------------
principal office of the corporation unless a different place (within or without
Massachusetts, but within the United States) is fixed by the Directors or the
Chief Executive Officer and stated in the notice of the meeting.
4. Notice of Meetings. A written notice of the place, date and hour of all
------------------
meetings of stockholders stating the purpose of the meeting shall be given by
the Clerk or an Assistant Clerk or by the person calling the meeting at least
twenty days before the meeting or such longer period as is required by law to
each stockholder entitled to vote thereat and to each stockholder who under the
law, under the Articles of Organization or under these By-laws, is entitled to
such notice, by leaving such notice with him or at his residence or usual place
of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears in the records of the corporation.
Whenever notice of a meeting is required to be given a stockholder under any
provision of the Massachusetts Business Corporation Law or of the Articles of
Organization or these By-laws, a written waiver thereof, executed before or
after the meeting by such stockholder or his attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.
5. Notice of Stockholder Business. The following provisions of this
------------------------------
Section 5 shall apply to the conduct of business at any meeting of the
stockholders. (As used in this Section 5, the term annual meeting shall include
a special meeting in lieu of annual meeting.)
(a) At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in paragraph (b) of this
Section 5, who shall be entitled to vote at such meeting and who complies with
the notice procedures set forth in paragraph (b) of this Section 5.
(b) For business to be properly brought before any meeting of the
stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this
By-law, the stockholder must have given timely notice thereof in writing to the
Clerk of the corporation. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
(i) in the case of any annual meeting, not less than sixty days nor more than
ninety days prior to the date specified in Section 1 above for such annual
meeting, regardless of
-3-
any postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if a special meeting in lieu of annual meeting of
stockholders is to be held on a date prior to the date specified in Section 1
above, and if less than seventy days' notice or prior public disclosure of the
date of such special meeting in lieu of annual meeting is given or made, notice
by the stockholder to be timely must be so delivered or received not later than
the close of business on the tenth day following the earlier of the date on
which notice of the date of such special meeting in lieu of annual meeting was
mailed or the day on which public disclosure was made of the date of such
special meeting in lieu of annual meeting; and (ii) in the case of a special
meeting (other than a special meeting in lieu of an annual meeting), not later
than the tenth day following the earlier of the day on which notice of the date
of the scheduled meeting was mailed or the day on which public disclosure was
made of the date of the scheduled meeting. A stockholder's notice to the Clerk
shall set forth as to each matter the stockholder proposes to bring before the
meeting, (i) a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, and the name and address of
any other stockholders or beneficial owners known by such stockholder to be
supporting such proposal, (iii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder of
record, by the beneficial owner, if any, on whose behalf the proposal is made
and by any other stockholders or beneficial owners known by such stockholder of
record and/or of the beneficial owner, if any, on whose behalf the proposal is
made, in such proposed business and any material interest of any other
stockholders or beneficial owners known by such stockholder to be supporting
such proposal in such proposed business, to the extent known by such
stockholder.
(c) Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this By-law. The person presiding at the meeting shall,
if the facts warrant, determine that business was not properly brought before
the meeting and in accordance with the procedures prescribed by these By-laws,
and if he should so determine, he shall so declare at the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this By-law, a stockholder shall
also comply with all applicable requirements of the
-4-
Securities Exchange Act of 1934, as amended (or any successor provision), and
the rules and regulations thereunder with respect to the matters set forth in
this By-law.
(d) This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, Directors and committees of
the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless properly brought before the meeting
as herein provided.
6. Quorum. The holders of a majority in interest of all stock issued,
------
outstanding and entitled to vote at a meeting shall constitute a quorum, but a
lesser number may adjourn any meeting from time to time without further notice;
except that, if two or more classes of stock are outstanding and entitled to
vote as separate classes, then in the case of each such class, a quorum shall
consist of the holders of a majority in interest of the stock of that class
issued, outstanding and entitled to vote.
7. Voting and Proxies. Each stockholder shall have one vote for each share
------------------
of stock entitled to vote owned by him and a proportionate vote for a fractional
share, unless otherwise provided by the Articles of Organization in the case
that the corporation has two or more classes or series of stock. Capital stock
shall not be voted if any installment of the subscription therefor has been duly
demanded in accordance with the law of the Commonwealth of Massachusetts and is
overdue and unpaid. Stockholders may vote either in person or by written proxy.
Proxies shall be filed with the clerk of the meeting, or of any adjournment
thereof, before being voted. No proxy dated more than six months before the date
named therein shall be valid and no proxy shall be valid after the final
adjournment of such meeting. Notwithstanding the provisions of the preceding
sentence, a proxy coupled with an interest sufficient in law to support an
irrevocable power, including, without limitation, an interest in shares or in
the corporation generally, may be made irrevocable if it so provides, need not
specify the meeting to which it relates, and shall be valid and enforceable
until the interest terminates, or for such shorter period as may be specified in
the proxy. Except as otherwise limited therein, proxies shall entitle the
persons named therein to vote at any adjournment of such meeting but shall not
be valid after final adjournment of such meeting. A proxy with respect to stock
held in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed
-5-
by or on behalf of a stockholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger.
8. Action at Meeting. When a quorum is present, the holders of a majority
-----------------
of the stock present or represented and voting on a matter (or if there are two
or more classes of stock entitled to vote as separate classes, then in the case
of each such class, the holders of a majority of the stock of that class present
or represented and voting on a matter), except where a larger vote is required
by law, the Articles of Organization or these By-laws, shall decide any matter
to be voted on by the stockholders. Any election of Directors or officers by the
stockholders shall be determined by a plurality of the votes cast by
stockholders entitled to vote at the election. Any such elections shall be by
ballot if so requested by any stockholder entitled to vote thereon. The
corporation shall not directly or indirectly vote any share of its own stock.
9. Action Without Meeting. Any action required or permitted to be taken at
----------------------
any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consent shall be treated for all purposes as a vote at a meeting.
ARTICLE II
----------
Directors
---------
1. Powers. The business of the corporation shall be managed by a Board of
------
Directors who may exercise all the powers of the corporation except as otherwise
provided by law, by the Articles of Organization or by these By-laws. In the
event of vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
2. Number, Election and Qualification. Tenure; Removal. The number of
---------------------------------------------------
Directors, the provisions governing their election and qualification, their
tenure and removal shall be as provided by law and as set forth in the Articles
of Organization.
3. Meetings. Regular meetings of the Directors may be held without call or
--------
notice at such places and at such times as the Directors may from time to time
determine, provided that any Director who is absent when such determination is
made shall be given notice of the
-6-
determination. A regular meeting of the Directors may be held without a call or
notice at the same place as the annual meeting of stockholders.
Special meetings of the Directors may be held at any time and place
designated in a call by the Chief Executive Officer or two or more Directors.
4. Telephone Conference Meetings. Members of the Board of Directors may
-----------------------------
participate in a meeting of the board by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
5. Notice of Meetings. Notice of all special meetings of the Directors
------------------
shall be given to each Director by the Secretary, or Assistant Secretary, or if
there be no Secretary or Assistant Secretary, by the Clerk, or Assistant Clerk,
or in case of the death, absence, incapacity or refusal of such persons, by the
officer or one of the Directors calling the meeting. Notice shall be given to
each Director in person or by telephone or by telegram sent to his business or
home address at least twenty-four hours in advance of the meeting, or by written
notice mailed to his business or home address at least forty-eight hours in
advance of the meeting. Notice of a meeting need not be given to any Director if
a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Director who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him. A notice or waiver of notice of a Directors' meeting need not
specify the purposes of the meeting.
6. Quorum. At any meeting of the Directors, a majority of the Directors
------
then in office shall constitute a quorum. Less than a quorum may adjourn any
meeting from time to time without further notice.
7. Action at Meeting. At any meeting of the Directors at which a quorum is
-----------------
present, a majority of the Directors present may take any action on behalf of
the Board except to the extent that a larger number is required by law or the
Articles of Organization or these By-laws.
8. Action by Consent. Any action required or permitted to be taken at any
-----------------
meeting of the Directors may be taken without a meeting, if all the Directors
consent to the action in writing and the written consents are filed with the
records of the meetings of Directors. Such consents shall be treated for all
purposes as a vote at a meeting.
9. Committees. The Directors may, by vote of a majority of the Directors
----------
then in office, elect from their number an executive or other committees and may
by like vote delegate thereto
-7-
some or all of their powers except those which by law, the Articles of
Organization or these Bylaws they are prohibited from delegating to such
committee. Except as the Directors may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Directors or in such rules, its business shall be conducted as nearly as may
be in the same manner as is provided by these By-laws for the Directors.
