-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpM4bf+yK1bVClr2HxPw+CSnWLYU2a/xC2amL1AluPAPjncltV67c0QotYp7ukuY oDYntzjXCb1Tw3xhTHl6hA== 0000950135-96-004424.txt : 19961023 0000950135-96-004424.hdr.sgml : 19961023 ACCESSION NUMBER: 0000950135-96-004424 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961022 SROS: NASD 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: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14585 FILM NUMBER: 96646090 BUSINESS ADDRESS: STREET 1: 195 WEST ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6174879900 MAIL ADDRESS: STREET 1: 195 WEST ST CITY: WALTHAM STATE: MA ZIP: 02154 S-1 1 PAREXEL INTERNATIONAL CORPORATION FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PAREXEL INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 8731 04-2776269 (State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Classification Code Number) Identification Number) Organization)
--------------------- 195 WEST STREET WALTHAM, MASSACHUSETTS 02154 (617) 487-9900 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) JOSEF H. VON RICKENBACH PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN PAREXEL INTERNATIONAL CORPORATION 195 WEST STREET WALTHAM, MASSACHUSETTS 02154 (617) 487-9900 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: WILLIAM J. SCHNOOR, JR. DAVID B. WALEK, ESQ. HEATHER M. STONE ROPES & GRAY TESTA, HURWITZ & THIBEAULT, LLP ONE INTERNATIONAL PLACE HIGH STREET TOWER BOSTON, MASSACHUSETTS 02110 125 HIGH STREET (617) 951-7000 BOSTON, MASSACHUSETTS 02110 (617) 248-7000
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
============================================================================================= TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------- Common Stock, $.01 par value... $118,125,000 $36,000 ============================================================================================= (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rules 457(c) and 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 22, 1996 PROSPECTUS 1,275,000 SHARES [LOGO] COMMON STOCK ------------------------ Of the 1,275,000 shares of Common Stock offered hereby 1,066,900 are being sold by PAREXEL International Corporation ("PAREXEL" or the "Company") and 208,100 are being sold by the Selling Stockholders. See "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of the shares by the Selling Stockholders. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "PRXL." The last sale price for the Common Stock on October 21, 1996, as reported on the Nasdaq National Market, was $56.00 per share. See "Price Range of Common Stock and Dividend Policy." SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ======================================================================================================
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDERS - ------------------------------------------------------------------------------------------------------ Per Share..................... $ $ $ $ Total(3)...................... $ $ $ $ ====================================================================================================== (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $500,000. (3) The Company has granted the Underwriters a 30-day option to purchase up to an additional 191,250 shares of Common Stock solely to cover over-allotments, if any. See "Underwriting." If all such shares are purchased, the total Price to Public, Underwriting Discounts and Commissions, and Proceeds to Company will be $ , $ and $ , respectively.
------------------------ The shares of Common Stock are being offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about , at the office of Smith Barney Inc., 333 West 34th Street, New York, NY 10001. ------------------------ SMITH BARNEY INC. WILLIAM BLAIR & COMPANY LEHMAN BROTHERS ADAMS, HARKNESS & HILL, INC. , 1996 3 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form S-1 (including all amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended, with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information contained in the Registration Statement. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any agreement or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each instance reference is made to the copy of such agreement filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. In addition, the Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Commission. The Registration Statement, including the exhibits and schedules thereto, as well as the Company's periodic reports, proxy statements and other information, may be inspected at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part thereof may be obtained upon payment of the prescribed fees from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. PAREXEL is a registered service mark of the Company. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING." 2 4 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including Risk Factors and Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains certain "forward-looking" information, as that term is defined by (i) the Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) releases made by the Securities and Exchange Commission. Such information involves risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY PAREXEL International Corporation ("PAREXEL" or the "Company") is a leading contract research organization ("CRO"), providing clinical research and development services to the worldwide pharmaceutical and biotechnology industries. The Company believes it is the fourth largest CRO, based on estimated annual net revenue, and one of only a few CROs capable of providing a full range of clinical services on a global basis. The Company complements the research and development departments of pharmaceutical and biotechnology companies by offering high quality clinical research services to the client and reducing drug development time and cost. In addition, the Company's integrated services and extensive information technology capabilities, coupled with its broad experience and expertise in global drug development, provide clients with a variable cost alternative to the fixed costs associated with internal drug development. The Company offers a full complement of clinical research and development services, including designing, initiating and monitoring clinical trials, managing and analyzing clinical data and consulting on regulatory affairs. PAREXEL's integrated information systems and worldwide network of offices enable the Company to provide high-quality comprehensive services on a global basis. The Company has provided clinical research and development services in North America since 1985, in Europe since 1989, in Japan since May 1995 and in Australia since December 1995. The Company derived 61.6% and 66.2% of net revenue from its North American operations and 37.3% and 32.5% of net revenue from its European operations in the fiscal year ended June 30, 1996 and the three months ended September 30, 1996, respectively. During fiscal 1996, the Company provided services to each of the 20 largest pharmaceutical companies, as ranked by estimated worldwide 1995 research and development expenditures, and to seven of the ten largest biotechnology companies, as ranked by December 1995 market capitalization. During fiscal 1996, the Company performed services for over 250 clients, including 53 biotechnology companies, involving over 1,000 projects. The CRO industry derives substantially all of its revenue from the pharmaceutical and biotechnology industries. In 1995, the global pharmaceutical and biotechnology industries spent an estimated $33.0 billion on research and development, of which the Company estimates $15.2 billion was spent on the type of services offered by the Company. Of this amount, $2.6 billion was outsourced to CROs. The Company believes that the following trends will cause the CRO industry to continue to grow: (i) many pharmaceutical companies, in response to margin pressures, are seeking to reduce the high fixed costs associated with peak-load staffing for drug development by relying on a combination of internal resources and CROs; (ii) pharmaceutical and biotechnology companies increasingly are attempting to maximize profits from a given drug by pursuing regulatory approvals in multiple countries in parallel, rather than sequentially, by outsourcing to CROs with global capabilities; (iii) as consolidation in the pharmaceutical industry continues, many pharmaceutical companies aggressively manage costs by reducing jobs and outsourcing to variable-cost CROs in an effort to reduce the fixed costs associated with internal drug development; (iv) as regulatory requirements in many jurisdictions have become more complex, the pharmaceutical and biotechnology industries are increasingly outsourcing to certain CROs to take advantage of their data management expertise and global presence; (v) the worldwide research and development expenditures for new drugs, including amounts spent on services of the type provided by CROs, have experienced substantial growth in recent years as a result of pressures to develop new drugs for an aging population and for the treatment of life threatening diseases and chronic disorders; and (vi) the growth of the biotechnology industry has increased the demand for expertise and - -------------------------------------------------------------------------------- 3 5 - ------------------------------------------------------------------------------- services provided by outside sources, including CROs. There can be no assurance, however, that these trends will result in growth in the CRO industry. PAREXEL's objective is to maintain and enhance its position as a leading CRO by providing a full range of clinical services on a global basis. The Company addresses all aspects of clinical research and development with a flexible approach that allows its clients to use the Company's services on an individual or bundled basis. The Company believes its expertise in conducting scientifically demanding trials and its ability to coordinate complicated global trials are significant competitive strengths. PAREXEL continues to devote significant resources to developing information systems designed to allow the Company to more effectively manage its business operations and deliver services to its clients. The Company will continue to invest in improvements in information technology and consider acquisitions of complementary businesses in order to enhance its competitive position and its level of service. RECENT EVENTS In June 1996, the Company acquired Caspard Consultants, a Paris-based CRO, and in August 1996 acquired Lansal Clinical Pharmaceutics Limited, a Tel Aviv-based CRO. These acquisitions augment the Company's existing clinical operations and are in line with management's focused international expansion efforts. In June 1996, the Company acquired Sitebase Clinical Systems, Inc., a provider of remote data entry ("RDE") technology. RDE technology is expected to enhance the quality and timeliness of clinical trial data. In August 1996, the Company also acquired State and Federal Associates, Inc. ("S&FA"), a Washington D.C.-based provider of consulting services to the healthcare and pharmaceutical industries. The acquisition broadens the Company's portfolio of consulting services, specifically in the area of health economics. These acquisitions are each being accounted for as poolings of interest. The aggregate historical financial results of the acquired companies are not material to the Company's financial position and results of operations. Therefore, prior periods have not been restated and results of operations have been included since the date of acquisition. In addition, during fiscal 1996 the Company opened offices in Chicago and Madrid, Spain. THE OFFERING Common Stock Offered by the Company....................... 1,066,900 shares Common Stock Offered by the Selling Stockholders.......... 208,100 shares Common Stock Outstanding Immediately after the Offering... 9,515,868 shares(1) Use of Proceeds........................................... Working capital and general corporate purposes, including possible acquisitions. Nasdaq National Market Symbol............................. PRXL - --------------- (1) Based on shares outstanding as of October 15, 1996. Excludes 776,710 additional shares of Common Stock issuable upon exercise of stock options at a weighted average exercise price per share of $23.74. See "Capitalization" and Note 11 of Notes to Consolidated Financial Statements of the Company.
- -------------------------------------------------------------------------------- 4 6 - -------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30, ----------------------------------------------- ----------------- 1992 1993 1994 1995 1996 1995 1996 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Net revenue........................................... $45,407 $54,000 $58,002 $58,573 $88,006 $17,973 $33,030 ------- ------- ------- ------- ------- ------- ------- Costs and expenses: Direct costs........................................ 29,772 36,106 38,244 42,140 60,141 12,465 22,821 Selling, general and administrative................. 10,164 11,831 13,631 13,294 19,027 3,834 6,617 Depreciation and amortization....................... 2,299 2,511 2,435 2,251 2,343 515 883 Facility and other restructuring charges............ -- 3,254(1) -- -- -- -- -- Impairment of long-lived assets..................... -- -- -- 11,253(2) -- -- -- ------- ------- ------- ------- ------- ------- ------- Total costs and expenses...................... 42,235 53,702 54,310 68,938 81,511 16,814 30,321 ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations......................... 3,172 298 3,692 (10,365) 6,495 1,159 2,709 Other income (expense), net........................... 138 (520) (196) 55 1,157 98 364 ------- ------- ------- ------- ------- ------- ------- Income (loss) before provision for income taxes and cumulative effect of accounting change.............. 3,310 (222) 3,496 (10,310) 7,652 1,257 3,073 ======= ======= ======= ======= ======= ======= ======= Net income (loss)..................................... 1,536 (2,157) 2,423 (10,630) 4,599 742 1,936 ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share........................... $ 0.33 $ (2.97) $ 0.44 $(12.61) $ 0.68 $ 0.14 $ 0.22 ======= ======= ======= ======= ======= ======= ======= PRO FORMA DATA: Income from operations (3)............................ $ 3,172 $ 3,552 $ 3,692 $ 888 $ 6,495 $ 1,159 $ 2,709 SEPTEMBER 30, 1996 --------------------------- ACTUAL AS ADJUSTED(4) -------- -------------- BALANCE SHEET DATA: Working capital.................................................. $ 54,416 $111,010 Total assets..................................................... 107,670 164,264 Long-term debt, less current maturities.......................... 304 304 Stockholders' equity............................................. 66,372 122,966 - --------------- (1) Represents a charge incurred in connection with a restructuring of operations in Germany because of a decline in net revenue from those operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 of Notes to Consolidated Financial Statements of the Company. (2) Represents a non-cash charge primarily due to the write-down of intangible assets of the Company's German operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 of Notes to Consolidated Financial Statements of the Company. (3) Excludes facility and other restructuring charges incurred in fiscal 1993 and the impairment loss from the write-down of long-lived assets incurred in fiscal 1995. (4) Adjusted to give effect to the sale of 1,066,900 shares of Common Stock by the Company in this offering at an assumed public offering price of $56.00 per share, after deducting the estimated underwriting discount and estimated offering expenses. See "Use of Proceeds," "Capitalization" and Note 10 of Notes to Consolidated Financial Statements of the Company.