ARTICLE III
-----------
Officers
--------
1. Enumeration. The officers of the corporation shall consist of a
-----------
President, a Treasurer, a Clerk, and such other officers, including without
limitation a Chairman of the Board, a Chief Executive Officer, a Chief Financial
Officer, , one or more Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Assistant Treasurers, Assistant Clerks, Secretary and Assistant
Secretaries as may be determined in accordance with these By-laws.
2. Election. The Chief Executive Officer, President, Treasurer, Clerk and
--------
Chief Financial Officer shall be elected annually by the Directors at their
first meeting following the annual meeting of stockholders, or at such other
meeting as the Directors shall determine in accordance with these By-laws. Other
officers may be appointed by the Chief Executive Officer, except that the
Directors shall have the power to rescind any such appointment by vote of a
majority of the Directors then in office.
3. Qualification. The Chief Executive Officer and/or the President may, but
-------------
need not be, a Director. No officer need be a stockholder. Any two or more
offices may be held by the same person, provided that the President and Clerk
shall not be the same person. The Clerk shall be a resident of Massachusetts
unless the corporation has a resident agent appointed for the purpose of service
of process. Any officer may be required by the Directors to give bond for the
faithful performance of his duties to the corporation in such amount and with
such sureties as the Directors may determine.
4. Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-laws, the Chief Executive Officer, President,
Treasurer and Clerk shall hold office until the first meeting of the Directors
following the next annual meeting of stockholders and until their successors are
chosen and qualified; and all other officers shall hold office until the first
-8-
meeting of the Directors following the next annual meeting of stockholders and
until their successors are chosen and qualified, unless a shorter term is
specified in the vote choosing or appointing them. Any officer may resign by
delivering his written resignation to the corporation at its principal office or
to the Chief Executive Officer, President, Clerk or Secretary, and 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. The Directors may remove any officer with or without cause by
-------
vote of a majority of the Directors then in office; provided, that an officer
may be removed for cause only after a reasonable notice and opportunity to be
heard before the Board of Directors.
6. Chief Executive Officer, President, Chairman of the Board and
------------------------------------
Vice-President. The Chief Executive Officer of the corporation shall, subject to
--------------
the direction of the Directors, have general supervision and control of its
business. Unless otherwise provided by the Directors he shall preside, when
present, at all meetings of stockholders and, unless a Chairman of the Board has
been elected and is present, of the Directors.
If a Chairman of the Board is elected he shall preside at all meetings of
the Board of Directors at which he is present. The Chairman of the Board shall
have such other powers as the Directors may from time to time designate. Any
Vice-President, including any Executive or Senior Vice Presidents, shall have
such powers as the Directors may from time to time designate.
7. Chief Financial Officer, Treasurer and Assistant Treasurers. The Chief
----------------------------------
Financial Officer shall, subject to the direction of the Directors, have general
charge of the financial affairs of the corporation and shall cause accurate
books of account to be kept. He shall have custody of all funds, securities, and
valuable documents of the corporation, except as the Directors may otherwise
provide.
The Treasurer and any Assistant Treasurer shall have such powers as the
Directors may from time to time designate.
8. Clerk and Assistant Clerks. The Clerk shall record all proceedings of
--------------------------
the stockholders in a book to be kept therefor. Unless a transfer agent is
appointed, the Clerk shall keep or cause to be kept in Massachusetts, at the
principal office of the corporation or at his office, the stock and transfer
records of the corporation, in which are contained the names of all stockholders
and the record address and the amount of stock held by each.
-9-
In case a Secretary is not elected, the Clerk shall record all proceedings
of the Directors in a book to be kept therefor.
In the absence of the Clerk from any meeting of the stockholders, an
Assistant Clerk, if one be elected, otherwise a Temporary Clerk designated by
the person presiding at the meeting, shall perform the duties of the Clerk. Any
Assistant Clerk shall have such additional powers as the Directors may from time
to time designate.
9. Secretary and Assistant Secretaries. If a Secretary is elected, he shall
-----------------------------------
keep a record of the meetings of the Directors and in his absence, an Assistant
Secretary, if one be elected, otherwise a Temporary Secretary designated by the
person presiding at the meeting, shall keep a record of the meetings of the
Directors.
Any Assistant Secretary shall have such additional powers as the Directors
may from time to time designate.
10. Other Powers and Duties. Each officer shall, subject to these By-laws,
-----------------------
have in addition to the duties and powers specifically set forth in these
By-laws, such duties and powers as are customarily incident to his office, and
such duties and powers as the Directors may from time to time designate.
ARTICLE IV
----------
Capital Stock
-------------
1. Certificates of Stock. Subject to the provisions of Section 2 below,
---------------------
each stockholder shall be entitled to a certificate of the capital stock of the
corporation in such form as may be prescribed from time to time by the
Directors. The certificate shall be signed by the Chairman of the Board, the
President or a Vice-President, and by the Treasurer or an Assistant Treasurer;
provided, however, such signatures may be facsimiles if the certificate is
signed by a transfer agent, or by a registrar, other than a Director, officer or
employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the time of its
issue.
Every certificate issued for shares of stock at a time when such shares are
subject to any restriction on transfer pursuant to the Articles of Organization,
these By-laws or any agreement
-10-
to which the corporation is a party shall have the restriction noted
conspicuously on the certificate and shall also set forth on the face or back of
the certificate either the full text of the restriction or a statement of the
existence of such restriction and a statement that the corporation will furnish
a copy thereof to the holder of such certificate upon written request and
without charge. Every stock certificate issued by the corporation at a time when
it is authorized to issue more than one class or series of stock shall set forth
upon the face or back of the certificate either the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series, if any, authorized to be issued, as set
forth in the Articles of Organization, or a statement of the existence of such
preferences, powers, qualifications, and rights, and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
2. Stockholder Open Accounts. The corporation may maintain or caused to be
-------------------------
maintained stockholder open accounts in which may be recorded all stockholders'
ownership of stock and all changes therein. Certificates need not be issued for
shares so recorded in a stockholder open account unless requested by the
stockholder.
3. Transfers. Subject to the restrictions, if any, stated or noted on the
---------
stock certificates, shares of stock may be transferred in the records of the
corporation by the surrender to the corporation or its transfer agent of the
certificate therefor, properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the corporation or its
transfer agent may reasonably require. When such stock certificates are thus
properly surrendered to the corporation or its transfer agent, the corporation
or transfer agent shall cause the records of the corporation to reflect the
transfer of the shares of stock. Except as may be otherwise required by law, by
the Articles of Organization or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown in its records as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereof, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
4. Record Date. The Directors may fix in advance a time which shall be not
-----------
more than sixty (60) days before the date of any meeting of stockholders or the
date for the payment of any
-11-
dividend or the making of any distribution to stockholders or the last day on
which the consent or dissent of stockholders may be effectively expressed for
any purpose, as the record date for determining the stockholders having the
right to notice of and to vote at such meeting and any adjournment thereof or
the right to receive such dividend or distribution or the right to give such
consent or dissent. In such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books of the
corporation after the record date. Without fixing such record date the Directors
may for any of such purposes close the transfer books for all or any part of
such period.
If no record date is fixed and the transfer books are not closed, the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5. Replacement of Certificates. In case of the alleged loss, mutilation or
---------------------------
destruction of a certificate of stock, a duplicate certificate may be issued in
place thereof, upon such terms and conditions as the Directors may prescribe.
6. Issue of Capital Stock. The whole or any part of the then authorized but
----------------------
unissued shares of each class of stock may be issued at any time or from time to
time by the Board of Directors without action by the stockholders.
7. Reacquisition of Stock. Shares of stock previously issued which have
----------------------
been reacquired by the corporation, may be restored to the status of authorized
but unissued shares by vote of the Board of Directors, without amendment of the
Articles of Organization.
ARTICLE V
---------
Provisions to Directors
Officers, Stockholders and Employees
------------------------------------
1. Certain Contracts and Transactions. In the absence of fraud or bad
----------------------------------
faith, no contract or transaction by this corporation shall be void, voidable or
in any way affected by reason of the fact that the contract or transaction is
(a) with one or more of its officers, Directors, stockholders or employees, (b)
with a person who is in any way interested in this corporation or (c) with a
-12-
corporation, organization or other concern in which an officer, Director,
stockholder or employee of this corporation is an officer, Director, stockholder
or employee of such corporation or in any way interested. The provisions of this
section shall apply notwithstanding the fact that the presence of a Director or
stockholder, with whom a contract or transaction is made or entered into or who
is an officer, director, stockholder or employee of a corporation, organization
or other concern with which a contract or transaction is made or entered into or
who is in any way interested in such contract or transaction, was necessary to
constitute a quorum at the meeting of the Directors (or any authorized committee
thereof) or stockholders at which such contract or transaction was authorized
and/or that the vote of such Director or stockholder was necessary for the
adoption of such contract or transaction, provided that if said interest was
material, it shall have been known or disclosed to the Directors or stockholders
voting at said meeting on said contract or transaction. A general notice to any
person voting on said contract or transaction that an officer, Director,
stockholder or employee has a material interest in any corporation, organization
or other concern shall be sufficient disclosure as to such officer, Director,
stockholder or employee with respect to all contracts and transactions with such
corporation, organization or other concern. This section shall be subject to
amendment or repeal only by action of the stockholders.