- -------------------------------------------------------------------------------- 5 7 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing the shares of Common Stock offered hereby. LOSS OR DELAY OF LARGE CONTRACTS Most of the Company's contracts are terminable upon 60 to 90 days' notice by the client. Clients terminate or delay contracts for a variety of reasons, including, among others, the failure of products being tested to satisfy safety requirements, unexpected or undesired clinical results of the product, the client's decision to forego a particular study, insufficient patient enrollment or investigator recruitment or production problems resulting in shortages of the drug. In addition, the Company believes that several factors, including the potential adverse impact of health care reform, have caused pharmaceutical companies to apply more stringent criteria to the decision to proceed with clinical trials and therefore may result in a greater willingness of these companies to cancel contracts with CROs. The loss or delay of a large contract or the loss or delay of multiple contracts could have a material adverse effect on the financial performance of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." VARIABILITY OF QUARTERLY OPERATING RESULTS The Company's quarterly operating results have been subject to variation, and will continue to be subject to variation, depending upon factors such as the initiation and progress of significant projects, exchange rate fluctuations, the mix of services offered, the opening of new offices, the costs associated with integrating acquisitions and the startup costs incurred in connection with the introduction of new products and services. In addition, during the third quarter of fiscal 1993 and 1995, the Company's results of operations were affected by a non-cash restructuring charge and a non-cash write-down due to the impairment of long-lived assets, respectively. See "Risks Associated with Acquisitions." Because a high percentage of the Company's operating costs are relatively fixed, variations in the initiation, completion, delay or loss of contracts, or in the progress of clinical trials can cause material adverse variations in quarterly operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results." DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS The Company's revenues are highly dependent on research and development expenditures by the pharmaceutical and biotechnology industries. The Company's operations could be materially and adversely affected by general economic downturns in its clients' industries, the impact of the current trend toward consolidation in these industries or any decrease in research and development expenditures. Furthermore, the Company has benefited to date from the increasing tendency of pharmaceutical and biotechnology companies to outsource large clinical research projects. A reversal or slowing of this trend would have a material adverse effect on the Company. The Company believes that concentrations of business in the CRO industry are not uncommon. The Company has experienced such concentration in the past and may experience such concentration in future years. No client accounted for 10% or more of consolidated net revenue in fiscal 1994, 1995 or 1996. In fiscal 1994, 1995 and 1996, the Company's top five clients accounted for 29.8%, 25.2% and 32.0%, respectively, of the Company's consolidated net revenue. The loss of business from a significant client could have a material adverse effect on the Company. See "Business -- Industry Overview" and "-- Clients and Marketing." DEPENDENCE ON GOVERNMENT REGULATION The Company's business depends on the comprehensive government regulation of the drug development process. In the United States, the general trend has been in the direction of continued or increased regulation, although the FDA recently announced regulatory changes intended to streamline the approval process for biotechnology products by applying the same standards as are in effect for conventional drugs. In Europe, the general trend has been toward coordination of common standards for clinical testing of new drugs, leading to changes in the various requirements currently imposed by each country. Changes in regulation, including a 6 8 relaxation in regulatory requirements or the introduction of simplified drug approval procedures, as well as anticipated regulation, could materially and adversely affect the demand for the services offered by the Company. In addition, failure on the part of the Company to comply with applicable regulations could result in the termination of ongoing research or the disqualification of data, either of which could have a material adverse effect on the Company. See "Business -- Industry Overview" and "-- Government Regulation." POTENTIAL ADVERSE IMPACT OF HEALTH CARE REFORM Numerous governments have periodically undertaken efforts to control growing health care costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. In the last several years, several comprehensive health care reform proposals were introduced in the U.S. Congress. The intent of the proposals was, generally, to expand health care coverage for the uninsured and reduce the growth of total health care expenditures. While none of the proposals was adopted, health care reform may again be addressed by the U.S. Congress. Implementation of government health care reform may adversely affect research and development expenditures by pharmaceutical and biotechnology companies, resulting in a decrease of the business opportunities available to the Company. Management is unable to predict the likelihood of health care reform proposals being enacted into law or the effect such law would have on the Company. See "Business -- Industry Overview." Many European governments have also reviewed or undertaken health care reform. For example, German health care reform legislation (the "Seehofer Gesetz"), which was implemented on January 1, 1993, contributed to an estimated 15% decline in German pharmaceutical industry sales in calendar 1993 and led several clients to cancel contracts with the Company. Subsequent to these events, in the third quarter of fiscal 1993, the Company restructured its German operations and incurred a restructuring charge of approximately $3.3 million. In addition, in the third quarter of fiscal 1995, the Company's results of operations were affected by a non-cash write-down due to the impairment of long-lived assets of PAREXEL GmbH, the Company's German subsidiary, of approximately $11.3 million. The Company cannot predict the impact that any pending or future health care reform proposals may have on the Company's business in Europe. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION; CRO INDUSTRY CONSOLIDATION The Company primarily competes against in-house departments of pharmaceutical companies, full service CROs and, to a lesser extent, universities and teaching hospitals. Some of these competitors have substantially greater capital, technical and other resources than the Company. CROs generally compete on the basis of previous experience, medical and scientific expertise in specific therapeutic areas, the quality of contract research, the ability to organize and manage large-scale trials on a global basis, the ability to manage large and complex medical databases, the ability to provide statistical and regulatory services, the ability to recruit investigators, the ability to integrate information technology with systems to improve the efficiency of contract research, an international presence with strategically located facilities, financial viability and price. There can be no assurance that the Company will be able to compete favorably in these areas. See "Business -- Competition." The CRO industry is highly fragmented, with participants ranging from several hundred small, limited-service providers to several large, full-service CROs with global operations. The trend toward CRO industry consolidation has resulted in heightened competition among the larger CROs for clients and acquisition candidates. In addition, consolidation within the pharmaceutical industry as well as a trend by pharmaceutical companies of outsourcing among fewer CROs has led to heightened competition for CRO contracts. MANAGEMENT OF BUSINESS EXPANSION; NEED FOR IMPROVED SYSTEMS; ASSIMILATION OF FOREIGN OPERATIONS The Company's business and operations have experienced substantial expansion over the past 10 years. The Company believes that such expansion places a strain on operational, human and financial resources. In order to manage such expansion, the Company must continue to improve its operating, administrative and information systems, accurately predict its future personnel and resource needs to meet client contract commitments, track the progress of ongoing client projects and attract and retain qualified management, professional, scientific and technical operating personnel. Expansion of foreign operations also may involve the additional risks of assimilating differences in foreign business practices, hiring and retaining qualified 7 9 personnel, and overcoming language barriers. In the event that the operation of an acquired business does not live up to expectations, the Company may be required to restructure the acquired business or write-off the value of some or all of the assets of the acquired business. In fiscal 1993 and 1995, the Company's results of operations were materially and adversely affected by write-offs associated with the Company's acquired German operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Global Operations." Failure by the Company to meet the demands of and to manage expansion of its business and operations could have a material adverse effect on the Company's business. RISKS ASSOCIATED WITH ACQUISITIONS The Company has made a number of acquisitions, including four since June 1, 1996, and will continue to review future acquisition opportunities. No assurances can be given that acquisition candidates will continue to be available on terms and conditions acceptable to the Company. Acquisitions involve numerous risks, including, among other things, difficulties and expenses incurred in connection with the acquisitions and the subsequent assimilation of the operations and services or products of the acquired companies, the difficulty of operating new (albeit related) businesses, the diversion of management's attention from other business concerns and the potential loss of key employees of the acquired company. Acquisitions of foreign companies also may involve the additional risks of assimilating differences in foreign business practices and overcoming language barriers. In the event that the operations of an acquired business do not live up to expectations, the Company may be required to restructure the acquired business or write-off the value of some or all of the assets of the acquired business. In fiscal 1993 and 1995, the Company's results of operations were materially and adversely affected by write-offs associated with the Company's acquired German operations. There can be no assurance that any acquisition will be successfully integrated into the Company's operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON PERSONNEL The Company relies on a number of key executives, including Josef H. von Rickenbach, its President, Chief Executive Officer and Chairman, upon whom the Company maintains key man life insurance. Although the Company has entered into agreements containing non-competition restrictions with its senior officers, the Company does not have employment agreements with most of these persons and the loss of the services of any of the Company's key executives could have a material adverse effect on the Company. The Company's performance also depends on its ability to attract and retain qualified professional, scientific and technical operating staff. The level of competition among employers for skilled personnel, particularly those with M.D., Ph.D. or equivalent degrees, is high. There can be no assurance the Company will be able to continue to attract and retain qualified staff. In addition, the cost of recruiting skilled personnel has increased and there can be no assurance that such costs will not continue to rise. See "Business -- Employees." POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE Clinical research services involve the testing of new drugs on human volunteers pursuant to a study protocol. Such testing involves a risk of liability for personal injury or death to patients due to, among other reasons, possible unforeseen adverse side effects or improper administration of the new drug. Many of these patients are already seriously ill and are at risk of further illness or death. The Company could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnity or insurance coverage, or if the indemnity, although applicable, is not performed in accordance with its terms or if the Company's liability exceeds the amount of applicable insurance. In addition, there can be no assurance that such insurance will continue to be available on terms acceptable to the Company. See "Business -- Potential Liability and Insurance." ADVERSE EFFECT OF EXCHANGE RATE FLUCTUATIONS Approximately 36.0%, 40.2%, 38.4% and 33.8% of the Company's net revenue for fiscal 1994, 1995 and 1996 and the three months ended September 30, 1996, respectively, were derived from the Company's operations outside of North America. Since the revenue and expenses of the Company's foreign operations are generally denominated in local currencies, exchange rate fluctuations between local currencies and the United States dollar will subject the Company to currency translation risk with respect to the results of its foreign operations. To the extent the Company is unable to shift to its clients the effects of currency fluctuations, these 8 10 fluctuations could have a material adverse effect on the Company's results of operations. The Company does not currently hedge against the risk of exchange rate fluctuations. VOLATILITY OF STOCK PRICE The market price of the Company's Common Stock is subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, market conditions in the industry, prospects of health care reform, changes in government regulation and general economic conditions. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have been unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. Because the Company's Common Stock currently trades at a relatively high price-earnings multiple, due in part to analysts' expectations of continued earnings growth, even a relatively small shortfall in earnings from, or a change in, analysts' expectations may cause an immediate and substantial decline in the Company's stock price. Investors in the Company's Common Stock must be willing to bear the risk of such fluctuations in earnings and stock price. ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK The Company's Restated Articles of Organization and Restated By-Laws contain provisions that may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. In addition, shares of the Company's Preferred Stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of any holders of Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could adversely affect the market price of the Common Stock and could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. See "Description of Capital Stock." 9 11 THE COMPANY The Company was incorporated in The Commonwealth of Massachusetts in 1983. Unless the context otherwise requires, the terms "PAREXEL" and "the Company" refer to PAREXEL International Corporation and its subsidiaries. The Company's principal executive offices are located at 195 West Street, Waltham, Massachusetts 02154, and its telephone number is (617) 487-9900. USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,066,900 shares of Common Stock offered by the Company hereby are estimated to be $56.6 million ($66.8 million if the Underwriters' over-allotment option is exercised in full) at an assumed public offering price of $56.00 per share and after deducting the estimated underwriting discounts and estimated offering expenses. The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. To further the Company's strategy of providing a full range of drug development services on a global basis, the Company intends to use the net proceeds of this offering approximately as follows: $35.0 million to $45.0 million to expand services or enhance therapeutic expertise through internal growth and acquisitions and geographic expansion, $10.0 million to $15.0 million for capital expenditures, primarily for information technology, expansion of existing facilities or the opening or acquisition of new facilities, and the remainder for working capital and other general corporate purposes. The Company may vary the use of proceeds among the categories listed above because the Company's ability to use the proceeds in the approximate amounts listed is dependent on a number of factors including its ability to locate and retain qualified staff in the areas of its planned geographic and specialty expansion, its ability to locate and acquire attractive acquisition candidates, and the patterns of market demand for its services. Pending such uses, the Company intends to invest the net proceeds from this offering in investment grade, interest-bearing securities. As part of its business strategy, the Company regularly reviews acquisition candidates in the ordinary course of business and, in addition to acquisitions already made, the Company continually is evaluating new acquisition opportunities. No binding agreements or firm commitments currently exist to make any acquisition, and no portion of the net proceeds has been allocated for any specific acquisition. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "PRXL." Public trading of the Common Stock commenced on November 22, 1995. Prior to that time, there was no public market for the Company's Common Stock. The following table sets forth the high and low sale prices for the Common Stock as reported by Nasdaq for the periods indicated:
HIGH LOW ---- --- FISCAL YEAR ENDED JUNE 30, 1996: Second quarter (from November 22, 1995).................... $36 $18 3/4 Third quarter.............................................. 44 1/2 26 Fourth quarter............................................. 55 3/4 37 1/2 FISCAL YEAR ENDED JUNE 30, 1997: First quarter.............................................. $63 $31 Second quarter (through October 21, 1996).................. 63 3/4 55 3/4
On October 21, 1996, the last reported sale price of the Common Stock on the Nasdaq National Market, was $56.00 per share. As of October 15, 1996, there were approximately 64 stockholders of record of the Common Stock. The Company believes that most of its stock (other than shares held by its officers and directors) is held in street names through one or more nominees. In November 1995, in connection with its initial public offering, the Company paid a cash dividend of approximately $940,000 on certain series of its Preferred Stock, which were subsequently converted into Common Stock. The Company has never paid or declared any dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future earnings to fund the development and growth of its business. 10 12 CAPITALIZATION The following table sets forth the actual and as adjusted capitalization of the Company as of September 30, 1996. The as adjusted column sets forth the actual capitalization as of September 30, 1996, as adjusted to give effect to the sale of 1,066,900 shares of Common Stock by the Company pursuant to this offering at an assumed initial public offering price of $56.00 per share and the application of the net proceeds therefrom. See "Use of Proceeds" and "Description of Capital Stock." This table should be read in conjuction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1996 ------------------------ ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term debt, excluding current maturities.................. $ 304 $ 304 ------- -------- Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares outstanding actual or as adjusted.............. -- -- Common stock, $.01 par value, 25,000,000 shares authorized, 8,448,968 shares outstanding actual, 9,515,868 shares outstanding as adjusted(1)............................... 84 95 Additional paid-in capital.................................. 68,510 125,093 Accumulated deficit......................................... (2,209) (2,209) Cumulative translation adjustment........................... (13) (13) ------ -------- Total stockholders' equity.......................... 66,372 122,966 ------- -------- Total capitalization................................ $66,676 $123,270 ======= ======== - --------------- (1) Outstanding shares excludes 776,710 shares of Common Stock issuable as of September 30, 1996 upon exercise of stock options at a weighted average exercise price per share of $23.74. See "Management -- Options" and Note 11 of Notes to Consolidated Financial Statements of the Company. On September 19, 1996, the Board of Directors of the Company voted, subject to the approval of the Stockholders of the Company at the 1996 Annual Meeting of Stockholders to be held November 14, 1996, to increase the authorized Common Stock to 50,000,000 shares.
11 13 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below at and for each of the years in the five-year period ended June 30, 1996 are derived from financial statements that have been audited by Price Waterhouse LLP, independent accountants. The audited balance sheet at June 30, 1995 and 1996 and the related statements of operations, of stockholders' equity, and of cash flows for each of the three years in the period ended June 30, 1996 and related notes thereto appear elsewhere in this Prospectus. The balance sheet data at September 30, 1995 and 1996 and the statement of operations data for the three months ended September 30, 1995 and 1996 are derived from unaudited financial statements. The unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the three months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 1997. The data set forth below should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and related notes included elsewhere in this Prospectus.