2. Indemnification. Each Director and officer of the corporation, and any
---------------
person who, at the request of the corporation, serves as a director or officer
of another organization shall be indemnified by the corporation against any
cost, expense (including attorneys' fees), judgment, liability and/or amount
paid in settlement reasonably incurred by or imposed upon him in connection with
any action, suit or proceeding (including any proceeding before any
administrative or legislative body or agency), to which he may be made a party
or otherwise involved or with which he shall be threatened, by reason of his
being, or related to his status as, a Director or officer of the corporation or
of any other organization, which other organization he serves or has served as
director or officer at the request of the corporation (whether or not he
continues to be an officer or Director of the corporation or such other
organization at the time such action, suit or proceeding is brought or
threatened), unless such indemnification is prohibited by the Business
Corporation Law of the Commonwealth of Massachusetts. The foregoing right of
indemnification shall be in addition to any rights to which any such person may
otherwise be entitled and shall inure to the benefit of the executors or
administrators of each
-13-
such person. The corporation may pay the expenses incurred by any such person in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit, or proceeding, upon receipt of an undertaking
by such person to repay such payment if it is determined that such person is not
entitled to indemnification hereunder. This section shall not affect any rights
to indemnification to which corporate personnel other than Directors and
officers may be entitled by contract or otherwise under law. This section shall
be subject to amendment or repeal only by action of the stockholders, and any
such amendment or repeal shall not affect the rights arising hereunder prior to
the effective date of the amendment or repeal.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
1. Fiscal Year. Except as from time to time otherwise determined by the
-----------
Directors, the fiscal year of the corporation shall be the twelve (12) months
ending the last day of June. Following any change in the fiscal year previously
adopted, a certificate of such change, signed under the penalties of perjury by
the Clerk or an Assistant Clerk, shall be filed forthwith with the state
secretary.
2. Seal. The seal of this corporation shall, subject to alteration by the
----
Directors, bear its name, the word "Massachusetts", and the year of its
incorporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
------------------------
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the Chief Executive Officer,
the President, any Vice President or the Chief Financial Officer or Treasurer
except as the Directors may generally or in particular cases otherwise
determine.
4. Voting of Securities. Except as the Directors may otherwise designate,
--------------------
the Chief Executive Officer or Chief Financial Officer may waive notice of, and
appoint any person or persons to act as proxy or attorney in fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by the corporation.
5. Corporate Records. The original, or attested copies, of the Articles of
-----------------
Organization, By-laws and records of all meetings of incorporators and
stockholders, and the stock and transfer
-14-
records, which shall contain the names of all stockholders and the record
address and the amount of stock held by each, shall be kept in Massachusetts at
the principal office of the corporation or at an office of its transfer agent or
of the Clerk or of its resident agent. Said copies and records need not all be
kept in the same office. They shall be available at all reasonable times to the
inspection of any stockholder for any proper purpose but not to secure a list of
stockholders or other information for the purpose of selling said list or
information or copies thereof or of using the same for a purpose other than in
the interest of the applicant, as a stockholder, relative to the affairs of the
corporation.
6. Articles of Organization. All references in these By-laws to the
------------------------
Articles of Organization shall be deemed to refer to the Restated Articles of
Organization of the corporation, as amended and in effect from time to time.
7. Amendments. These By-laws, to the extent provided in these By-laws, may
----------
be amended or repealed, in whole or in part, and new By-laws adopted either (a)
by the stockholders at any meeting of the stockholders by the affirmative vote
of the holders of at least a majority in interest of the capital stock present
and entitled to vote, provided that notice of the proposed amendment or repeal
or of the proposed making of new By-laws shall have been given in the notice of
such meeting, or (b) if so authorized by the Restated Articles of Organization,
by the Board of Directors at any meeting of the Board by the affirmative vote of
a majority of the Directors then in office, but no amendment or repeal of a
By-law shall be voted by the Board of Directors and no new By-laws shall be made
by the Board of Directors which alters the provisions of these By-laws with
respect to removal of Directors, or the election of committees by Directors and
the delegation of powers thereto, nor shall the Board of Directors make, amend
or repeal any provision of the By-laws which by law, the Restated Articles of
Organization or the By-laws requires action by the stockholders. Not later than
the time of giving notice of the meeting of stockholders next following the
making, amending, or repealing by the Directors of any By-law, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the By-laws. Any By-law or amendment of a By-law made by the
Board of Directors may be amended or repealed by the stockholders by affirmative
vote as above provided in this Section 7.
-15-
8. 1987 Massachusetts Control Share Acquisition Act. The 1987 Massachusetts
------------------------------------------------
Control Share Acquisition Act, Chapter 110D of the Massachusetts General Laws,
as it may be amended from time to time, shall not apply to the corporation.
EX-10.12.2
4
dex10122.txt
LETTER DATED NOVEMBER 15, 2000
Exhibit 10.12.2
[LETTERHEAD] PAREXEL
PRIVATE & CONFIDENTIAL
Barry Philpott
Golden Glades
Great Bois Wood
Chesam Bois
Amersham
BUCKS HP6 5NJ
15th November 2000
Dear Barry:
This letter serves to confirm our discussions earlier this year regarding the
change in your role and additional amendments to your terms and conditions.
Your appointment as President, Contract Research Services became effective on
1st April 2000. As you are aware the salary and MIP increases associated with
your role change have already been implemented.
We also discussed changes in your notice period and I have set these out below.
I can confirm that the Company will give 12 months' prior written notice of its
intention to terminate your employment for any reason whatsoever, except in the
circumstance of gross misconduct. In the event that you wish to terminate your
employment you are required to give 12 months' written notice of your intention
so to do.
In the event that the Company serves notice to terminate your employment, then
the Company may at its absolute discretion require you not to attend work or not
to undertake all your duties during all or part of your notice period, provided
always that the Company shall continue to pay your salary and contractual
benefits and/or make a payment in lieu of notice. For the avoidance of doubt
this payment would include the value of any benefits including your target
payment under the MIP scheme, or holiday entitlement which would have accrued
had you been employed to the end of the notice period.
Again, for the avoidance of doubt, the provisions of the Change Control
Agreement remain unaltered.
It has come to my attention that you have not signed a Key Employee Agreement.
As you know this is a requirement of all senior employees of the Company and it
is attached for
your review and signature. Please return a signed copy to Julia Ronde in the UK
HR department.
I wish to thank you for your valued contribution and look forward to continuing
our long and rewarding association.
Yours sincerely,
/s/ Josef H. von Rickenbach
Josef H. von Rickenbach
President, Chief Executive Officer and Chairman
-----------------------------------------------
Encl: Key Employee Agreement
EX-10.19.2
5
dex10192.txt
AMENDMENT TO EMPLOYMENT AGREEMENT DATED 11/22/1999
Exhibit 10.19.2
Amendment
to the Contract of Employment of 30.08.1996 between
PAREXEL GmbH
Independent Pharmaceutical Research Organization
Klinikum Westend, Haus 18
Spandauer Damm 130
D-14050 Berlin
represented by the sole shareholder PAREXEL Unternehmensbeteiligung GmbH,
represented by the Managing Directors Joe von Rickenbach and Prof. Dr. Werner M.
Herrmann
-hereinafter referred to as the "Company"-
and
Dr. Ulf Schneider, born on 02.06.1957
BrunckernerstraBe 49, D-12247 Berlin
-hereinafter referred to as the "Managing Director"-
The following amendments come into operation with effect from 01 July 1999:
(S) 4
Remuneration
(1) Basic salary
With effect from 01.07.1999 the Managing Director will receive a fixed annual
salary of DM 323.812.--, payable in twelve equal installments, one at the end
of each month, plus the employer's contributions (statutory social security
pension insurance, health insurance, unemployment insurance and care insurance).
Here the different locations will retain the aforementioned percentage split for
the salary payments.
Additionally, the Managing Directors will receive a monthly contribution of 99
DM towards the expenses of his children's childcare institution (after
presenting a proof of payment). The MD is obliged to inform the company, with
sufficient notice, of any changes to the cost of childcare. In the case of a
decrease in costs or cessation, this reduction will be taken into account in the
yearly salary.
The other provisions of the contract remain unchanged.
Berlin, 22.11.1999
PARAEXEL Unternehmensbeteiligung GmbH Managing Director
Amendming contract page 2/2 Dr. U. Schneider
Prof. Dr. W. M. Herrmann Dr. U. Schneider
EX-10.19.3
6
dex10193.txt
AMENDMENT TO EMPLOYMENT AGREEMENT DATED 06/21/2000
Exhibit 10.19.3
Amendment
to the Contract of Employment of 30.08.1996, last amended by the Contract of
22.11.1999,
between
PARAEXEL GmbH
Independent Pharmaceutical Research Organization
Klinikum Westend, Haus 18
Spandauer Damm 130
D-14050 Berlin
represented by the sole shareholder PAREXEL Unternehmensbeteiligung GmbH,
represented by the Managing Directors Joe von Rickenbach and Prof. Dr. Werner M.
Herrmann
-hereinafter referred to as the "Company"-
and
Dr. Ulf Schneider, born on 02.06.1957
Brucknerstrabe 49, D-12247 Berlin
-hereinafter referred to as the "Managing Director"-
The following amendments come into operation with effect from 01 January 2000:
(S)2
Scope of Managing Director's Authority
(1) The Managing director's authority extends to all actions associated with the
Company's usual business operations. In order to perform the following
actions the Managing Director will require the approval of the shareholder,
even if in an individual case they form part of the Company's usual business
operations:
a) relocation of the administrative centres, selling of significant parts
(assets) of the Company, the setting up or closing down of branch
offices, the founding, acquisition or selling of other companies or the
securing of an interest in such companies, the initiation and/or
discontinuation of existing areas of activity;
b) the acquisition, selling or encumbering of real property or equivalent
rights in real property;
c) the conclusion, termination or amendment of contracts between
companies;
d) entering into liabilities on bills, the assumption of suretyship
obligations or the issue of guarantee undertakings, unless these are
required for a particular business transaction within the context of
usual business operations;
e) the granting of loans in excess of DM 50,000.--in an individual case,
or if the credit is to be granted to the Managing Director, his
spouse, relatives or in-laws.
(1) -- (4) remain effective unchanged.
(S)3
Duration of Contract
(5) If the employment relationship is terminated by the Company, the Managing
Director will receive a lump sum settlement amounting to his total monthly
remuneration: the monthly average of the share in profits actually paid
((S)4 paragraphs 1 and 2) over the last 24 months (monthly average) will be
added to the salary paid world-wide. The lump sum settlement will be paid
for each year of employment and will amount to no less than 6 times and no
more than 12 times this average. This does not apply if notice has been
given on grounds of conduct for which the Managing Director is answerable
and which entitle the Company to terminate employment without notice. The
Company must provide evidence of the conditions in clause 2.
(S)4
Remuneration
(1) Basic salary
As of 01.01.2000 36% of the Managing Director's salary will be paid from the USA
and 64% from Germany. This is based on the hours worked at the two locations in
Berlin and Waltham.
With effect from 01.06.2000 the Managing Director will receive a fixed annual
salary of DM 400,000.--, payable in twelve equal instalments, one at the end of
each month, plus the employer's contributions (statutory social security pension
insurance, health insurance, unemployment insurance and care insurance). Here
the different locations will retain the aforementioned percentage split for the
salary payments.
(2) The Managing Director will also be given an interest in the Management
Incentive Plan (MIP) -- there is no entitlement to payment -- amounting to
up to 35% of his annual salary on the basis of the applicable regulations.
The other provisions of the contract remain unchanged.
Berlin, 21.06.2000
PAREXEL Unternehmensbeteiligung GmbH Managing Director
Prof. Dr. W.M. Herrmann Dr. U. Schneider
EX-10.22
7
dex1022.txt
CHANGE OF CONTROL/SEVERANCE AGRMNT. 04/09/2001
Exhibit 10.22
CHANGE OF CONTROL/SEVERANCE AGREEMENT
-------------------------------------
This CHANGE OF CONTROL/SEVERANCE AGREEMENT, dated as of April 9, 2001 by
and between PAREXEL International Corporation (together with all subsidiaries or
affiliates hereinafter referred to as the "Company") and Carl A. Spalding (the
"Executive").
WHEREAS, the Executive has been hired as a senior executive of the Company
and is expected to make major contributions to the Company;
WHEREAS, the Company desires continuity of management; and
WHEREAS, the Executive is willing to render services to the Company subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive agree
as follows:
1. Termination without Cause. In the event the Company terminates the
-------------------------
Executive's employment with the Company without "Cause" (as such term is defined
in Section 4(c) below), the Company shall:
(a) Pay to the Executive, within ten business days following the date of
termination, a lump sum amount (net of any required withholding) equal to
eighteen (18) months of monthly base salary (at the highest monthly base salary
rate in effect for the Executive in the twelve month period prior to the
termination of his employment); and
(b) Pay to the Executive, in accordance with the Company's regular practice
for the payment of bonuses pursuant to its Performance Bonus Plan, the target
bonus that could have been payable to the Executive (assuming continued
employment) for the eighteen (18) month period after the termination occurs;
(c) Provide that, with respect to any of the Executive's stock options that
would have vested (assuming continued employment) on the next anniversary date
of the date of grant of such option, the Executive may exercise such option for
the number of Option Shares as is determined by multiplying (i) the number of
Option Shares that would have otherwise vested on the next anniversary of the
date of grant by (ii) the quotient obtained by dividing (A) the number of full
months elapsed since the most recent anniversary date of the date of grant and
the date of termination of the Executive, divided by (B) 12; provided, however,
that such number shall be rounded down to the nearest whole number of shares;
and
(d) Provide the Executive and his dependents with life, accident, health
and dental insurance substantially similar to that which the Executive was
receiving immediately prior to the termination of his employment until the
earlier of: (i) the date which is twelve (12) months following the date of
termination; or (ii) the date the Executive commences subsequent employment.
2. Termination Prior to a Change of Control.
----------------------------------------
(a) Notwithstanding the provision of Section 1 above, if, within nine
months prior to a Change of Control (as such term is defined in Section 4(b)
below) and subsequent to the commencement of substantive discussions that
ultimately result in the Change of Control, the Company terminates the
Executive's employment with the Company without Cause, the Company shall:
(1) Pay to the Executive, within ten (10) business days following the
Change of Control, a lump sum amount (net of any required
withholding) equal to eighteen (18) months of monthly base salary
(at the highest monthly base salary rate in effect for the
Executive in the twelve month period prior to the termination of
his employment). In addition, the Company shall pay to the
Executive, in accordance with the Company's regular practice for
the payment of bonuses, pursuant to its Performance Bonus Plan,
the target bonus that could have been payable to the Executive
(assuming continued employment) for the eighteen (18) month
period after the termination occurs; and
(2) Provide the Executive and his dependents with life, accident,
health and dental insurance substantially similar to that which
the Executive was receiving immediately prior to the termination
of his employment until the earlier of: (i) the date which is
twelve (12) months following the Change of Control; or (ii) the
date the Executive commences subsequent employment; and
(3) On the Change of Control, cause any unexercisable installments of
any stock options of the Company or any subsidiary or affiliate
of the Company held by the Executive on the Executive's last date
of employment with the Company that have not expired to become
exercisable on the Change of Control; provided, however, that:
-------- -------
(i) such acceleration of exercisability shall not occur as to any
option if the Change of Control does not occur within the period
within which the Executive may exercise such option after a
termination of employment in accordance with the provisions of
the relevant option agreement and option plan; and (ii) any such
acceleration of exercisability shall not extend the period after
a termination of employment within which any option may be
exercised by the Executive in accordance with the provisions of
the relevant option agreement and option plan; and
(4) On the Change of Control, cause any unvested portion of any
qualified or non-qualified capital accumulation benefits to
become immediately vested (subject to applicable law);
-2-
provided, however, that any amounts and benefits set forth in this Section 2
-------- -------
shall be reduced by any and all other severance or other amounts or benefits
paid or payable to the Executive as a result of the termination of his or her
employment.