THREE MONTHS ENDED FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30, --------------------------------------------------- ------------------- 1992 1993 1994 1995 1996 1995 1996 ------- -------- -------- -------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenue.............................................. $53,292 $ 65,294 $ 69,646 $ 79,928 $121,869 $24,369 $ 43,152 Reimbursed costs..................................... (7,885) (11,294) (11,644) (21,355) (33,863) (6,396) (10,122) ------- -------- -------- -------- -------- ------- -------- Net revenue.......................................... 45,407 54,000 58,002 58,573 88,006 17,973 33,030 ------- -------- -------- -------- -------- ------- -------- Costs and expenses: Direct costs....................................... 29,772 36,106 38,244 42,140 60,141 12,465 22,821 Selling, general and administrative................ 10,164 11,831 13,631 13,294 19,027 3,834 6,617 Depreciation and amortization...................... 2,299 2,511 2,435 2,251 2,343 515 883 Facility and other restructuring charges........... -- 3,254(1) -- -- -- -- -- Impairment of long-lived assets.................... -- -- -- 11,253(2) -- -- -- ------- -------- -------- -------- -------- ------- -------- Total costs and expenses..................... 42,235 53,702 54,310 68,938 81,511 16,814 30,321 ------- -------- -------- -------- -------- ------- -------- Income (loss) from operations........................ 3,172 298 3,692 (10,365) 6,495 1,159 2,709 Other income (expense), net.......................... 138 (520) (196) 55 1,157 98 364 ------- -------- -------- -------- -------- ------- -------- Income (loss) before provision for income taxes and cumulative effect of accounting change............. 3,310 (222) 3,496 (10,310) 7,652 1,257 3,073 Provision for income taxes........................... 1,774 1,935 1,573 320 3,053 515 1,137 ------- -------- -------- -------- -------- ------- -------- Net income (loss) before cumulative effect of accounting change.................................. 1,536 (2,157) 1,923 (10,630) 4,599 742 1,936 Cumulative effect of change in method of accounting for income taxes................................... -- -- 500 -- -- -- -- ------- -------- -------- -------- -------- ------- -------- Net income (loss).................................... $ 1,536 $ (2,157) $ 2,423 $(10,630) $ 4,599 $ 742 $ 1,936 ======= ======== ======== ======== ======== ======= ======== Net income (loss) per share.......................... $ 0.33 $ (2.97) $ 0.44 $ (12.61) $ 0.68 $ 0.14 $ 0.22 ======= ======== ======== ======== ======== ======= ======== Weighted average common shares outstanding........................................ 5,236 727(3) 5,747 843(3) 6,780 5,734 8,628 ======= ======== ======== ======== ======== ======= ======== BALANCE SHEET DATA (AT PERIOD END): Working capital...................................... $ 5,884 $ 7,161 $ 10,885 $ 11,574 $ 53,428 $12,144 $ 54,416 Total assets......................................... 44,390 45,457 45,936 43,250 102,401 45,961 107,670 Long-term debt, less current maturities.............. 790 222 391 633 360 719 304 Stockholders' equity................................. 21,807 21,847 25,236 15,524 61,212 16,119 66,372 - --------------- (1) Represents a charge incurred in connection with a restructuring of operations in Germany because of a decline in revenues from those operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 of Notes to Consolidated Financial Statements of the Company. (2) Represents a non-cash charge primarily due to the write-down of intangible assets of the Company's German operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 of Notes to Consolidated Financial Statements of the Company. (3) For the years ended June 30, 1993 and 1995, weighted average common shares outstanding exclude common share equivalents (primarily convertible preferred stock), the inclusion of which would have been anti-dilutive. See Note 2 of Notes to Consolidated Financial Statements of the Company.
12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company provides a full spectrum of clinical research and development services on a contract basis to the pharmaceutical and biotechnology industries. These services are provided to clients on a global basis and include: (i) designing, initiating and monitoring clinical trials; (ii) managing and analyzing clinical data; and (iii) industry consulting services including regulatory affairs, medical writing, performance improvement, training and health economics. The Company, founded in 1983 as a regulatory consulting firm, has built its business both through internal expansion and acquisitions. In 1988, the Company acquired Consulting Statisticians, Inc., a biostatistics and data management provider specializing in the healthcare industry. In 1989, the Company initiated its international expansion by acquiring the London-based McDonnell Douglas Clinical Trials Analysis Division, a division of McDonnell Douglas Informations Systems Ltd., which provided biostatistics and data management services in Europe. In 1990, PAREXEL acquired Barnett Associates, Inc. to expand the Company's Information Products Division, which offers a range of specialized clinical consulting and training services and related products. In 1991, the Company acquired AFB Arzneimittelforschung GmbH in Berlin, a European CRO based in Berlin with offices in Frankfurt and Paris. The Company is headquartered in Waltham, Massachusetts, and opened offices in San Diego in 1990; Raleigh-Durham in 1994; Milan, Italy; Kobe, Japan; and Sydney, Australia in 1995; and Madrid, Spain; and Chicago in 1996. In June 1996, the Company acquired Caspard Consultants, a Paris-based CRO, and in August 1996 acquired Lansal Clinical Pharmaceutics Limited, a CRO based in Israel. These acquisitions augment the Company's existing clinical operations and are in line with management's focused international expansion efforts. In June 1996, the Company acquired Sitebase Clinical Systems, Inc., a provider of remote data entry ("RDE") technology. This acquisition positions the Company as a provider of RDE technology which is expected to enhance the quality and timeliness of clinical trial data. In August 1996, the Company also acquired State and Federal Associates, Inc. (S&FA), a Washington D.C.-based provider of consulting services to the healthcare and pharmaceutical industries. The acquisition broadens the Company's portfolio of consulting services, specifically in the area of health economics. These acquisitions are each being accounted for as poolings of interest. The aggregate historical financial results of the acquired companies are not material to the Company's financial position and results of operations. Therefore, prior periods have not been restated and results of operations have been included since the date of acquisition. See Note 4 of Notes to Consolidated Financial Statements of the Company. The Company's clinical research and development services contracts are generally fixed price, with some variable components, and range in duration from a few months to several years. A portion of the fee is typically required to be paid at the time the contract is entered into and the balance in installments over the contract's duration, in some cases on a milestone achievement basis. Revenue from the contracts is generally recognized on a percentage of completion basis as work is performed. Most of the Company's contracts are terminable upon 60 to 90 days' notice by the client. Clients terminate or delay contracts for a variety of reasons, including, among others, the failure of products being tested to satisfy safety requirements, unexpected or undesired clinical results of the product, the client's decision to forego a particular study, insufficient patient enrollment or investigator recruitment or production problems resulting in shortages of the drug. Although the Company typically is entitled to receive certain fees for winding down a study which is terminated or delayed and, in some cases, a termination fee, the loss or delay of a large contract or the loss or delay of multiple contracts could have a material adverse effect on the Company. The Company believes that several factors, including the potential adverse impact of health care reform, have caused pharmaceutical companies to apply more stringent criteria to the decision to proceed with clinical trials and therefore may have resulted in a greater willingness of these companies to cancel contracts with CROs. As is customary in the industry, the Company routinely subcontracts with third party investigators in connection with clinical trials and with other third party service providers for laboratory analysis and other specialized services. These and other reimbursable costs are paid by the Company and reimbursed by clients and, in accordance with industry practice, are included in 13 15 revenue. Reimbursed costs vary from contract to contract. Accordingly, the Company views net revenue, which consists of revenue less reimbursed costs, as its primary measure of revenue growth. Direct costs consist of compensation and related fringe benefits for project-related employees, recruiting-related expenses for project-related employees, other project-related costs not reimbursed and allocated facilities and information systems costs. Selling, general and administrative expenses consist of compensation and related fringe benefits for selling and administrative employees, professional services and advertising costs, as well as allocated costs related to facilities and information systems. A key component of the Company's strategy is its investment in technology, both client-oriented and internal management-oriented. These systems provide increased standardization of operating processes and contract management throughout the Company's worldwide operations. Integral to the system are: (i) periodic monitoring and reviewing of contract progress; (ii) increased visibility and periodic reviewing of hourly billing by employees and utilization of project resources resulting in more efficient resource deployment; (iii) integrated revenue recognition and billing subsystems; (iv) proposal and budget generation; (v) management of clinical data; and (vi) forecasting of project revenues and resource requirements. GLOBAL OPERATIONS The following table sets forth, for the periods indicated, net revenue by geographic region as well as the percentage of total net revenue represented by such region.
FOR THE YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------- ---------------------------------------- 1994 % OF TOTAL 1995 % OF TOTAL 1996 % OF TOTAL 1995 % OF TOTAL 1996 % OF TOTAL ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- (DOLLARS IN THOUSANDS) Net revenue: North America.......... $37,111 64.0% $35,037 59.8% $54,179 61.6% $11,003 61.2% $21,864 66.2% Europe................. 20,891 36.0 23,443 40.0 32,834 37.3 6,833 38.0 10,719 32.5 Asia-Pacific........... -- -- 93 0.2 993 1.1 137 0.8 447 1.3 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total............ $58,002 100.0% $58,573 100.0% $88,006 100.0% $17,973 100.0% $33,030 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
The Company's foreign subsidiaries generally enter into contracts denominated in the local currency of the foreign subsidiary. Because the foreign subsidiary's expenses are generally paid in the local currency, such foreign subsidiaries' local currency earnings are not materially affected by fluctuations in exchange rates. However, changes in the exchange rates between these local 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. 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 client the effect of fluctuations in the relative values of the contract currency and the currency in which the expenses are incurred. To the extent the Company is unable to shift to its clients the effects of currency fluctuations, these fluctuations could have a material effect on the Company's results of operations. The Company does not currently hedge against the risk of exchange rate fluctuations. As the Company conducts operations on a global basis, the Company's effective tax rate has depended and will depend on the geographic distribution of its revenue among locations with varying tax rates. The Company's results of operations will be affected by changes in the tax rates of the various jurisdictions. In particular, as the geographic mix of the Company's results of operations among various tax jurisdictions changes the Company's effective tax rate may vary significantly from period to period. Impact of German Operations The Company's operations from fiscal 1993 through fiscal 1995 were adversely affected by its German operations. In the wake of uncertainty caused by German health care reform in 1993, the Company's German operations experienced a sudden decline in demand for services and an associated decline in net revenue. In response to this revenue decline, the Company consolidated certain facilities and reduced personnel costs in Germany and, as a result, incurred a $3.3 million restructuring charge in the quarter ending March 31, 1993, 14 16 consisting of $2.4 million, $600,000 and $300,000 for facilities, wages and severance and other operating costs, respectively. As a result of the restructuring, the Company reduced annual facility, personnel and other operating costs by an estimated $1.0 million, $1.0 million and $150,000 respectively. While the fiscal 1993 restructuring temporarily improved operating margins in fiscal 1994, changes in drug development regulations in Germany and Europe significantly impacted revenues in fiscal 1995. As a result of this development, and in light of past history of poor operating performance, the Company reassessed the recoverability of long-lived assets acquired in the 1991 acquisition of PAREXEL GmbH. As a result of this reassessment, the Company recorded an $11.3 million non-cash charge reflecting the excess of book value of PAREXEL GmbH over the fair value. Of the $11.3 million charge, $9.9 million consisted of goodwill and other intangible assets. See Note 3 of Notes to Consolidated Financial Statements of the Company. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain financial data as a percentage of net revenue and the percentage change in these items compared to the prior comparable period. The trends illustrated in the following table may not be indicative of future results.
PERCENTAGE INCREASE PERCENTAGE OF NET REVENUE (DECREASE) ----------------------------------------------- ------------------------------ THREE MONTHS FISCAL YEAR ENDED FISCAL FISCAL THREE ENDED JUNE 30, SEPTEMBER 30, 1994 1995 MONTHS --------------------------- ---------------- TO TO 1995 TO 1994 1995 1996 1995 1996 1995 1996 1996 ------- ------ ------ ------ ------ ------ ------ ------ Net revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 1.0% 50.3% 83.8% Costs and expenses: Direct costs................... 65.9 71.9 68.3 69.4 69.1 10.2 42.7 83.1 Selling, general and administrative............... 23.5 22.7 21.6 21.3 20.0 (2.5) 43.1 72.6 Depreciation and amortization................. 4.2 3.9 2.7 2.9 2.7 (7.6) 4.1 71.5 Impairment of long-lived assets....................... -- 19.2 -- -- -- * * -- ----- ----- ----- ----- ----- ---- ---- ----- Income (loss) from operations..................... 6.4% (17.7)% 7.4% 6.4% 8.2% * * 133.7% ===== ===== ===== ===== ===== ==== ==== ===== - --------------- * not meaningful
Three Months Ended September 30, 1996 Compared to Three Months Ended September 30, 1995 Net revenue increased by $15.1 million, or 83.8%, from $18.0 million for the three months ended September 30, 1995 to $33.0 million for the three months ended September 30, 1996. This net revenue growth was primarily attributable to an increase in the volume of clinical research projects serviced by the Company, particularly in the areas of data management and biostatistical analysis and, to a lesser extent, clinical monitoring services. Direct costs increased by $10.4 million, or 83.1%, from $12.5 million for the three months ended September 30, 1995 to $22.8 million for the three months ended September 30, 1996. This increase in direct costs was due to the increase in the number of project-related personnel, hiring, facilities and information system costs necessary to support the increased level of operations. Direct costs as a percentage of net revenue decreased slightly from 69.4% for the three months ended September 30, 1995 to 69.1% for the three months ended September 30, 1996. Selling, general and administrative expenses increased by $2.8 million, or 72.6%, from $3.8 million for the three months ended September 30, 1995 to $6.6 million for the three months ended September 30, 1996. This increase was primarily due to increased administrative personnel, hiring and facilities costs, in line with management's objective of increasing infrastructure to accommodate the Company's growth. Selling, general and administrative expenses as a percentage of net revenue decreased from 21.3% for the three months ended 15 17 September 30, 1995 to 20.0% for the three months ended September 30, 1996 primarily due to leveraging of infrastructure over an expanding revenue base. Depreciation and amortization expense increased by $368,000, or 71.5%, from $515,000 for the three months ended September 30, 1995 to $883,000 for the three months ended September 30, 1996. The increase is primarily due to increased capital spending on computer equipment to support the increase in project related personnel. Income from operations for the three months ended September 30, 1996 increased by $1.6 million, or 133.7%, from $1.2 million for the three months ended September 30, 1995 to $2.7 million for the three months ended September 30, 1996. Interest income increased by $343,000 from $90,000 for the three months ended September 30, 1995 to $433,000 for the three months ended September 30, 1996. This increase resulted from higher average balances of cash, cash equivalents and marketable securities due primarily to proceeds from the Company's public offerings in fiscal 1996. The Company's effective income tax rate was 37.0% for the three months ended September 30, 1996, compared to 41.0% for the three months ended September 30, 1995. The effective income tax rate varies with changes in the mix of taxable income from the different jurisdictions in which the Company operates. Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995 Net revenue increased by $29.4 million, or 50.3%, from $58.6 million for fiscal 1995 to $88.0 million for fiscal 1996. This net revenue growth was primarily attributable to an increase in the number and average contract value of clinical research projects serviced by the Company, many of which have a multi-national scope. Direct costs increased by $18.0 million, or 42.7%, from $42.1 million for fiscal 1995 to $60.1 million for fiscal 1996. This increase in direct costs was due to the increase in the number of project-related personnel, facilities, and information system costs necessary to support the increased level of operations. Direct costs as a percentage of net revenue decreased from 71.9% for fiscal 1995 to 68.3% for fiscal 1996, primarily due to improved workforce and facility utilization. Selling, general and administrative expenses increased by $5.7 million, or 43.1%, from $13.3 million for fiscal 1995 to $19.0 million for fiscal 1996. This increase was primarily due to increased costs associated with additional administrative personnel, greater hiring and selling costs, and additional facilities to support the Company's growth and operation as a publicly held company. Selling, general and administrative expenses as a percentage of net revenue decreased from 22.7% for fiscal 1995 to 21.6% for fiscal 1996, primarily due to the leveraging of infrastructure over an expanded revenue base. Depreciation and amortization expense increased $92,000, or 4.1%, from $2.2 million for fiscal 1995 to $2.3 million for fiscal 1996. The change resulted from an increase in depreciation associated with increased capital expenditures, offset by a decrease in depreciation and amortization due to the write-down of impaired long-lived assets of the Company's German operations. Depreciation and amortization expense in fiscal 1995 includes approximately $588,000 related to long-lived assets which were written-down and did not recur in fiscal 1996. Income from operations for fiscal 1996 was $6.5 million, compared to a loss from operations of $10.4 million for fiscal 1995. Results for fiscal 1995 included an $11.3 million non-cash charge related to the write-down of impaired long-lived assets of the Company's German operations. Income from operations for fiscal 1995, excluding the impact of the asset impairment charge, was approximately $303,000. Interest income increased by $1.1 million from $213,000 for fiscal 1995 to $1.3 million for fiscal 1996. This increase resulted from higher average balances of cash and investments due primarily to proceeds from the Company's public offerings in November 1995 and March 1996. 16 18 The Company's effective income tax rate was 39.9% for fiscal 1996. The effective tax rate in fiscal 1995, excluding the effect of the $11.3 million non-cash, non-deductible write-down due to the impairment of long-lived assets, would have been 89.4%. The effective income tax rate may vary with changes in the mix of taxable income from the different geographic jurisdictions in which the Company operates. Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994 Net revenue increased by $571,000, or 1.0%, from $58.0 million for fiscal 1994 to $58.6 million for fiscal 1995. This increase was due to an increase of $2.6 million in net revenue from European operations, offset by a decrease of $2.1 million in net revenue from North American operations. The increase in European net revenue was primarily due to the weakening of the dollar and, to a lesser extent, to an increase in clinical research contract volume in all areas in Europe other than Germany, which experienced a decline in net revenue. The decline in net revenue from North America was primarily due to a decline in net revenue from the Company's data management operation, which substantially completed work on a number of large contracts during fiscal 1994 that were not replaced in fiscal 1995. Direct costs increased by $3.9 million, or 10.2%, from $38.2 million for fiscal 1994 to $42.1 million for fiscal 1995. Substantially all of the increase in direct costs was due to increased expenses associated with European operations. The increase in direct costs in Europe was primarily due to the hiring of additional project-related personnel and expansion of facilities in the United Kingdom and France. The weakening of the dollar also contributed to the increase of direct costs in Europe. Direct costs as a percentage of net revenue increased from 65.9% in fiscal 1994 to 71.9% in fiscal 1995. This increase was primarily due to the increased costs incurred in Europe, where direct costs increased as a percentage of net revenue from 65.5% in fiscal 1994 to 75.4% in fiscal 1995 and to a decline in net revenue in North America, where direct costs remained flat against lower net revenue, resulting in an increase in direct costs as a percentage of net revenue from 66.2% in fiscal 1994 to 69.8% in fiscal 1995. Selling, general and administrative expenses decreased by $337,000, or 2.5%, from $13.6 million in fiscal 1994 to $13.3 million in fiscal 1995. The decrease in selling, general and administrative expenses was primarily due to savings in Europe as a result of a more effective deployment of employee and facility resources in the United Kingdom and Germany, partially offset by the weakness of the dollar. Due to these factors, selling, general and administrative expenses as a percentage of net revenue decreased from 23.5% for fiscal 1994 to 22.7% in fiscal 1995. Depreciation and amortization expenses decreased by $184,000, or 7.6%, from $2.4 million in fiscal 1994 to $2.3 million in fiscal 1995. This decrease was primarily due to a reduction in depreciation and amortization expense from fully amortized intangible assets and the write-down of impaired long-lived assets, offset in part by the weakness of the dollar. Fiscal 1995 includes only six months of depreciation and amortization, or approximately $588,000, resulting from the 1991 acquisition of PAREXEL GmbH, due to the impairment charge in the third quarter. Other income (expense), net changed from an expense of $375,000 in fiscal 1994 to income of $14,000 in fiscal 1995. The change was primarily due to the incurrence in fiscal 1994 of approximately $450,000 related to the Company's postponed fiscal 1994 initial public offering. The effective tax rate in fiscal 1995, excluding the effect of the $11.3 million non-cash, non-deductible write-down due to the impairment of long-lived assets, would have been 89.4%, compared to an effective rate of 45.0% in fiscal 1994. In fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the cumulative effect of which increased net income by $500,000 in fiscal 1994. Quarterly Results The Company's quarterly operating results have been subject to variation, and will continue to be subject to variation, depending on factors such as the initiation and progress of significant projects, exchange rate fluctuations, the opening of new offices, the costs associated with integrating acquisitions and the start-up costs 17 19 incurred in connection with the introduction of new products and services. In addition, during the third quarter of fiscal 1995, the Company's results of operations were affected by a write-down due to the impairment of long-lived assets. Because a high percentage of the Company's operating costs are relatively fixed in the short term, variations in the initiation, completion, delay or loss of contracts or progress of clinical trials can cause material adverse variations in quarterly operating results. The following table presents unaudited quarterly operating results for the Company for each of the ten most recent fiscal quarters in the period ended September 30, 1996. In the opinion of the Company, this information has been prepared on the same basis as the consolidated financial statements appearing elsewhere in this Prospectus and reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for operations for those periods. This quarterly financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of the results of any future period.
QUARTER ENDED ------------------------------------------------------------------------------------------------------------- JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1994 1994 1994 1995 1995 1995 1995 1996 1996 1996 -------- --------- -------- -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS) Net revenue........ $15,172 $13,176 $14,281 $ 14,824 $16,292 $17,973 $20,616 $22,507 $26,910 $33,030 ------- ------- ------- -------- ------- ------- ------- ------- ------- ------- Costs and expenses: Direct costs..... 10,223 10,573 10,000 10,230 11,337 12,465 14,409 15,154 18,113 22,821 Selling, general and administrative... 3,850 3,384 3,099 3,279 3,532 3,834 4,244 5,001 5,948 6,617 Depreciation and amortization... 580 668 709 432 442 515 518 616 694 883 Impairment of long-lived assets......... -- -- -- 11,253 -- -- -- -- -- -- ------- -------- ------- -------- ------- ------- ------- ------- ------- ------- Total costs and expenses.. 14,653 14,625 13,808 25,194 15,311 16,814 19,171 20,771 24,755 30,321 ------- -------- ------- -------- ------- ------- ------- ------- ------- ------- Income (loss) from operations....... $ 519 $(1,449) $ 473 $(10,370) $ 981 $ 1,159 $ 1,445 $ 1,736 $ 2,155 $ 2,709 ======= ======== ======= ======== ======= ======= ======= ======= ======= ======= Net income (loss)........... $ 95 $ (971) $ 295 $(10,637) $ 683 $ 742 $ 956 $ 1,297 $ 1,604 $ 1,936 ======= ======== ======= ======== ======= ======= ======= ======= ======= =======
Liquidity and Capital Resources Since its inception, the Company has primarily financed its operations and growth, including acquisition costs, with cash flow from operations and the proceeds from the sale of equity securities. Investing activities primarily reflect capital expenditures for information systems enhancements and net purchases of marketable securities. The Company's clinical research and development contracts are generally fixed price with some variable components, and range in duration from a few months to several years. The cash flows from contracts typically consists of a down payment required to be paid at the time the contract is entered into and the balance in installments over the contract's duration, in some cases on a milestone achievement basis. Revenue from contracts is generally recognized on a percentage of completion basis as the work is performed. Accordingly, cash receipts do not necessarily correspond to costs incurred and revenue recognized on contracts. The Company's cash flow is influenced by the changes in levels of billed and unbilled accounts receivable, net of amounts advance billed representing unearned revenue. As a result, the number of days outstanding in accounts receivable, net of advance billings, and the related dollar values of these accounts can vary due to the achievement of contractual milestones and the timing and size of cash receipts. The number of days revenue outstanding, net of advance billings, was 40 days at June 30, 1995, 47 days at June 30, 1996 and 65 days at September 30, 1996. The increase in days revenue outstanding from June 30, 1996 to September 30, 1996 was primarily due to the timing of the achievement of project milestones and related billings, as well as a decline in the amounts billed to clients in advance of revenue earned. Accounts receivable, net of the allowance for doubtful accounts, increased from $24.7 million at June 30, 1995 to $39.3 million at June 30, 1996 and $49.6 million at September 30, 1996 while advance billings increased from $14.0 million at June 30, 1995 to $20.0 million at June 30, 1996 and decreased to $18.5 million at September 30, 1996. Unrestricted cash and cash equivalents decreased by $7.0 million during the three months ended September 30, 1996 as a result of $6.1 million and $1.3 million in cash used by operating and financing 18 20 activities, respectively, offset by $518,000 in cash provided by investing activities. Net cash used by operating activities resulted from net income, excluding non-cash expenses, of $2.8 million and an increase in accounts payable of $1.6 million being more than offset by increases in restricted cash of $512,000 and billed and unbilled receivables of $7.7 million and decreases in advance billings of $1.7 million and other current liabilities of $858,000. Cash provided by investing activities consisted of net proceeds from sales of marketable securities of $2.9 million and the net cash balances of acquired companies of $251,000 nearly offset by capital expenditures of $2.7 million. Cash used by financing activities reflects repayments of long-term debt of $2.8 million partially offset by net proceeds from the exercise of stock options of $1.4 million. Debt repayments included $2.3 million to retire third-party debt of S&FA assumed during the acquisition. Unrestricted cash and cash equivalents decreased by $10.9 million during fiscal 1996 as a result of $6.5 million and $37.4 million in cash provided by operating and financing activities, respectively, offset by $32.8 million in cash used for investing activities and an $155,000 unfavorable effect of exchange rate changes. Net cash provided by operating activities resulted primarily from net income, excluding non-cash expenses, of $6.9 million and increases in advance billings, accounts payable and other current liabilities of $6.4 million, $4.6 million and $3.3 million, respectively. Cash used by operating activities included an increase in accounts receivable of $15.1 million. Financing activities consisted primarily of net proceeds of approximately $21.2 million from the Company's initial public offering of 1,600,000 shares of common stock in November 1995, and net proceeds of approximately $15.7 million from the Company's follow-on public offering of 500,000 shares of common stock in March 1996. Investing activities consisted of net purchases of marketable securities of $27.8 million and capital expenditures. The Company made approximately $5.0 million of capital expenditures in fiscal 1996 related to facility expansion and investments in information technology and expects to invest approximately $8 million to $10 million in the next twelve months. The Company has domestic and foreign line of credit arrangements with banks totalling approximately $7.5 million and a capital lease line of credit with a U.S. bank for $2.4 million. At September 30, 1996 the Company had approximately $9.0 million in available credit under these arrangements. The Company's primary cash needs on both a short-term and long-term basis are for the payment of the salaries and fringe benefits, hiring and recruiting expenses, business development costs, capital expenditures and facility-related expenses. The Company believes that its existing capital resources, together with cash flows from operations and borrowing capacity under its existing lines of credit, will be sufficient to meet its foreseeable cash needs. In the future, the Company will continue to consider acquiring businesses to enhance its service offerings, therapeutic base and global presence. Any such acquisitions may require additional external financings and the Company may from time to time seek to obtain funds from public or private issuances of equity or debt securities. There can be no assurance that such financings will be available on terms acceptable to the Company. The foregoing statements include forward-looking statements which involve risks and uncertainties. The Company's actual experience may differ materially from that discussed above. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" as well as future events that have the effect of reducing the Company's available cash balances, such as unexpected operating losses or capital expenditures or cash expenditures related to possible future acquisitions. Inflation The Company believes the effects of inflation generally do not have a material adverse impact on its operations or financial conditions. Recently Issued Accounting Standards In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). The Company has elected to adopt FAS 123 in fiscal 1997 through disclosure only. 19 21 BUSINESS PAREXEL is a leading contract research organization ("CRO"), providing clinical research and development services to the worldwide pharmaceutical and biotechnology industries. The Company believes it is the fourth largest CRO, based on estimated annual net revenue, and one of only a few CROs capable of providing a full range of clinical services on a global basis. The Company complements the research and development departments of pharmaceutical and biotechnology companies by offering high quality clinical research services to the client and reducing drug development time and cost. In addition, the Company's integrated services and extensive information technology capabilities coupled with its broad experience and expertise in global drug development provide clients with a variable cost alternative to the fixed costs associated with internal drug development. The Company offers a full complement of clinical research and development services, including designing, initiating and monitoring clinical trials, managing and analyzing clinical data and consulting on regulatory affairs. The Company, founded in 1983 as a regulatory consulting firm, has built its business both through internal expansion and acquisitions. In 1988, the Company acquired Consulting Statisticians Inc., a leading biostatistics and data management provider specializing in the healthcare industry. In 1989, the Company initiated its international expansion by acquiring the London-based McDonnell Douglas Clinical Trials Analysis Division, a division of McDonnell Douglas Informations Systems Ltd., which provided biostatistics and data management services in Europe. In 1990, the Company acquired Barnett Associates, Inc. to expand its Information Products Division, through which the Company offers a range of specialized clinical consulting and training services and related products. In 1991, the Company acquired AFB Arzneimittelforschung GmbH in Berlin, a European CRO based in Berlin, with offices in Frankfurt and Paris. The Company is headquartered in Waltham, Massachusetts and opened offices in San Diego in 1990; Raleigh-Durham in 1994; Milan, Italy; Kobe, Japan; and Sydney, Australia in 1995; and Madrid, Spain and Chicago in 1996. In June 1996, the Company acquired Caspard Consultants, a Paris-based CRO, and in August 1996 acquired Lansal Clinical Pharmaceutics Limited, a CRO based in Israel. These acquisitions augment the Company's existing clinical operations and are in line with management's focused international expansion efforts. In June 1996, the Company acquired Sitebase Clinical Systems, Inc., a provider of remote data entry ("RDE") technology. This acquisition positions the Company as a provider of RDE technology which is expected to enhance the quality and timeliness of clinical trial data. In August 1996, the Company also acquired State and Federal Associates, Inc. (S&FA), a Washington D.C.