3. Termination Following a Change of Control.
-----------------------------------------
(a) Notwithstanding the provisions of Section 1 and 2 above, if, at any
time during a period commencing with a Change of Control and ending eighteen
months after such Change of Control, the Company terminates the Executive's
employment without Cause or the Executive terminates his employment with the
Company for "Good Reason" (provided, however, that any such termination by the
-------- -------
Executive must occur promptly (and in any event within 90 days) after the
occurrence of the event or events constituting "Good Reason"), the Company
shall:
(1) Pay to the Executive, within ten (10) business days following the
Executive's last date of employment, a lump sum amount (net of
any required withholding) equal to eighteen (18) months of
monthly base salary (at the highest monthly base salary rate in
effect for such Executive in the twelve (12) month period prior
to the termination of his or her employment). In addition, the
Company shall pay to the Executive, in accordance with the
Company's regular practice for the payment of bonuses pursuant to
its Performance Bonus Plan, the target bonus that could have been
payable to such Executive (assuming continued employment) during
the eighteen (18) month period after the termination of
employment occurs (all payments under Sections 1, 2 and this
Section 3(a) being referred to collectively, as the "Severance
Payments"); and
(2) Provide the Executive and his or her dependents with life,
accident, health and dental insurance substantially similar to
that which the Executive was receiving immediately prior to the
termination of his or her employment until the earlier of: (i)
the date which is twelve (12) months following the termination of
the Executive's employment; or (ii) the date the Executive
commences subsequent employment; and
(3) Cause any unexercisable installments of any stock options of the
Company or any subsidiary or affiliate of the Company held by the
Executive on the Executive's last date of employment with the
Company that have not expired to become exercisable on such last
date of employment; provided, however, that: (i) such
-------- -------
acceleration of exercisability shall not occur as to any option
if the Change of Control does not occur within the period within
which the Executive may exercise such option after a termination
of employment in accordance with the provisions of the relevant
option agreement and option plan; and (ii) any such acceleration
of exercisability shall not extend the period after a termination
of employment within which any option may be exercised by the
Executive in accordance with the provisions of the relevant
option agreement and option plan; and
-3-
(4) Cause any unvested portion of any qualified and non-qualified
capital accumulation benefits to become immediately vested,
subject to applicable law;
provided, however, that any amounts and benefits set forth in this Section 3
-------- -------
shall be reduced by any and all other severance or other amounts or benefits
paid or payable to the Executive as a result of the termination of his or her
employment.
(b) For purposes of Section 3 above, "Good Reason" shall mean the
occurrence of one or more of the following events following Change of Control:
(i) the assignment to the Executive of any duties inconsistent in any adverse,
material respect with his position, authority, duties or responsibilities
immediately prior to the Change of Control or any other action by the Company
which results in a material diminution in such position, authority, duties or
responsibilities; (ii) a material reduction in the aggregate of the Executive's
base or incentive compensation or the termination of the Executive's rights to
any employee benefits immediately prior to the Change of Control, except to the
extent any such benefit is replaced with a comparable benefit, or a reduction in
scope or value thereof; or (iii) a relocation of the Executive's place of
business which results in the one-way commuting distance for the Executive
increasing by more than 25 miles from the location thereof immediately prior to
the Change of Control (provided, however, that travel consistent with past
-------- -------
practices for business purposes shall not be considered "commuting" for purposes
of this clause (iii)) or (iv) a failure by the Company to obtain the agreement
referenced in Section 4(f).
4. General.
-------
(a) In the event the Executive's employment with the Company is terminated
by the Company for "Cause", or the Executive terminates his employment with the
Company other than during the specific time periods set forth in Section 3 or
for any reason other than Good Reason, the Executive shall not be entitled to
the severance benefits or other considerations described herein by virtue of
this Agreement.
(b) For purposes of this Agreement, "Change of Control" shall mean the
closing of: (i) a merger, consolidation, liquidation or reorganization of the
Company into or with another Company or other legal person, after which merger,
consolidation, liquidation or reorganization the capital stock of the Company
outstanding prior to consummation of the transaction is not converted into or
exchanged for or does not represent more than 50% of the aggregate voting power
of the surviving or resulting entity; (ii) the direct or indirect acquisition by
any person (as the term "person" is used in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than 50% of the voting
capital stock of the Company, in a single or series of related transactions; or
(iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets (other than a sale, exchange or transfer to one or more
entities where the stockholders of the Company immediately before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the entities to which the assets were
transferred).
-4-
(c) For purposes of this Agreement, "Cause" shall mean: (i) the commission
by the Executive of a felony, either in connection with the performance of his
obligations to the Company or which adversely affects the Executive's ability to
perform such obligations; (ii) gross negligence, breach of fiduciary duty or
breach of any confidentiality, non-competition or developments agreement in
favor of the Company; or (iii) the commission by the Executive of an act of
fraud or embezzlement or other acts in intentional disregard of the Company
which result in loss, damage or injury to the Company, whether directly or
indirectly.
(d) Notwithstanding anything to the contrary in this Agreement, if any
portion of any payments received by the Executive from the Company (whether
payable pursuant to the terms of this Agreement or any other plan, agreement or
arrangement with the Company, its successors or any person whose actions result
in a change of control of the Company) shall be subject to tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended or any successor
statutory provision, the Company shall pay to the Executive such additional
amounts as are necessary so that, after taking into account any tax imposed by
Section 4999 (or any successor statutory provision), and any federal and state
income taxes payable on any such tax, the Executive is in the same after-tax
position that he or she would have been if such Section 4999 (or any successor
statutory provision) did not apply and no payments were made pursuant to this
Section 4(d). The Executive and the Company shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Payments. All determinations required to be made under this Section 4(d),
including whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the Company, after consultation with its tax and
accounting advisors.
(e) The parties hereto expressly agree that the payments by the Company to
the Executive in accordance with the terms of this Agreement will be liquidated
damages, and that the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive.
(f) Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the Company and any successor (whether direct
or indirect, by purchase, merger, consolidation, reorganization or otherwise) of
the Company; provided, however, that as a condition of closing any transaction
-------- -------
which results in a Change of Control, the Company shall obtain the written
agreement of any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) of the Company to be bound by the
provisions of this Agreement as if such successor were the Company and for
purposes of this Agreement, any such successor of the Company shall be deemed to
be the "Company" for all purposes.
(g) Nothing in this Agreement shall create any obligation on the part of
the Company or any other person to continue the employment of the Executive. If
the Executive elects to receive the severance and benefits set forth in Sections
1, 2 or 3, the Executive shall not be entitled to any other salary continuation
or severance benefits in the event of his cessation of employment with the
Company.
-5-
(h) Nothing herein shall affect the Executive's obligations under any
key employee, non-competition, confidentiality, option or similar agreement
between the Company and the Executive currently in effect or which may be
entered into in the future.
(i) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts. This Agreement constitutes the
entire Agreement between the Executive and the Company concerning the subject
matter hereof and supersedes any prior negotiations, understandings or
agreements concerning the subject matter hereof, whether oral or written, and
may be amended or rescinded only upon the written consent of the Company and the
Executive. The invalidity of unenforceability of any provision of this Agreement
shall not affect the other provisions of this Agreement and this Agreement shall
be construed and reformed to the fullest extent possible. The Executive may not
assign any of his rights or obligations under this Agreement; the rights and
obligations of the Company under this Agreement shall inure to the benefit of,
and shall be binding upon, the successors and assigns of the Company. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
The Company:
-----------
PAREXEL INTERNATIONAL CORPORATION
By: /s/ Josef H. von Rickenbach
--------------------------------
Name: Josef H. von Rickenbach
------------------------------
Title: Chief Executive Officer
-----------------------------
The Executive:
-------------
Signature: /s/ Carl A. Spalding
-------------------------
Printed Name: Carl A. Spalding
----------------------
-6-
Exhibit A
---------
AGREEMENT/WAIVER
----------------
It is hereby agreed by and between ___________________ (the "Executive")
and PAREXEL International Corporation (together with all subsidiaries and
affiliates hereinafter referred to as the "Company"), for good and sufficient
consideration more fully described below, that:
1. Consideration. The Company will provide the Executive with the amounts
-------------
and benefits described in Sections 1, 2 and 3 of the Change of Control/Severance
Agreement entered into by the Company and the Executive, dated
__________________, (the "Agreement"), subject to the terms and conditions of
such Agreement. The Executive understands that payment of and all such amounts
and benefits are conditioned upon the Executive signing this agreement.
2. Settlement of Amounts Due the Executive. The Executive agrees that the
---------------------------------------
amounts set forth above in Section 1, together with any amounts previously
provided to the Executive by the Company, shall be complete and unconditional
payment, settlement, satisfaction and accord with respect to all obligations and
liabilities of the Company and any of its affiliated companies (including their
respective successors, assigns, shareholders, officers, directors, employees
and/or agents) to the Executive, and all claims, causes of action and damages by
the Executive against the Company and/or any such other parties regarding the
Executive's employment with and termination from employment with the Company,
including, without limitation, all claims for back wages, salary, draws,
commissions, bonuses, vacation pay, equity compensation, expenses, compensation,
severance pay, attorney's fees, compensatory damages, exemplary damages, or
other costs or sums.