-based provider of consulting services to the health care and pharmaceutical industries. The acquisition broadens the Company's portfolio of consulting services, specifically in the area of health economics. INDUSTRY OVERVIEW The CRO industry provides independent product development services for the pharmaceutical and biotechnology industries. Generally, CROs derive substantially all of their revenue from the research and development expenditures of pharmaceutical and biotechnology companies. The CRO industry has evolved from providing limited clinical services in the 1970s to an industry which currently offers a full range of services that encompass the clinical research process, including pre-clinical evaluations, study design, clinical trial management, data collection and biostatistical analysis and product registration support. All of these services are provided in accordance with regulations which govern clinical trials and the drug approval process. The CRO industry is highly fragmented, with participants ranging from several hundred small, limited-service providers to several large full-service CROs with global operations. Although there are few barriers to entry for small, limited-service providers, the Company believes there are significant barriers to becoming a full-service CRO with global capabilities. Some of these barriers include the development of broad therapeutic expertise and the infrastructure and experience necessary to serve the global demands of clients, the ability to simultaneously manage complex clinical trials in numerous countries, the expertise to prepare regulatory submissions in multiple countries, and the development and maintenance of the complex information technology systems required to integrate these capabilities. In recent years, the CRO industry has experienced consolidation due in part to the acquisition of smaller firms by larger full-service CROs. 20 22 The CRO industry derives substantially all of its revenue from the pharmaceutical and biotechnology industries. The global pharmaceutical and biotechnology industries spent an estimated $33 billion in 1995 on research and development, of which the Company estimates $15.2 billion was spent on the type of services offered by the Company. Of this amount, approximately $2.6 billion was outsourced to CROs. The Company believes that the following trends will lead to further growth opportunities for full-service, global CROs, although there can be no assurance that this growth will materialize: - Cost Containment Pressures. Recently, drug companies have been focusing on more efficient ways of conducting business because of margin pressures stemming from patent expirations, market acceptance of generic drugs and impending regulatory pressures to reduce drug prices. The Company believes that the pharmaceutical industry is responding by consolidating and reducing jobs, centralizing the research and development process and outsourcing to variable cost CROs, thereby reducing the fixed costs associated with internal drug development. The CRO industry, by specializing in clinical trials management, is often able to perform the needed services with a higher level of expertise or specialization, more quickly and at a lower cost than the client could perform the services internally. The Company believes that some large pharmaceutical companies, rather than utilizing many CRO service providers, are selecting a limited number of full-service, global CROs to serve as their primary CROs. - Globalization of Clinical Development and Regulation Strategy. Pharmaceutical and biotechnology companies increasingly are attempting to maximize profits from a given drug by pursuing regulatory approvals in multiple countries in parallel rather than sequentially, as was the practice historically. The Company believes that the globalization of clinical research and development activities has increased the demand for CRO services. A pharmaceutical or biotechnology company seeking approvals in a country in which it lacks experience or internal resources will frequently turn to a CRO for assistance in interacting with regulators or in organizing and conducting clinical trials. In addition, a company may turn to a CRO in the belief that regulatory authorities who are not familiar with the company may have more confidence in the results from tests independently conducted by a CRO known to those authorities. - Consolidation in the Pharmaceutical Industry. The pharmaceutical industry is consolidating as pharmaceutical companies seek to obtain cost reduction synergies through business combinations. Recently announced consolidations include some of the largest multinational pharmaceutical companies in the world, such as Glaxo-Wellcome, American Home Products-American Cyanamid, Hoechst-Marion Merrill Dow, Upjohn-Pharmacia, Roche-Syntex and Sandoz-Ciba Geigy. Once consolidated, many pharmaceutical companies aggressively manage costs by reducing headcount and outsourcing to variable-cost CROs in an effort to reduce the fixed costs associated with internal drug development. The Company believes that full-service global CROs will benefit from this trend. - Increasingly Complex and Stringent Regulation; Need for Technological Capabilities. Increasingly complex and stringent regulatory requirements throughout the world have increased the volume of data required for regulatory filings and escalated the demands on data collection and analysis during the drug development process. In recent years, 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. Further, the FDA encourages the use of computer-assisted filings in an effort to expedite the approval process. As regulatory requirements have become more complex, the pharmaceutical and biotechnology industries are increasingly outsourcing to CROs to take advantage of their data management expertise, technological capabilities and global presence. - Drug Development Pressures. The Company believes that research and development expenditures have increased as a result of the constant pressure to develop a pipeline of products, and to respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions such as infectious diseases, including AIDS. The development of therapies for chronic disorders, such as Alzheimer's disease, diabetes and arthritis, requires complex clinical trials to 21 23 demonstrate the therapy's effectiveness and determine whether the drug causes any long-term side effects. - Biotechnology Industry Growth. The U.S. biotechnology industry has grown rapidly over the last ten years and is introducing significant numbers of new drug candidates which will require regulatory approval. Many biotechnology companies do not have the necessary experience or resources to conduct clinical trials. Accordingly, many of these companies have chosen to outsource to CROs rather than expend significant time and resources to develop an internal clinical development capability. Moreover, the biotechnology industry is rapidly expanding into and within Europe, providing significant growth opportunities for CROs with a global presence. PAREXEL'S STRATEGY PAREXEL's objective is to maintain and enhance its position as a leading CRO by providing a full range of clinical services on a global basis. The Company addresses all aspects of clinical research and development with a flexible approach that allows its clients to use the Company's services on an individual or bundled basis. The Company believes its expertise in conducting scientifically demanding trials and its ability to coordinate complicated global trials are significant competitive strengths. The Company continues to devote significant resources to developing information systems designed to allow the Company to more effectively manage its business operations and deliver services to its clients. The Company will continue to invest in improvements in information technology and consider acquisitions of complementary businesses in order to enhance its competitive position and its level of service. Serve the Global Model of New Drug Development The Company believes that its ability to conduct clinical trials worldwide enhances its ability to serve the increasingly global model of drug development. The Company has provided clinical research and development services to major North American, European and Japanese pharmaceutical companies. The Company has expanded geographically primarily through internal growth, supplemented by strategic acquisitions, with a goal of serving all major client markets worldwide and positioning the Company to serve developing markets. Since January 1, 1994, the Company has established a presence in Kobe, Japan; Milan, Italy; Raleigh-Durham; Sydney, Australia; Madrid, Spain; Tel Aviv, Israel; Washington, D.C. and Chicago. PAREXEL is conducting a number of multinational clinical studies designed to pursue concurrent regulatory approvals in multiple countries. The Company believes that the expertise developed by conducting multi-jurisdictional clinical trials is a competitive advantage as pharmaceutical companies increasingly pursue regulatory approvals in multiple jurisdictions in parallel. The Company believes that the efficient delivery of high-quality clinical services requires adherence to standardized procedures on a worldwide basis. The Company has devoted considerable resources to developing internal standard operating procedures. These procedures, together with the Company's information technology, enable the Company to reduce the time involved in preparing regulatory submissions by concurrently compiling and analyzing large volumes of data from multinational trials and preparing regulatory submissions for filings on a global basis. Address All Aspects of Clinical Research; Offer Flexible Menu of Services The Company offers a full range of services that encompasses the clinical research process. The Company believes that its knowledge and experience in all stages of clinical research enhance its credibility with prospective clients. The Company's full range of services and global experience complement the research and development departments of pharmaceutical and biotechnology companies. In order to meet the needs of specific clients, PAREXEL offers its services on either an individual or a bundled basis. This approach allows the Company to establish a relationship with a new client with the need for a particular service which may in turn lead to larger, more comprehensive projects. This flexibility allows PAREXEL to deliver its services by operating autonomously or by working in close collaboration with its clients. In some cases, the Company has taken advantage of the flexibility of its information technology systems to gain direct access to client data on client systems. In addition, the Company provides regulatory periodicals, training materials and seminars and other complementary information products and services designed to meet its clients' demands for increased productivity in clinical development. 22 24 Conduct Scientifically Demanding Trials The Company provides its services in connection with scientifically and clinically demanding trials in a wide range of therapeutic areas, such as trials involving the testing of drugs developed by biotechnology companies and drugs addressing complex diseases such as AIDS, cancer and Alzheimer's. The Company's leadership in AIDS-related therapeutic areas is evidenced by the selection of PAREXEL as the CRO for the Intercompany Collaborative for AIDS Drug Development, a consortium including 18 global leaders in AIDS research. Other therapeutic categories in which the Company has expertise include neurology, oncology, gastroenterology, endocrinology, cardiology, hematology, immunology, rheumatology and the study of pulmonary, reproductive and infectious diseases. The Company believes that as trials involve increasingly complex therapeutic areas, CROs with a broad range of experience have a competitive advantage over other companies with more limited capabilities. Continue Investment in Information Technology The Company believes that superior information technology is essential to enable a CRO to provide project services concurrently in multiple countries, expand its geographic operations to meet the global needs of the pharmaceutical and biotechnology industries and provide innovative services designed to expedite the clinical trials process. The Company has an extensive and effective global information technology network and believes that its information technology provides it with a significant competitive advantage. The Company's information technology supports its global organizational structure by enabling all offices to exchange information with each other so that several offices worldwide can work simultaneously on a project. The global information technology network also allows the Company to track the progress of ongoing client projects and predict more accurately and quickly its future personnel needs to meet client contract commitments. In addition, the Company's open and flexible information technology system can be adapted to the multiple needs of different clients and regulatory systems. For example, the system enables the Company to reduce the time involved in preparing regulatory submissions by concurrently compiling and analyzing large volumes of data from multinational trials and preparing regulatory submissions for filings on a global basis. This system also enables the Company to respond quickly to client inquires on the progress of projects and, in some cases, to gain direct access to client data on client systems. SERVICES The Company provides a full range of clinical research and development services, including clinical trials management, clinical data management, biostatistical analysis, study design and regulatory affairs services, including product registrations with regulatory authorities for its clients. The Company provides services individually or as an integrated package of two or more services. The Company's full range of services and global experience complement the research and development departments of the Company's clients. In addition, the Company's Information Products Division ("IPD") offers specialized clinical consulting and training services and related products. Clinical Trials Management Services PAREXEL offers complete services for the design, initiation and management of clinical trial programs, a critical element in obtaining regulatory approval for drugs. The Company has performed services in connection with trials in most therapeutic areas, including neurology, oncology, gastroenterology, endocrinology, cardiology, hematology, immunology, rheumatology and the study of pulmonary, reproductive and infectious diseases. 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 design, placement, initiation, monitoring, report preparation and strategy development. See "Government Regulation -- New Drug Development-An Overview." Most of the Company's clinical trials management projects involve Phase II or III clinical trials, which are generally much larger and more complex than Phase I trials. 23 25 Clinical trials are monitored for and with strict adherence to good clinical practices ("GCP"). The design of efficient Case Report Forms ("CRF"), detailed operations manuals and site visits by PAREXEL's clinical research associates ensure that clinical investigators and their staffs 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 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 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 authority. - Case Report Forms Design. Once the study protocol has been finalized, CRFs must be developed. 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. - 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 by the drug sponsor or the CRO. The CRO generally solicits the investigators' participation in the study. The trial's success depends on the successful identification and recruitment of 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. - Patient Enrollment. The investigators 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. - Study Monitoring and Data Collection. As patients are examined and tests are conducted in accordance with the study protocol, data are recorded on CRFs and laboratory reports. The data 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 take 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 believes RDE technology will significantly enhance both the quality and timeliness of clinical data collection with significant efficiency savings. The Company's study monitoring and data collection services comply with the FDA's adverse events reporting guidelines. - Report Writing. The findings of statistical analysis of 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 clinical trial, PAREXEL's physicians can provide a wide range of medical research and consulting services, including medical monitoring of clinical trials. 24 26 Clinical Data Management and Biostatistical 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. 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 technology to gather and report clinical monitoring information is expected to expedite data exchange while minimizing data collection errors as a result of real time 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 in the United States and Europe 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 and European specifications. For example, the Company completed, in support of a New Drug Application filing, an expanded access program with over 2,000 investigators enrolling over 11,000 patients at sites located in 26 countries, including 17 in Europe, five in South America, two in Central America, the United States and Australia. Over 300,000 pages of CRF data were collected from these sites and merged into one integrated database. 