3. Release.
-------
(a) In exchange for the amounts and benefits described in Section 1 above
and other good and valuable consideration, receipt of which is hereby
acknowledged, the Executive and his representatives, agents, estate, successors
and assigns, absolutely and unconditionally hereby release and forever discharge
the Company, its affiliated companies and/or their successors, assigns,
directors, shareholders, officers, employees and/or agents, both individually
and in their official capacities, (the "Releasees"), from any and all actions or
causes of action, suits, claims, complaints, contracts, liabilities, agreements,
promises, debts and damages, controversies, judgments, rights and demands,
whether existing or contingent, known or unknown, which arise under the
Agreement. This release is intended by the Executive to be all encompassing and
to act as a full and total release of any claims that the Executive may have or
has had against the Releasees under the Agreement, including, but not limited
to, any federal, state or local law or regulation dealing with either employment
or employment discrimination such as those laws or regulations concerning
discrimination on the basis of age, race, color, religion, creed, sex,
sexual-orientation, national origin, ancestry, marital status, physical or
mental disability, any veteran status or any military service or application for
any military service; any contract, whether oral or written, express or implied;
or common law.
(b) The Executive agrees not only to release and discharge the Releasees
from any and all claims as stated above that the Executive could make on his/her
own behalf or on behalf of others, but also those claims which might be made by
any other person or organization on behalf of the Executive, and the Executive
specifically waives any right to become, and promises not to become, a member of
any class in a case in which a claim or claims against the Releasees are made
involving any matters which arise out of, or in connection with, the Agreement.
Nothing in this agreement is to be construed as an admission by the Releasees of
any liability or unlawful conduct whatsoever.
4. Waiver of Rights and Claims Under the Age Discrimination and Employment
-----------------------------------------------------------------------
Act of 1967.
-----------
(a) The Executive has been informed that since he is 40 years of age or
older, he has or might have specific rights and/or claims under the Age
Discrimination and Employment Act of 1967. In consideration for the amounts
described in Section 1 hereof, the Executive specifically waives such rights
and/or claims to the extent that such rights and/or claims arose prior to the
date this Agreement was executed.
(b) The Executive was advised by the Company of his right to consult with
an attorney prior to executing this Agreement.
(c) The Executive was further advised when he was presented by the Company
with the original draft of this Agreement on ________, 200_, that he had at
least 21 days within which to consider its terms and to consult with or seek
advice from an attorney or any other person of his/her choosing, until the
close of business on ___________, 200_.
5. Confidentiality. The Executive agrees he shall not divulge or publish,
---------------
directly or indirectly, any information whatsoever regarding the substance,
terms or existence of the Agreement or this agreement and/or any discussions or
negotiations relating to the Agreement or this agreement to any person or
organization, except to his immediate family members, counsel or accountant, and
unless required under law or court order.
6. Representations and Governing Law.
---------------------------------
(a) This agreement represents the complete and sole understanding between
the parties regarding the subject matter hereto. This agreement may not be
modified, altered or rescinded except upon written consent of the Company and
Executive. The invalidity or unenforceability of any provision of this agreement
shall not affect the other provisions of this agreement, but this agreement
shall be revised, construed and reformed to the fullest extent possible to
effectuate the purposes of this agreement. This agreement shall be binding upon
and inure to the benefit of the Company and the Executive and their respective
heirs, successors and assigns. The parties agree that the Company will not have
an adequate remedy if the Executive fails to comply with Sections 3, 4, and 5
hereof and that damages will not be readily ascertainable, and that in the event
of such failure, the Executive shall not oppose any application by the Company
requiring a
A-2
decree of specific performance or an injunction enjoining a breach of this
agreement. If the Executive breaches any of his/her obligations hereunder, he
shall forfeit all right to payments pursuant to Section 1.
(b) This agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof
(c) The Executive represents that he has read this agreement, fully
understands the terms and conditions of such agreement, and is voluntarily
executing the same. In entering into this agreement, the Executive does not rely
on any representation, promise or inducement made by the Releasees, with the
exception of the consideration described in this document.
7. Effective Date. The Executive may revoke this agreement during the
--------------
period of seven (7) days following its execution by the Executive, and this
agreement shall not become effective or enforceable until this revocation period
has expired.
The Company:
-----------
PAREXEL INTERNATIONAL CORPORATION
By: /s/ Josef H. von Rickenbach
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
------------------------------
The Executive:
-------------
Signature:
-------------------------
Printed Name:
----------------------
Date:
------------------------------
A-3
EX-10.23
8
dex1023.txt
CHANGE OF CONTROL SEVERANCE AGRMNT. 04/03/2001
Exhibit 10.23
CHANGE OF CONTROL/SEVERANCE AGREEMENT
-------------------------------------
This CHANGE OF CONTROL/SEVERANCE AGREEMENT, dated as of April 3, 2001 by
and between PAREXEL International Corporation (together with all subsidiaries or
affiliates hereinafter referred to as the "Company") and James F. Winschel, Jr.
(the "Executive").
WHEREAS, the Executive has been hired as a senior executive of the Company
and is expected to make major contributions to the Company;
WHEREAS, the Company desires continuity of management; and
WHEREAS, the Executive is willing to render services to the Company subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive agree
as follows:
1. Termination without Cause. In the event the Company terminates the
-------------------------
Executive's employment with the Company without "Cause" (as such term is defined
in Section 4(c) below), the Company shall pay to the Executive, within ten
business days following the date of termination, a lump sum amount (net of any
required withholding) equal to: (i) twelve (12) months of monthly base salary
(at the highest monthly base salary rate in effect for the Executive in the
twelve month period prior to the termination of his employment), plus (ii) the
pro rata share of the target bonus that could have been payable to the Executive
pursuant to the Company's Performance Bonus Plan (assuming continued employment)
during the year in which the termination occurs, based on bonus arrangements in
effect at any time during the twelve month period immediately prior to the
termination of his employment, such pro rata share to be calculated from the
beginning of the fiscal year in which the termination occurs through the date of
termination.
2. Termination Prior to a Change of Control.
----------------------------------------
(a) Notwithstanding the provisions of Section 1 above, if, within nine
months prior to a Change of Control (as such term is defined in Section 4(b)
below) and subsequent to the commencement of substantive discussions that
ultimately result in the Change of Control, the Company terminates the
Executive's employment with the Company without Cause, the Company shall:
(1) Pay to the Executive, within ten (10) business days following the
Change of Control, a lump sum amount (net of any required
withholding) equal to: (i) twelve (12) months of monthly base
salary (at the highest monthly base salary rate in effect for the
Executive in the twelve month period prior to the termination of
his employment), plus (ii) the target bonus that could
have been payable to the Executive (assuming continued
employment) during the year in which the Change of Control occurs
based on bonus arrangements in effect at any time during the
twelve month period immediately prior to the termination of his
employment; and
(2) Provide the Executive and his dependents with life, accident,
health and dental insurance substantially similar to that which
the Executive was receiving immediately prior to the termination
of his employment until the earlier of: (i) the date which is
twelve (12) months following the Change of Control; or (ii) the
date the Executive commences subsequent employment; and
(3) On the Change of Control, cause any unexercisable installments of
any stock options of the Company or any subsidiary or affiliate
of the Company held by the Executive on the Executive's last date
of employment with the Company that have not expired to become
exercisable on the Change of Control; provided, however, that:
-------- -------
(i) such acceleration of exercisability shall not occur as to any
option if the Change of Control does not occur within the period
within which the Executive may exercise such option after a
termination of employment in accordance with the provisions of
the relevant option agreement and option plan; and (ii) any such
acceleration of exercisability shall not extend the period after
a termination of employment within which any option may be
exercised by the Executive in accordance with the provisions of
the relevant option agreement and option plan; and
(4) On the Change of Control, cause any unvested portion of any
qualified or non-qualified capital accumulation benefits to
become immediately vested (subject to applicable law);
provided, however, that any amounts and benefits set forth in this Section 2
-------- -------
shall be reduced by any and all other severance or other amounts or benefits
paid or payable to the Executive as a result of the termination of his or her
employment.
3. Termination Following a Change of Control.
-----------------------------------------
(a) Notwithstanding the provisions of Section 1 and 2 above, if, at any
time during a period commencing with a Change of Control and ending eighteen
months after such Change of Control, the Company terminates the Executive's
employment without Cause or the Executive terminates his employment with the
Company for "Good Reason" (provided, however, that any such termination by the
-------- -------
Executive must occur promptly (and in any event within 90 days) after the
occurrence of the event or events constituting "Good Reason"), the Company
shall:
(1) Pay to the Executive, within ten (10) business days following the
Executive's last date of employment, a lump sum amount (net of
any
-2-
required withholding) equal to: (i) twelve (12) months of monthly
base salary (at the highest monthly base salary rate in effect
for such Executive in the twelve (12) month period prior to the
termination of his or her employment), plus (ii) the target bonus
that could have been payable to such Executive (assuming
continued employment) during the year in which the termination of
employment occurs based on bonus arrangements in effect
immediately prior to the termination of his or her employment
(all payments under Sections 1, 2 and this Section 3(a) being
referred to collectively, as the "Severance Payments"); and
(2) Provide the Executive and his or her dependents with life,
accident, health and dental insurance substantially similar to
that which the Executive was receiving immediately prior to the
termination of his or her employment until the earlier of: (i)
the date which is twelve (12) months following the termination of
the Executive's employment; or (ii) the date the Executive
commences subsequent employment; and
(3) Cause any unexercisable installments of any stock options of the
Company or any subsidiary or affiliate of the Company held by the
Executive on the Executive's last date of employment with the
Company that have not expired to become exercisable on such last
date of employment; provided, however, that: (i) such
-------- -------
acceleration of exercisability shall not occur as to any option
if the Change of Control does not occur within the period within
which the Executive may exercise such option after a termination
of employment in accordance with the provisions of the relevant
option agreement and option plan; and (ii) any such acceleration
of exercisability shall not extend the period after a termination
of employment within which any option may be exercised by the
Executive in accordance with the provisions of the relevant
option agreement and option plan; and
(4) Cause any unvested portion of any qualified and non-qualified
capital accumulation benefits to become immediately vested,
subject to applicable law;
provided, however, that any amounts and benefits set forth in this Section 3
-------- -------
shall be reduced by any and all other severance or other amounts or benefits
paid or payable to the Executive as a result of the termination of his or her
employment.
(b) For purposes of Section 3 above, "Good Reason" shall mean the
occurrence of one or more of the following events following a Change of Control,
as the case may be: (i) the assignment to the Executive of any duties
inconsistent in any adverse, material respect with his position, authority,
duties or responsibilities immediately prior to the Change of Control or any
other action by the Company which results in a material diminution in such
position, authority, duties or responsibilities; (ii) a material reduction in
the aggregate of the Executive's base or incentive compensation or the
termination of the Executive's rights to any employee benefits
-3-
immediately prior to the Change of Control, except to the extent any such
benefit is replaced with a comparable benefit, or a reduction in scope or value
thereof; or (iii) a relocation of the Executive's place of business which
results in the one-way commuting distance for the Executive increasing by more
than 25 miles from the location thereof immediately prior to the Change of
Control (provided, however, that travel consistent with past practices for
-------- -------
business purposes shall not be considered "commuting" for purposes of this
clause (iii)) or (iv) a failure by the Company to obtain the agreement
referenced in Section 4(f).
4. General.
-------
(a) In the event the Executive's employment with the Company is terminated
by the Company for "Cause", or the Executive terminates his employment with the
Company other than during the specific time periods set forth in Section 3 or
for any reason other than Good Reason, the Executive shall not be entitled to
the severance benefits or other considerations described herein by virtue of
this Agreement.
(b) For purposes of this Agreement, "Change of Control" shall mean the
closing of: (i) a merger, consolidation, liquidation or reorganization of the
Company into or with another Company or other legal person, after which merger,
consolidation, liquidation or reorganization the capital stock of the Company
outstanding prior to consummation of the transaction is not converted into or
exchanged for or does not represent more than 50% of the aggregate voting power
of the surviving or resulting entity; (ii) the direct or indirect acquisition by
any person (as the term "person" is used in Section 13(d)(3) or l4(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than 50% of the voting
capital stock of the Company, in a single or series of related transactions; or
(iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets (other than a sale, exchange or transfer to one or more
entities where the stockholders of the Company immediately before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the entities to which the assets were
transferred).
(c) For purposes of this Agreement, "Cause" shall mean: (i) the commission
by the Executive of a felony, either in connection with the performance of his
obligations to the Company or which adversely affects the Executive's ability to
perform such obligations; (ii) gross negligence, breach of fiduciary duty or
breach of any confidentiality, non-competition or developments agreement in
favor of the Company; or (iii) the commission by the Executive of an act of
fraud or embezzlement or other acts in intentional disregard of the Company
which result in loss, damage or injury to the Company, whether directly or
indirectly.
(d) Notwithstanding anything to the contrary in this Agreement, if any
portion of any payments received by the Executive from the Company (whether
payable pursuant to the terms of this Agreement or any other plan, agreement or
arrangement with the Company, its successors or any person whose actions result
in a change of control of the Company) shall be subject to tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended or any successor
statutory provision, the Company shall pay to the Executive such additional
amounts as are necessary so that, after taking into account any tax imposed by
Section 4999 (or any successor
-4-
statutory provision), and any federal and state income taxes payable on any such
tax, the Executive is in the same after-tax position that he or she would have
been if such Section 4999 (or any successor statutory provision) did not apply
and no payments were made pursuant to this Section 4(d). The Executive and the
Company shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Payments. All determinations
required to be made under this Section 4(d), including whether a Gross-Up
Payment is required and the amount of such Gross-Up Payment, shall be made by
the Company, after consultation with its tax and accounting advisors.
(e) The parties hereto expressly agree that the payments by the Company to
the Executive in accordance with the terms of this Agreement will be liquidated
damages, and that the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive.
(f) Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the Company and any successor (whether direct
or indirect, by purchase, merger, consolidation, reorganization or otherwise) of
the Company; provided, however, that as a condition of closing any transaction
-------- -------
which results in a Change of Control, the Company shall obtain the written
agreement of any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) of the Company to be bound by the
provisions of this Agreement as if such successor were the Company and for
purposes of this Agreement, any such successor of the Company shall be deemed to
be the "Company" for all purposes.
(g) Nothing in this Agreement shall create any obligation on the part of
the Company or any other person to continue the employment of the Executive. If
the Executive elects to receive the severance and benefits set forth in Sections
1, 2 or 3, the Executive shall not be entitled to any other salary continuation
or severance benefits in the event of his cessation of employment with the
Company.
(h) Nothing herein shall affect the Executive's obligations under any key
employee, non-competition, confidentiality, option or similar agreement between
the Company and the Executive currently in effect or which may be entered into
in the future.
(i) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts. This Agreement constitutes the
entire Agreement between the Executive and the Company concerning the subject
matter hereof and supersedes any prior negotiations, understandings or
agreements concerning the subject matter hereof, whether oral or written, and
may be amended or rescinded only upon the written consent of the Company and the
Executive. The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions of this Agreement and this Agreement shall
be construed and reformed to the fullest extent possible. The Executive may not
assign any of his rights or obligations under this Agreement; the rights and
obligations of the Company under this
-5-
Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of the Company. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
The Company:
-----------
PARAEXEL INTERNATIONAL CORPORATION
By: /s/ Joseph H. Von Rinckenbach
------------------------------
Name:
------------------------------
Title:
------------------------------
The Executive:
-------------
Signature: /s/ James F. Winschel, Jr.
-------------------------
Printed Name: JAMES F. WINSCHEL, JR.
----------------------
-6-
Exhibit A
---------
AGREEMENT/WAIVER
----------------
It is hereby agreed by and between __________________ (the "Executive") and
PAREXEL International Corporation (together with all subsidiaries and affiliates
hereinafter referred to as the "Company"), for good and sufficient consideration
more fully described below, that:
1. Consideration. The Company will provide the Executive with the amounts
-------------
and benefits described in Sections 1, 2 and 3 of the Change of Control/Severance
Agreement entered into by the Company and the Executive, dated
_________________, (the "Agreement"), subject to the terms and conditions of
such Agreement. The Executive understands that payment of and all such amounts
and benefits are conditioned upon the Executive signing this agreement.
2. Settlement of Amounts Due the Executive. The Executive agrees that the
---------------------------------------
amounts set forth above in Section 1, together with any amounts previously
provided to the Executive by the Company, shall be complete and unconditional
payment, settlement, satisfaction and accord with respect to all obligations and
liabilities of the Company and any of its affiliated companies (including their
respective successors, assigns, shareholders, officers, directors, employees
and/or agents) to the Executive, and all claims, causes of action and damages by
the Executive against the Company and/or any such other parties regarding the
Executive's employment with and termination from employment with the Company,
including, without limitation, all claims for back wages, salary, draws,
commissions, bonuses, vacation pay, equity compensation, expenses, compensation,
severance pay, attorney's fees, compensatory damages, exemplary damages, or
other costs or sums.