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, biostatisticians represent clients during panel hearings at the FDA. Regulatory Affairs Services PAREXEL provides comprehensive regulatory product registration services for pharmaceutical and biotechnology products in major jurisdictions in Europe and North America, including regulatory strategy formulation, document preparation and liaison with the FDA and other regulatory agencies. In addition, the Company provides the services of qualified experts to assist with good manufacturing practices ("GMP") compliance in existing manufacturing plants and to assure that new facilities are built to conform to GMP. PAREXEL's staff provides on-site 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 product development 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 this service, the Company helps its clients determine the feasibility of developing a particular product or product line. Health Economics The Company, through its subsidiary PAREXEL/S&FA, provides health economics services that enable regulators, health care providers and third parties to assess the pricing and cost effectiveness of new medical therapies. PAREXEL/S&FA provides empirical economic data and demonstration of cost effectiveness in development programs. PAREXEL/S&FA economists document critical economic advantages of the new drug design and execute an integrated research program to support both regulatory approval and post-approval pricing, marketing and reimbursement strategies, marketing analyses and hotline services. Market Analysis and Hotline Services PAREXEL/S&FA has extensive experience providing pre-launch payment and utilization planning and computing services to pharmaceutical and biotechnology clients. These services are complemented by launch 25 27 support and post-launch reimbursement consulting as well as reimbursement hotline services. The PAREXEL/S&FA hotline capability also services indigent patient programs and expanded access programs. Information Products Division The Company's Information Products Division offers a range of specialized clinical consulting and training services and related products through Barnett International Corporation, a subsidiary of the Company, and through IPD's publications group. Barnett International Corporation is a leader in providing training, conferences, education and management consulting services to the worldwide clinical research community, with extensive experience in organization structure, curriculum design and human resource management in clinical research. The publications group produces several publications covering regulatory issues, including the monthly U.S. Regulatory Reporter (launched in 1984), books such as International Pharmaceutical Product Registration, Medical Devices -- Obtaining FDA Market Clearance, Drug Formularies and the Pharmaceutical Industries, A Practical Guide to the EMEA, New Drug Development: A Regulatory Overview and Biologics Development: A Regulatory Overview. Other publications include the Worldwide Pharmaceutical Regulation series and PAREXEL's Pharmaceutical R&D Source Book 1996. 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 believes it is one of a few CROs that has an extensive and effective global information technology network. The Company has built on its network by developing a number of proprietary information systems that address critical aspects of its business. These systems track all aspects of the Company's projects utilizing: - PROGEN[Trademark] -- A dynamic proposal and budget generation system first developed and implemented globally in fiscal 1991. PROGEN generates accurate and timely resource budgets in response to client requests for proposals and also enables the Company to efficiently project staffing requirements. - TIMS[Trademark] -- An on-line time information management system, implemented in North America in January 1994 and globally in January 1995. TIMS records and tracks all hours spent by employees and enables managers to compare such information with the PROGEN resource budget. - FORE[Trademark] -- An on-line revenue and resource forecasting system implemented in January 1995 in North America and in June 1995 in Europe. FORE tracks actual resource utilization for and progress of client projects and allows management to efficiently deploy future resources to match the progress of each project. - CIMS[Trademark] -- An on-line clinical information management system introduced in fiscal 1993 in North America and in fiscal 1995 in Europe. CIMS allows each clinical project manager to monitor and control the progress of an entire clinical trial, including providing real-time access to information on site recruitment, tracking of patient information, monitor information, investigator payments and drug shipments, as well as participate in a Company-wide integrated reporting system. - DEMS[Trademark] -- A flexible, multi-user clinical trials data-entry and data management system implemented in March 1995 in North America and August 1995 in Europe. DEMS encompasses data-entry, verification and validation and provides for real-time CRF tracking and coding of clinical data and promotes standardization of clinical data management processes at all of the Company's worldwide locations. Although the Company began to implement its information systems in 1990, the Company's current information systems were not completely adopted until fiscal 1995. The Company recently augmented its information technology capabilities with the acquisition of Sitebase Clinical Systems, Inc., a provider of RDE technology which involves entry of data onto electronic case report forms at the investigational site. RDE technology has important implications for CROs, including enhancing the accuracy and timeliness of clinical data, thereby shortening customers' time-to-market. The Company's information systems group has 52 employees responsible for technology procurement, applications development and management of the Company's worldwide computer network. The wide area network links 18 local area networks, interconnecting approxi- 26 28 mately 1,600 computers worldwide. 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. SALES AND MARKETING PAREXEL's marketing strategy is to focus on prospective clients whose clinical development projects are large and complex and to develop close relationships with key decision-makers throughout its clients' drug development organizations. 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. The Company believes that its emphasis on developing close relationships with its clients leaves it well positioned to benefit from the trend among pharmaceutical companies to concentrate their outsourcing among fewer CROs. The Company's core marketing activities are complemented by the industry conferences and publications offered by the Company's IPD. Although the IPD activities are conducted as independent business activities, the Company believes that the IPD offerings enhance the Company's market position in the drug development community. The Company's marketing activities are coordinated by PAREXEL's client service executives in each of the Company's U.S. locations as well as the Company's locations in Australia, France, Germany, Italy, Japan, Spain and the United Kingdom. Most of the Company's business development personnel have technical or scientific backgrounds and many are physicians, pharmacologists, statisticians and regulatory affairs professionals. The Company coordinates its worldwide marketing efforts through a computerized system that is integrated into each of the Company's locations. CLIENTS PAREXEL has served most of the leading U.S., European and Japanese pharmaceutical companies. PAREXEL's clients also include companies which develop biotechnology and other emerging technologies. During fiscal 1996, the Company provided services to each of the 20 largest pharmaceutical companies, as ranked by estimated worldwide 1995 research and development expenditures revenue, and seven of the ten largest biotechnology companies, as ranked by December 1995 market capitalization. During fiscal 1996, the Company performed services for over 250 clients, including 53 biotechnology companies, involving over 1,000 projects. The Company has in the past derived, and may in the future derive, a significant portion of its net revenue from a relatively limited number of major projects or clients. Concentrations of business in the CRO industry are not uncommon and the Company is likely to experience such concentration in future years. In fiscal 1994, 1995 and 1996, and the three months ended September 30, 1996, no single customer accounted for more than 10% of consolidated net revenue. In fiscal 1994, 1995 and 1996, and the three months ended September 30, 1996, the Company's top five customers accounted for 29.8%, 25.2%, 32.0% and 31.7%, respectively, of the Company's consolidated net revenue. The loss of business from a significant client could materially and adversely affect the Company's net revenue. COMPETITION The Company primarily competes against in-house departments of pharmaceutical companies, full service CROs, and, to a lesser extent, universities and teaching hospitals. Some of these competitors have substantially greater capital, technical and other resources than the Company. CROs generally compete on the basis of previous experience, medical and scientific expertise in specific therapeutic areas, the quality of contract research, the ability to organize and manage large-scale trials on a global basis, the ability to manage large and complex medical databases, the ability to provide statistical and regulatory services, the ability to recruit investigators, the ability to integrate information technology with systems to improve the efficiency of contract research, an international presence with strategically located facilities, financial viability and price. PAREXEL believes that it competes favorably in these areas. 27 29 The CRO industry is highly fragmented, with participants ranging from several hundred small, limited-service providers to several large, full-service CROs with global operations. PAREXEL believes that it is the fourth largest full-service CRO, based on estimated annual net revenue. Other large CROs include ClinTrials Research, Inc., Corning Pharmaceutical Services, Inc., a subsidiary of Corning, Inc., Pharmaceutical Product Development, Inc. and Quintiles Transnational Corporation. The trend toward CRO industry consolidation has resulted in heightened competition among the larger CROs for clients and acquisition candidates. In addition, consolidation within the pharmaceutical industry as well as a trend toward the concentration by pharmaceutical companies of outsourcing among fewer CROs has led to heightened competition for CRO contracts. GOVERNMENT REGULATION New Drug Development -- An Overview Before a new drug may be marketed in North America or Europe, the drug must undergo extensive testing and regulatory review in order to determine that the drug is safe and effective. The stages of this development process are as follows: - Preclinical Research (1 to 3.5 years). In vitro ("test tube") and animal studies to establish the relative toxicity of the drug 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, the manufacturer will file for an IND (Investigational New Drug Application), upon which the FDA may grant permission to begin human trials. - Clinical Trials (3.5 to 6 years) - Phase I (6 months to 1 year). Basic safety and pharmacology testing in 20 to 80 human subjects, usually healthy volunteers, includes studies to determine how the drug works, how it is affected by other drugs, where it goes in the body, how long it remains active, and how it is broken down and eliminated from the body. - Phase II (1 to 2 years). Basic efficacy (effectiveness) and dose-range testing in 100 to 200 afflicted volunteers to help determine the best effective dose, confirm that the drug works as expected, and provide additional safety data. - Phase III (2 to 3 years). Efficacy and safety studies in hundreds or thousands of patients at many investigational sites (hospitals and clinics) can be placebo-controlled trials, in which the new drug is compared with a "sugar pill," or studies comparing the new drug with one or more drugs with established safety and efficacy profiles in the same therapeutic category. - TIND (May span late Phase II, Phase III, and FDA review). 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 manufacturer to make the new drug available to a larger number of patients through the regulated mechanism of a TIND (Treatment Investigational New Drug). Although less scientifically rigorous than a controlled clinical trial, a TIND may enroll and collect a substantial amount of data from tens of thousands of patients. - NDA Preparation and Submission. Upon completion of Phase III trials, the manufacturer assembles the statistically analyzed data from all phases of development into a single large document, the New Drug Application (NDA), which today comprises, on average, roughly 100,000 pages. - FDA Review & Approval (1 to 1.5 years). 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 is safe and effective for the specific use (or "indication") under study. - Post-Marketing Surveillance and Phase IV Studies. Federal regulation requires the manufacturer to collect and periodically report to FDA additional safety and efficacy data on the drug for as long as the manufacturer markets the drug (post-marketing surveillance). If the drug is marketed outside the U.S., these reports must include data from all countries in which the drug is sold. Additional studies (Phase IV) may be undertaken after initial approval to find new uses for the drug, to test new dosage 28 30 formulations, or to confirm selected non-clinical benefits, e.g., increased cost-effectiveness or improved quality of life. The clinical investigation of new drugs 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, and 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. 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 drugs 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. BACKLOG Backlog consists of anticipated net revenue from letter agreements or contracts that have been signed but not yet completed. Once work under a contract or letter agreement commences, revenue is generally recognized over the life of the contract, which usually lasts for 12 months or more. Backlog excludes anticipated net revenues for projects for which the Company has commenced work but for which a definitive contract or letter agreement has not been executed. Backlog at September 30, 1996 was approximately $132 million, as compared with approximately $90 million at September 30, 1995. 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 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. Most of the Company's contracts are terminable upon 60 to 90 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. POTENTIAL LIABILITY AND INSURANCE PAREXEL's clinical research services center on the testing of new 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. Many of these patients are already seriously ill and are at risk of further illness or death. The Company has not experienced any claims to date arising out of any clinical trial managed or monitored by it. 29 31 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. After the trial begins, 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 seeks to obtain indemnity provisions in 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 a 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. INTELLECTUAL PROPERTY The Company believes that factors such as its ability to attract and retain highly-skilled professional and technical employees and its project management skills and experience are significantly more important to its business than are any intellectual property rights developed by it. 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 September 30, 1996, the Company had approximately 1,600 employees, of which over 120 hold Ph.D. or M.D. degrees and over 225 others hold masters degrees. Approximately 67% of the full-time employees are located in North America and 32% are located in Europe. 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. While the Company has not experienced any significant difficulties in attracting or retaining qualified staff to date, there can be no assurance the Company will be able to avoid such difficulties in the future. FACILITIES PAREXEL leases all but one of its facilities. The Company's principal executive offices are located in Waltham, Massachusetts, where it leases approximately 100,000 square feet under leases that expire in August 2001. The Company also maintains North American offices in Chicago, Philadelphia, Raleigh- Durham, San Diego and Washington D.C.. The Company's European subsidiaries maintain offices in Berlin, Frankfurt, London, Milan, Paris, Madrid and Tel Aviv. The Company's Japanese subsidiary is located in Kobe. The Company's Australian subsidiary is located in Sydney. 30 32 LEGAL PROCEEDINGS The Company is a defendant in a proceeding initiated by a former shareholder of a business which was subsequently acquired by the Company captioned Tallon v. Harwood, Barnett, Barnett Associates, Inc. and PAREXEL International Corporation, 92-3496. The proceeding was filed on March 3, 1992 in the Court of Common Pleas, Delaware County, Pennsylvania. The plaintiff, whose shares were acquired by the other two shareholders of the acquired business approximately three months prior to the acquisition of the business by PAREXEL, is seeking unspecified monetary damages based on a claim that his shares were purchased at an unfairly low price. The Company has filed an answer specifically denying the material allegations raised in the plaintiff's complaint and raising various affirmative defenses. The Company believes that resolution of this matter will not have a material adverse effect on the financial position, results of operations or business of the Company. The Company is not a party to, and is not aware of, any proceeding involving any material claims arising out of any clinical trial that it managed or monitored. 31 33 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The current executive officers and directors of the Company are as follows:
NAME AGE POSITIONS ---- --- --------- Josef H. von Rickenbach................ 42 President, Chief Executive Officer and Chairman of the Board William T. Sobo, Jr. .................. 40 Senior Vice President, Chief Financial Officer, Treasurer and Clerk Barry R. Philpott...................... 48 President, European Operations and Chief Administrative Officer R. Adrian Otte, M.D. .................. 40 Senior Vice President Paule Dapres, M.D. .................... 52 Senior Vice President Taylor J. Crouch....................... 37 Senior Vice President Veronica G.H. Jordan, Ph.D. ........... 46 Senior Vice President A. Dana Callow, Jr.(1)(2)(3)........... 44 Director Patrick J. Fortune(1).................. 49 Director Prof. Dr. med. Werner M. Herrmann...... 55 Director and Chief Scientific Officer Peter Barton Hutt...................... 61 Director James A. Saalfield(2)(3)............... 50 Director - --------------- (1) Member of Compensation Committee. (2) Member of Audit Committee. (3) Member of Stock Option Committee.