3. Release.
-------
(a) In exchange for the amounts and benefits described in Section 1 above
and other good and valuable consideration, receipt of which is hereby
acknowledged, the Executive and his representatives, agents, estate, successors
and assigns, absolutely and unconditionally hereby release and forever discharge
the Company, its affiliated companies and/or their successors, assigns,
directors, shareholders, officers, employees and/or agents, both individually
and in their official capacities, (the "Releasees"), from any and all actions or
causes of action, suits, claims, complaints, contracts, liabilities, agreements,
promises, debts and damages, controversies, judgments, rights and demands,
whether existing or contingent, known or unknown, which arise under the
Agreement. This release is intended by the Executive to be all encompassing and
to act as a full and total release of any claims that the Executive may have or
has had against the Releasees under the Agreement, including, but not limited
to, any federal, state or local law or regulation dealing with either employment
or employment discrimination such as those laws or regulations concerning
discrimination on the basis of age, race, color, religion, creed, sex,
sexualorientation, national origin, ancestry, marital status, physical or mental
disability, any veteran status or any military service or application for any
military service; any contract, whether oral or written, express or implied; or
common law.
(b) The Executive agrees not only to release and discharge the Releasees
from any and all claims as stated above that the Executive could make on his/her
own behalf or on behalf of others, but also those claims which might be made by
any other person or organization on behalf of the Executive, and the Executive
specifically waives any right to become, and promises not to become, a member of
any class in a case in which a claim or claims against the Releases are made
involving any matters which arise out of, or in connection with, the Agreement.
Nothing in this agreement is to be construed as an admission by the Releasees of
any liability or unlawful conduct whatsoever.
4. Waiver of Rights and Claims Under the Age Discrimination and Employment
-----------------------------------------------------------------------
Act of 1967.
-----------
(a) The Executive has been informed that since he is 40 years of age or
older, he has or might have specific rights and/or claims under the Age
Discrimination and Employment Act of 1967. In consideration for the amounts
described in Section 1 hereof, the Executive specifically waives such rights
and/or claims to the extent that such rights and/or claims arose prior to the
date this Agreement was executed.
(b) The Executive was advised by the Company of his right to consult with
an attorney prior to executing this Agreement.
(c) The Executive was further advised when he was presented by the Company
with the original draft of this Agreement on _______, 200, that he had at least
21 days within which to consider its terms and to consult with or seek advice
from an attorney or any other person of his/her choosing, until the close of
business on ___________, 200_.
5. Confidentiality. The Executive agrees he shall not divulge or publish,
---------------
directly or indirectly, any information whatsoever regarding the substance,
terms or existence of the Agreement or this agreement and/or any discussions or
negotiations relating to the Agreement or this agreement to any person or
organization, except to his immediate family members, counsel or accountant, and
unless required under law or court order.
6. Representations and Governing Law.
---------------------------------
(a) This agreement represents the complete and sole understanding between
the parties regarding the subject matter hereto. This agreement may not be
modified, altered or rescinded except upon written consent of the Company and
Executive. The invalidity or unenforceability of any provision of this agreement
shall not affect the other provisions of this agreement, but this agreement
shall be revised, construed and reformed to the fullest extent possible to
effectuate the purposes of this agreement. This agreement shall be binding upon
and inure to the benefit of the Company and the Executive and their respective
heirs, successors and assigns. The parties agree that the Company will not have
an adequate remedy if the Executive fails to comply with Sections 3, 4, and 5
hereof and that damages will not be readily ascertainable, and that in the event
of such failure, the Executive shall not oppose any application by the Company
requiring a
A-2
decree of specific performance or an injunction enjoining a breach of this
agreement. If the Executive breaches any of his/her obligations hereunder, he
shall forfeit all right to payments pursuant to Section 1.
(b) This agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof.
(c) The Executive represents that he has read this agreement, fully
understands the terms and conditions of such agreement, and is voluntarily
executing the same. In entering into this agreement, the Executive does not rely
on any representation, promise or inducement made by the Releases, with the
exception of the consideration described in this document.
7. Effective Date. The Executive may revoke this agreement during the
--------------
period of seven (7) days following its execution by the Executive, and this
agreement shall not become effective or enforceable until this revocation period
has expired.
The Company:
-----------
PAREXEL INTERNATIONAL CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
The Executive:
-------------
Signature:
------------------------
Printed Name:
---------------------
Date:
-----------------------------
A-3
EX-21.1
9
dex211.txt
LIST OF SUBSIDIARIES OF THE COMPANY
EXHIBIT 21.1
PAREXEL INTERNATIONAL CORPORATION
LIST OF SUBSIDIARIES OF THE COMPANY
PAREXEL
OWNERSHIP(1)
------------
PAREXEL International Holding Corporation, a Delaware corporation 100%
PAREXEL International, L.P., a Delaware limited partnership 100%
PAREXEL International, LLC, a Delaware limited liability company 100%
PAREXEL International Securities Corporation, a Massachusetts corporation 100%
PAREXEL Government Services, Inc., a Delaware corporation 100%
PAREXEL International Trust, a Massachusetts Business Trust 100%
PAREXEL Unternehmens beteiligung GmbH, a corporation organized under 100%
the laws of Germany
PAREXEL GmbH Independent Pharmaceutical Research Organization, a 100%
Corporation organized under the laws of Germany
PAREXEL International Limited, a corporation organized under the laws of the 100%
United Kingdom
AFB CLINLAB Laborleistungs - Organisationgesellschaft GmbH, a 100%
corporation organized under the laws of Germany
PAREXEL International SARL, a corporation organized under the laws of 100%
France
PAREXEL International SRL, a corporation organized under the laws of Italy 100%
PAREXEL International Pty Ltd., a corporation organized under the laws of 100%
Australia
PAREXEL International S.L., a corporation organized under the laws of Spain 100%
PAREXEL International Medical Marketing Services, Inc., a 100%
Virginia corporation
PAREXEL International (Lansal) Limited, a corporation organized under the 100%
laws of Israel
Perceptive Informatics, Inc., a Delaware corporation 97.5%
PAREXEL S-Cubed Limited, a corporation organized under the laws of the 100%
United Kingdom
PAREXEL ClinNet Limited, a corporation organized under the laws of the 100%
United Kingdom
Pharmon, Ltd., a corporation organized under the laws of Liechtenstein 100%
PAREXEL ETT, S.L., a corporation organized under the laws of Spain 100%
PAREXEL International Inc., a corporation organized under the laws of Japan 100%
PAREXEL International Holding BV, a corporation organized under the law of 100%
The Netherlands
PAREXEL International sp. z.o.o., a corporation organized under the laws of 100%
Poland
PAREXEL MMS Europe Limited, a corporation organized under the laws of 100%
the United Kingdom
PPSI, Inc., a Connecticut corporation 100%
The Center for Bio-Medical Communication, Inc., a New Jersey corporation 100%
PAREXEL International B.V., a corporation organized under the laws of The
Netherlands 100%
Logos GmbH, a corporation organized under the laws of Germany 100%
Placebo B.V., a corporation organized under the laws of The Netherlands 100%
PAREXEL Polska SP z.o.o., a corporation 100%
organized under the laws of Poland
PAREXEL Mirai Magy Arorszag KFt, a corporation organized under 100%
the laws of Hungary
PAREXEL Medstat Baltic A/S, a corporation 100%
organized under the laws of Norway
PAREXEL Norway, a corporation organized under the laws of Norway 100%
PAREXEL Medstat Rusland A/S, a corporation organized under the laws of Norway 100%
Echo Medical B.V., a corporation organized under the laws of The Netherlands 100%
Verum, a European Economic Interest Grouping 33%
formed under the laws of the United Kingdom
PAREXEL Sweden AB, a corporation organized under the laws of Sweden 100%
PAREXEL International, S.A., a corporation organized under the laws of Argentina 100%
PharMedicom S.A., a corporation organized under the laws of France 100%
Droit & Pharmacie S.A., a corporation organized under the laws of France 100%
PAREXEL Pty. Ltd., a corporation organized under the laws of South Africa 100%
CEMAF SA, a corporation organized under the laws of France 100%
FARMOVS PAREXEL Ltd., a corporation organized under the laws of South Africa 60%
Biostat S.A., a corporation organized under the laws of France 100%
PAREXEL Netherlands B.V., a corporation organized under the laws of The Netherlands 100%
(1) Direct and indirect
EX-23.1
10
dex231.txt
CONSENT OF PRICEWATERHOUSECOOPERS LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-80301, 333-16205, 333-37138, 333-40276,
333-47033 and 333-71151) of PAREXEL International Corporation of our report
dated August 14, 2001, relating to the financial statement and financial
statement schedule which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 20, 2001