JOSEF H. VON RICKENBACH co-founded PAREXEL in 1983 and has served as a director since then. Prior to his involvement with PAREXEL, he was European Area Manager with ERCO (now ENSECO), Inc., a diversified testing and technical consulting company. Mr. von Rickenbach has worked for Schering-Plough, Inc., and 3M (East), a division of Minnesota Mining and Manufacturing, Inc. Mr. von Rickenbach received an M.B.A. from the Harvard University Graduate School of Business Administration and has an undergraduate degree from the Lucerne College of Economics and Administration. WILLIAM T. SOBO, JR. is responsible for all financial and administrative activities of the Company. Prior to joining PAREXEL in 1987, Mr. Sobo was a supervisor at Coopers & Lybrand in the emerging business/ middle market group and also served as the controller for a regional financial consulting firm. Mr. Sobo is a Certified Public Accountant and received an M.B.A. from Boston University and a B.S. from the Wharton School at the University of Pennsylvania. BARRY R. PHILPOTT is responsible for the general management of PAREXEL's European operations, based in London, England. Prior to joining PAREXEL in 1993, Mr. Philpott served in several senior management positions with EG&G Inc., a diversified technology company based in Massachusetts, most recently as General Manager of its Worldwide Optical & Analytical Division. Previous to this position he was the President and Managing Director of EG&G Applied Research Corp. R. ADRIAN OTTE, M.D., is responsible for the Company's medical monitoring and medical writing services for ongoing clinical trials. Prior to joining PAREXEL's operation in Germany as Vice President, Clinical Research Europe and General Manager of PAREXEL's Central European Region, Dr. Otte served in several senior management positions, most recently as Head of Clinical Research, at Duphar BV, Holland. Dr. Otte received his medical degree at the Welsh National School of Medicine and is a Fellow of the Faculty of Pharmaceutical Medicine. PAULE DAPRES, M.D. is responsible for the Company's European clinical operations. Prior to joining PAREXEL in 1992, Dr. Dapres served in several senior management positions at Schering Plough, Inc. Dr. Dapres received her M.D. degree from the University of Paris. 32 34 TAYLOR J. CROUCH is responsible for the Company's client relations activities, including proposal preparation, contract negotiations and account management, and is responsible for the Company's worldwide marketing activities. Prior to joining PAREXEL's operation in Germany as Vice President, Client Relations and Marketing in 1991, Mr. Crouch served in several senior management positions, most recently as Marketing Operations Manager, at Schering-Plough, Inc. in Germany. Mr. Crouch received an M.B.A. from the University of Chicago. VERONICA G.H. JORDAN, PH.D., is responsible for client relations and marketing activities at PAREXEL. Before joining PAREXEL in 1987, Dr. Jordan was Director of Marketing and Business Development at Biogen, Inc. Previously, Dr. Jordan worked at Clinical Assays, a division of Baxter Travenol. Dr. Jordan has a Ph.D. from Oxford University and a B.S. from Cambridge University. A. DANA CALLOW, JR. was elected a director of the Company in June 1986. Since December 1982, Mr. Callow has been a general partner of the general partner of several of Boston Capital Ventures' limited partnerships including Boston Capital Ventures International Limited Partnership, Boston Capital Ventures Limited Partnership, Boston Capital Ventures II Limited Partnership and Boston Capital Ventures III, Limited Partnership. Mr. Callow is a director of a number of privately held companies, including Tektagen Incorporated and ILEX Oncology, Inc. PATRICK J. FORTUNE, PH.D. was elected a director of the Company in June 1996. Mr. Fortune is Vice President, Information Technology and Chief Information Officer of Monsanto Company. From 1994 to October 1995, Mr. Fortune was President and Chief Operating Officer, Chief Information Officer and a member of the Board of Directors of Coram Healthcare Corporation. From 1991 to 1994, Mr. Fortune was Corporate Vice President, Information Management at Bristol-Myers Squibb. Prior to that, Mr. Fortune was Senior Vice President and General Manager of Packaging Corporation of America, a subsidiary of Tenneco and held several management positions with Baxter International Inc., including Corporate Vice President, Vice President, Research and Development and Vice President, Information Services. Mr. Fortune has been named as a party in four class action or derivative lawsuits, generally alleging violations of certain anti-fraud provisions of federal securities law, filed in late 1995 against Coram Healthcare Corporation and its other officers and directors. These actions are currently pending and no determination can be made regarding their outcome. PROF. DR. MED. WERNER M. HERRMANN is Chief Scientific Officer for PAREXEL and was elected a director of the Company in April 1991. Dr. Herrmann founded a Berlin-based provider of clinical and biostatistical and clinical data management services in 1982, which was acquired by PAREXEL and renamed PAREXEL GmbH Independent Pharmaceutical Research Organization ("PAREXEL GmbH"). Prior to 1982, Dr. Herrmann was head of the Psychiatry and Neurology Branch, Department of Experimental and Clinical Pharmacology, Institute for Drugs, Federal Health Office, Berlin, Germany, from 1979 to 1982. Dr. Herrmann is a Full Professor at the Department of Psychiatry, Free University of Berlin. PETER BARTON HUTT was elected a director of the Company in March 1989. Mr. Hutt is a partner in the Washington, D.C. law firm of Covington & Burling, specializing in food and drug law and in government regulation of health and safety. He is a director of several pharmaceutical and drug development companies, including IDEC Pharmaceuticals, Inc., Emisphere Technologies, Inc., Interneuron Pharmaceuticals, Inc., Vivus, Inc., Sparta, Inc. and Cell Genesys, Inc. From 1971 to 1975, Mr. Hutt was Chief Counsel for the FDA. JAMES A. SAALFIELD was elected a director of the Company in January 1993. Mr. Saalfield is a retired general partner of Fleet Venture Partners I, II, III and IV and managing general partner of Dean's Hill L.P. and The Still River Fund and President of The Still River Management Company. Mr. Saalfield served as the senior vice president of Fleet Venture Resources, Inc. and senior vice president of Fleet Growth Resources, Inc. from 1985 to 1993. Mr. Saalfield is a director of a number of companies, including KVH Industries Inc., a data acquisition and distribution company, Physiometrix Inc., a medical device company, and a number of private companies. Each director holds office until that director's successor has been duly elected and qualified. Upon the closing of the Company's initial public offering, the Company's Board of Directors was divided into three 33 35 classes, with staggered three-year terms. Messrs. Herrmann and Fortune serve in the class whose term expires in 1996; Messrs. Saalfield and Hutt serve in the class whose term expires in 1997; and Messrs. von Rickenbach and Callow serve in the class whose term expires in 1998. Upon the expiration of the term of each class of directors, persons comprising such class of persons will be elected for a three-year term at the next succeeding annual meeting of stockholders. Mr. Callow, a director, was granted a non-qualified option to purchase 100,000 shares of Common Stock in March 1989 at an exercise price of $0.75 per share. This option was exercised in full in March 1994 and the shares transferred to Boston Capital Ventures International Limited Partnership and Boston Capital Ventures Limited Partnership. Mr. Hutt, a director, was granted a non-qualified option to purchase 17,500 shares of Common Stock in March 1989 at an exercise price of $0.75 per share and a non-qualified option to purchase 10,000 shares of Common Stock in March 1994 at an exercise price of $12.50 per share. Messrs. Callow and Saalfield, current non-employee directors of the Company, were each granted a non-qualified option to purchase 10,000 shares of Common Stock in May 1994 at an exercise price of $12.50 per share. Mr. Hutt's March 1994 option was initially exercisable as to 3,333 shares, with the remaining shares vesting in two installments in March 1995 and March 1996, subject to specified meeting attendance requirements. The May 1994 options granted to Messrs. Callow and Saalfield become exercisable in three equal annual installments, beginning on the first anniversary of the date of grant, subject to specified meeting attendance requirements. The Company's 1995 Non-Employee Director Stock Option Plan (the "Director Plan") provides for the grant of options to purchase a maximum of 300,000 shares of Common Stock of the Company to non-employee directors of the Company. Under the Director Plan, each non-employee director who was a member of the Board of Directors on the effective date of the Company's initial public offering received options under the Director Plan. In addition, each non-employee director first elected to the Board of Directors after the effective date of the Company's initial public offering will receive an option for 10,000 shares on the date of his or her election. The Director Plan further provides for an automatic grant of an option for 10,000 shares on the first business day of July of each year, to each non-employee director who has continuously served for the lesser of (i) the previous full year or (ii) since the last annual meeting of stockholders at which directors were elected. The exercise price per share for all options granted under the Director Plan will be equal to the market price of the Common Stock as of the date of grant. The options granted annually will become exercisable in three equal annual installments beginning on the first anniversary of the date of grant, subject to specified meeting attendance requirements. Options to purchase an aggregate of 126,500 shares of Common Stock have been granted to date under the Director Plan. The only cash compensation payable to non-employee directors is $1,500 per day of in person Board meetings (with not more than one $1,500 payment being made for any one day). Outside directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors and Board committees. Executive officers of the Company are elected by the Board of Directors on an annual basis and serve until their successors have been duly elected and qualified. There are no family relationships among any of the executive officers or directors of the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. von Rickenbach, the President, Chief Executive Officer, and Chairman of the Company, served as a member of the Compensation Committee of the Board of Directors until July 1, 1996. 34 36 EXECUTIVE COMPENSATION The following table summarizes the compensation paid or accrued by the Company for services rendered for fiscal 1995 and 1996 to each of the Company's executive officers or former executive officers whose total salary and bonus exceeded $100,000 during fiscal 1996. The Company did not grant any restricted stock awards or stock appreciation rights or make any long-term incentive plan payouts during fiscal 1996. The Company does not have a defined benefit or actuarial plan. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL COMPENSATION AWARDS ---------------------------------- SECURITIES FISCAL OTHER ANNUAL UNDERLYING/ ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS(#) COMPENSATION - --------------------------- ------ --------- ------- ------------ ------------ ------------ Josef H. von Rickenbach................ 1996 $199,188 $ 0 $ 5,144(2) 50,000 $38,825(3) President, Chief Executive Officer 1995 183,545 0 26,973(4) 0 3,450 and Chairman Barry R. Philpott...................... 1996 162,530 50,694 12,151(2) 15,000 13,002(5) President, European Operations 1995 146,300 0 -- 0 11,704(5) John G. Lee, Ph.D.(6).................. 1996 151,249 52,186 -- 10,000 10,483(7) Senior Vice President 1995 139,135 0 -- 0 2,964(5) R. Adrian Otte, M.D. .................. 1996 152,079 40,220 -- 12,000 12,454(8) Senior Vice President 1995 129,539 10,125 -- 5,000 3,675(5) Taylor J. Crouch....................... 1996 150,968 16,171 0 12,000 3,570(5) Senior Vice President 1995 131,176 0 0 0 2,758(5) - --------------- (1) Includes commissions. (2) Automobile allowance. (3) Includes $3,222 contributions to defined contribution plans and $35,603 for unused paid vacation. (4) Includes $11,084 automobile allowance and $15,889 related to interest on stock subscriptions receivable. (5) Contributions to defined contribution plans. (6) In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the Company effective September 30, 1996. (7) Includes $3,861 contributions to defined contribution plans and $6,622 for unused paid vacation. (8) Includes $3,806 contributions to defined contribution plans and $8,648 for unused paid vacation.
35 37 OPTIONS The following table sets forth certain information regarding options granted during the fiscal year ended June 30, 1996 by the Company to the executives named in the Summary Compensation Table above. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED PERCENT OF ANNUAL RATE OF TOTAL STOCK PRICE OPTIONS APPRECIATION FOR GRANTED TO OPTION TERM(1) OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION -------------------- NAME GRANTED(#) FISCAL YEAR BASE PRICE DATE 5% 10% ---- ---------- ------------ ----------- ---------- -------- -------- Josef H. von Rickenbach....... 30,000 9.3% $15.00 11/22/2003 $214,855 $514,615 20,000 6.2 37.50 4/19/2004 358,092 857,692 Barry R. Philpott............. 5,000 1.6 15.00 11/22/2003 35,809 85,769 10,000 3.1 37.50 4/19/2004 179,046 428,846 John G. Lee, Ph.D.(2)......... 5,000 1.6 15.00 11/22/2003 35,809 85,769 5,000 1.6 37.50 4/19/2004 89,523 214,423 R. Adrian Otte, M.D. ......... 2,000 0.6 15.00 11/22/2003 14,324 34,308 10,000 3.1 37.50 4/19/2004 179,046 428,846 Taylor J. Crouch.............. 2,000 0.6 15.00 11/22/2003 14,324 34,308 10,000 3.1 37.50 4/19/2004 179,046 428,846 - --------------- (1) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock price appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration dates. These numbers are calculated based on rules promulgated by the Securities and Exchange Commission and do not represent an estimate by the Company of its future stock price growth. Actual gains, if any, on stock option exercises and Common Stock holdings are dependent on the timing of such exercise and the future performance of Common Stock. There can be no assurances that the rates of appreciation assumed in this table can be achieved or that the amounts reflected will be received by the individuals. (2) In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the Company effective September 30, 1996.
36 38 The following table sets forth information concerning the value of unexercised options as of June 30, 1996 held by the executives named in the Summary Compensation Table above. No options were exercised during the year ended June 30, 1996 by such executives. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED, NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL SHARES VALUE FISCAL YEAR-END YEAR-END(2) ACQUIRED ON REALIZED --------------------------- --------------------------- NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ---------- ----------- ------------- ----------- ------------- Josef H. von Rickenbach... 40,000 $1,396,000 50,000 20,000 $1,950,500 $215,000 Barry R. Philpott......... 0 -- 6,000 19,000 214,500 416,750 John G. Lee, Ph.D.(3)..... 10,000 349,000 50,000 10,000 2,382,500 220,000 R. Adrian Otte, M.D. ..... 0 -- 4,000 18,000 143,000 388,500 Taylor J. Crouch.......... 0 -- 4,800 13,200 183,600 219,900 - --------------- (1) Amounts disclosed in this column do not reflect amounts actually received by the Named Executive Officers but are calculated based on the difference between the fair market value of Common Stock on the date of exercise and exercise price of the options. Named Executive Officers will receive cash only if and when they sell the Common Stock issued upon exercise of the options and the amount of cash, if any, received by such individuals is dependent on the price of the Company's Common Stock at the time of such sale. (2) Value is based on the difference between the option exercise price and the fair market value at 1996 year-end ($48.25 per share) multiplied by the number of shares underlying the option. (3) In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the Company effective September 30, 1996.
In September 1995, the Company adopted its 1995 Stock Plan which provides for the issuance of a maximum of 500,000 shares of Common Stock pursuant to the grant of incentive stock options to officers and other employees and the grant of non-qualified stock options or stock awards to employees, consultants, directors and officers of the Company. On September 19, 1996, the Board of Directors of the Company increased the maximum number of shares of Common Stock issuable pursuant to the 1995 Stock Plan to 1,000,000 shares, subject to the approval of the stockholders of the Company at the 1996 Annual Meeting of Stockholders to be held November 14, 1996. As of October 15, 1996, options to purchase 411,350 shares have been granted under the 1995 Stock Plan at a weighted average exercise price of $34.42. In September 1995, the Company adopted its 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan") which provides for the issuance of a maximum of 300,000 shares of Common Stock pursuant to the exercise of nontransferable options granted to participating employees. All employees of the Company, except employees who by participating would own five percent or more of the Company's Common Stock, whose customary employment is more than 20 hours per week and more than five months in any calendar year are eligible to participate in the 1995 Purchase Plan. To participate in the 1995 Purchase Plan, an employee must authorize the Company to deduct an amount (not less than one percent nor more than ten percent of a participant's total compensation) from his or her pay during six-month periods commencing on September 1 and March 1 of each year (each a "Plan Period"), but in no case shall an employee be entitled to purchase more than 500 shares in any Plan Period. The exercise price for the option for each Plan Period is 85% of the lesser of the average market price of the Common Stock on the first or last business day of the Plan Period. If an employee is not a participant on the last business day of the Plan Period, such employee is not entitled to exercise his or her option, and the amount of his or her accumulated payroll deductions will be refunded without interest. An employee's rights under the 1995 Purchase Plan terminate upon his or her voluntary withdrawal from the plan at any time or upon termination of employment. As of October 15, 1996, 37 39 approximately 530 employees were enrolled in the 1995 Purchase Plan and options to purchase an aggregate of 57,479 shares of Common Stock had been exercised pursuant to the 1995 Purchase Plan. EMPLOYMENT AGREEMENTS The Company is party to an employment agreement dated July 2, 1987 with Dr. Veronica G.H. Jordan. Currently, Dr. Jordan is paid an annual base salary of $80,000. The employment agreement with Dr. Jordan may be terminated for cause upon the unanimous action of the Company's Board of Directors. The Company and Barry R. Philpott are parties to a letter agreement of employment dated July 6, 1993. Mr. Philpott's current annual base salary is [British Sterling Pound]120,000 (approximately $190,000). The Company may terminate Mr. Philpott's employment upon two months' notice and upon payment of severance benefits equal to one month's base salary per full year of service, with a maximum payment equal to six months' base salary. The executive officers of the Company are bound by the terms of a Key Employee Confidentiality and Invention Agreement, pursuant to which confidential information proprietary to the Company obtained during the term of employment by the Company may not be disclosed by the employee during or subsequent to such term of employment, and pursuant to which the employee agrees not to compete with the business of the Company during and for one year subsequent to the term of employment. In connection with the acquisition by the Company of PAREXEL GmbH, Dr. Herrmann entered into an employment agreement with PAREXEL GmbH, dated March 11, 1991. The employment agreement was amended as of June 30, 1993. Dr. Herrmann also entered into an employment agreement with the Company on June 30, 1993. The employment agreements with Dr. Herrmann expire on June 30, 1997. The employment agreement with the Company provides for a monthly base salary of approximately DM 11,400 (approximately $6,900). 38 40 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On September 1, 1993, the Company loaned $33,500 to Mr. von Rickenbach for the purchase of 6,700 shares of the Company's Series D Convertible Preferred Stock. The principal amount of the loan, plus interest accruing at a rate of 5.32% from the date thereof, was paid in full upon the closing of the Company's initial public offering in November 1995. The Company has adopted a policy whereby all future transactions between the Company and its officers, directors and affiliates will be on terms no less favorable to the Company than could be obtained from unrelated third parties and will be approved by a majority of the disinterested members of the Company's Board of Directors. 39 41 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of October 15, 1996 (unless otherwise indicated): (i) by each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) by each director and each executive officer or former executive officer of the Company named in the Summary Compensation Table; (iii) by each Selling Stockholder; and (iv) by all current directors and executive officers of the Company as a group. Unless otherwise indicated below, to the knowledge of the Company, all persons listed below have sole voting and investment power with respect to their shares of Common Stock, except to the extent authority is shared by spouses under applicable law.
SHARES SHARES BENEFICIALLY BENEFICIALLY OWNED PRIOR TO OWNED AFTER THIS THIS OFFERING(1) NUMBER OF OFFERING(1) DIRECTORS, EXECUTIVE OFFICERS AND ----------------- SHARES BEING ----------------- 5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT - --------------------------------- ------ ------- ------------ ------ ------- INVESCO PLC and certain affiliates(2)............ 614,500 7.3 -- 614,500 6.5 11 Devonshire Square London EC2M 4YR ENGLAND Josef H. von Rickenbach(3)....................... 402,390 4.7 30,000 372,390 3.9 Werner M. Herrmann............................... 88,493 1.0 -- 88,493 * A. Dana Callow, Jr.(4)........................... 77,748 * 15,000 62,748 * John G. Lee(5)................................... 48,000 * -- 48,000 * Peter Barton Hutt(6)............................. 36,166 * 3,600 32,566 * James A. Saalfield(7)............................ 18,666 * -- 18,666 * Barry R. Philpott(8)............................. 8,400 * -- 8,400 * Taylor J. Crouch(9).............................. 7,750 * -- 7,750 * R. Adrian Otte(10)............................... 6,500 * -- 6,500 * Patrick J. Fortune............................... 0 * -- 0 * All current executive officers and directors as a group (12 persons)(11).......... 766,213 8.8 48,600 717,613 7.4 OTHER SELLING STOCKHOLDERS Martin J. Miller................................. 339,091 4.0 125,000 214,091 2.2 Veronica G. H. Jordan(12)........................ 65,000 * 5,000 60,000 * William T. Sobo, Jr.(13)......................... 51,150 * 5,000 46,150 * Howard M. Tag(14)................................ 41,952 * 15,700 26,252 * Peter B. Malamis(15)............................. 24,274 * 7,500 16,774 * Laurie G. Hughes(16)............................. 3,963 * 1,300 2,663 * - --------------- * Less than 1% of the outstanding Common Stock. (1) The number of shares of Common Stock deemed outstanding prior to this offering includes: (i) 8,448,968 shares of Common Stock outstanding as of October 15, 1996; and (ii) shares issuable pursuant to options held by the respective person or group which may be exercised within 60 days after October 15, 1996 ("presently exercisable" stock options), as set forth below. The number of shares of Common Stock deemed outstanding after this offering includes an additional 1,066,900 shares of Common Stock which are being offered for sale by the Company in this offering. (2) Ownership is stated as of April 5, 1996. Shares are held by INVESCO on behalf of other persons have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, the Company's Common Stock. INVESCO disclaims beneficial ownership of such shares. (3) Includes 321,183 shares of Common Stock owned by The Josef H. von Rickenbach GRAT dated November 17, 1995. Includes 30,000 shares of Common Stock issuable pursuant to presently exercisable stock options. (4) Includes 44,166 shares of Common Stock issuable pursuant to presently exercisable stock options. The shares to be offered may be offered by Mr. Callow or by a charitable remainder unitrust.
40 42 (5) Includes 44,750 shares of Common Stock issuable pursuant to presently exercisable stock options. In a letter dated September 4, 1996, Dr. Lee resigned as an employee of the Company effective September 30, 1996. (6) Includes 36,166 shares of Common Stock issuable pursuant to presently exercisable stock options. (7) Includes 16,666 shares of Common Stock issuable pursuant to presently exercisable stock options. (8) Includes 6,000 shares of Common Stock issuable pursuant to presently exercisable stock options. (9) Includes 5,300 shares of Common Stock issuable pursuant to presently exercisable stock options. (10) Includes 4,000 shares of Common Stock issuable pursuant to presently exercisable stock options. (11) Includes 209,548 shares of Common Stock issuable pursuant to presently exercisable stock options. (12) Includes 11,250 shares of Common Stock issuable pursuant to presently exercisable stock options. (13) Includes 50,000 shares of Common Stock issuable pursuant to presently exercisable stock options. (14) Includes 5,200 shares of Common Stock issuable pursuant to presently exercisable stock options. (15) Includes 13,900 shares of Common Stock issuable pursuant to presently exercisable stock options. (16) Includes 1,000 shares of Common Stock issuable pursuant to presently exercisable stock options. 41 43 DESCRIPTION OF CAPITAL STOCK The current authorized capital stock of the Company is 25,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. On September 19, 1996, the Board of Directors of the Company voted, subject to the approval of the Stockholders of the Company at the 1996 Annual Meeting of Stockholders to be held November 14, 1996, to increase the authorized Common Stock to 50,000,000 shares. COMMON STOCK Immediately after this offering, there will be 9,515,868 shares of Common Stock outstanding. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Holders of Common Stock do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding Preferred Stock. Holders of the Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered by the Company in this offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. There are no shares of Preferred Stock outstanding. PREFERRED STOCK The Board of Directors is authorized, subject to certain limitations prescribed by law, without further stockholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of Preferred Stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change of control of the Company. The Company has no present plans to issue any shares of Preferred Stock. MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED ARTICLES OF ORGANIZATION AND BY-LAWS The Company believes that it has more than 200 beneficial stockholders, thus making it subject to Chapter 110F of the Massachusetts General Laws, an anti-takeover law. In general, this statute prohibits a publicly held Massachusetts corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless (i) the interested stockholder obtains the approval of the board of directors prior to becoming an interested stockholder, (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time it becomes an interested stockholder, or (iii) the business combination is approved by both the board of directors and the holders of two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with its affiliates and associates, owns (or at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes a merger, a stock or asset sale, and certain other transactions resulting in a financial benefit to the interested stockholder. The Company may at any time elect not to be governed by Chapter 110F by vote of a majority of its stockholders, but such an amendment would not be 42 44 effective for twelve months and would not apply to a business combination with any person who became an interested stockholder prior to the adoption of the amendment. The Massachusetts Business Corporation Law generally requires that publicly-held Massachusetts corporations have a classified board of directors consisting of three classes as nearly equal in size as possible, unless those corporations elect to opt out of the statute's coverage. By vote of the Board of Directors, the Company has elected to opt out of the classified board provisions of this statute and has adopted separate classified Board provisions in its Restated Articles of Organization. See "Management -- Executive Officers and Directors." The Company's By-Laws include a provision that excludes the Company from the applicability of Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share Acquisitions." In general, this statute provides that any stockholder of a corporation subject to this statute who acquires 20% or more of the outstanding voting stock of a corporation may not vote such stock unless the stockholders of the corporation so authorize. The Board of Directors may amend the Company's By-Laws at any time to subject the Company to this statute prospectively. The Company's By-Laws require that nominations for the Board of Directors made by a stockholder comply with certain notice procedures. A notice by a stockholder of a planned nomination must be given not less than 60 and not more than 90 days prior to a scheduled meeting, provided that if less than 70 days' notice is given of the date of the meeting, a stockholder will have ten days within which to give such notice. The stockholder's notice of nomination must include particular information about the stockholder, the nominee and any beneficial owner on whose behalf the nomination is made. The Company may require any proposed nominee to provide such additional information as is reasonably required to determine the eligibility of the proposed nominee. The By-Laws also require that a stockholder seeking to have any business conducted at a meeting of stockholders give notice to the Company not less than 60 and not more than 90 days prior to the scheduled meeting, provided that if less than 70 days' notice is given of the date of the meeting, a stockholder will have ten days within which to give such notice. The notice from the stockholder must describe the proposed business to be brought before the meeting and include information about the stockholder making the proposal, any beneficial owner on whose behalf the proposal is made, and any other stockholder known to be supporting the proposal. The By-Laws require the Company to call a special stockholders' meeting at the request of stockholders holding at least 33 1/3% of the voting power of the Company. The Company's Restated Articles of Organization include provisions eliminating the personal liability of the Company's directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by the Massachusetts Business Corporation Law. Additionally, the Company's Restated Articles of Organization provide that the Company shall indemnify each person who is or was a director or officer of the Company, and each person who is or was serving or has agreed to serve at the request of the Company as a director or officer of, or in a similar capacity with, another organization or in any capacity with respect to any employee benefit plan of the Company, against all liabilities, costs and expenses reasonably incurred by any such persons in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding in which they may be involved by reason of being or having been such a director or officer, or by reason of any action taken or not taken in such capacity, except with respect to any matter as to which such person shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Company or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The Restated Articles of Organization provide that certain transactions, such as the sale, lease or exchange of all or substantially all of the Company's property and assets and the merger or consolidation of the Company into or with any other corporation, may be authorized by the approval of the holders of a majority of the shares of each class of stock entitled to vote thereon, rather than by two-thirds as otherwise provided by statute, provided that the transactions have been authorized by a majority of the members of the Board of 43 45 Directors and the requirements of any other applicable provisions of the Restated Articles of Organization have been met. Certain of the provisions of the Restated Articles of Organization and By-Laws discussed above would discourage or make more difficult a proxy contest or the assumption of control by a holder of a substantial block of the Company's stock. Such provisions could also have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. In addition, since the Restated Articles of Organization and By-Laws are designed to discourage accumulations of large blocks of the Company's stock by purchasers whose objective is to have stock repurchased by the Company at a premium, such provisions could tend to reduce the temporary fluctuations in the market price of the Company's stock which are caused by such accumulations. Accordingly, stockholders could be deprived of certain opportunities to sell their stock at a temporarily higher market price. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Boston EquiServe Limited Partnership. 44 46 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement dated the date hereof, each Underwriter named below has severally agreed to purchase, and the Company and the Selling Stockholders have agreed to sell to such Underwriter, shares of Common Stock which equal the number of shares set forth opposite the name of such Underwriter below.
NUMBER UNDERWRITER OF SHARES ----------- ---------- Smith Barney Inc. ........................................................ William Blair & Company, L.L.C. .......................................... Lehman Brothers Inc. ..................................................... Adams, Harkness & Hill, Inc. ............................................. --------- Total........................................................... 1,275,000 =========
The Underwriters are obligated to take and pay for all shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters, for whom Smith Barney Inc., William Blair & Company, L.L.C., Lehman Brothers Inc. and Adams, Harkness & Hill, Inc. are acting as Representatives, propose initially to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or to certain other dealers. After the initial offering of the shares to the public, the offering price and such concessions may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of 191,250 additional shares of Common Stock at the public offering price set forth on the cover page hereof less underwriting discounts and commissions. The Underwriters may exercise such option to purchase additional shares solely for the purpose of covering over-allotments, if any, incurred in connection with the sale of the shares offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares in such table. The Company, the Selling Stockholders and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. The Company, its executive officers and directors and the Selling Stockholders, holding in the aggregate approximately 10.0% of the Company's outstanding Common Stock, after giving effect to this offering, have agreed that, for a period of 90 days after the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, Common Stock except, in the case of the Company, in certain limited circumstances. The Underwriters and certain selling group members that currently act as market makers for the Common Stock may engage in "passive market making" in the Common Stock in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain conditions, underwriters and selling group members participating in a distribution that are also market makers in the security being distributed to engage in limited market making transactions during the period when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity. In general, under Rule 10b-6A, any Underwriter or selling group member engaged in passive market making in the Common Stock (i) may not effect transactions in, or display bids for, the Common Stock at a price that exceeds the highest bid for the Common Stock displayed by a market maker that is not participating in the distribution of the Common Stock, (ii) may not have net daily purchases of the Common Stock that exceed 30% of the average daily trading volume in such stock for the two full consecutive calendar months immediately preceding the filing 45 47 date of the registration statement of which this Prospectus forms a part and (iii) must identify its bid or bids as made by a passive market maker. The Common Stock is quoted on the Nasdaq National Market under the symbol "PRXL." LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company and the Selling Stockholders by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Certain legal matters relating to this offering will be passed upon for the Underwriters by Ropes & Gray, Boston, Massachusetts. EXPERTS The consolidated financial statements as of June 30, 1995 and 1996 and for each of the three years in the period ended June 30, 1996 included in this Prospectus and the financial statement schedule included in the Registration Statement have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 46 48 PAREXEL INTERNATIONAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of independent accountants..................................................... F-2 Consolidated statement of operations for the three years ended June 30, 1996 and unaudited for the three months ended September 30, 1995 and 1996.................... F-3 Consolidated balance sheet at June 30, 1995 and 1996 and unaudited at September 30, 1996.................................................................. F-4 Consolidated statement of stockholders' equity for the three years ended June 30, 1996 and unaudited for the three months ended September 30, 1996.................... F-5 Consolidated statement of cash flows for the three years ended June 30, 1996 and unaudited for the three months ended September 30, 1995 and 1996.................... F-6 Notes to consolidated financial statements............................................ F-7
F-1 49 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of PAREXEL International Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of PAREXEL International Corporation and its subsidiaries at June 30, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts August 22, 1996 F-2 50 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)
THREE MONTHS ENDED FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30, ------------------------------- ------------------- 1994 1995 1996 1995 1996 -------- -------- --------- -------- -------- (UNAUDITED) Revenue.................................... $ 69,646 $ 79,928 $121,869 $24,369 $43,152 Reimbursed costs........................... (11,644) (21,355) (33,863) (6,396) (10,122) -------- -------- -------- ------- ------- Net revenue................................ 58,002 58,573 88,006 17,973 33,030 -------- -------- -------- ------- ------- Costs and expenses: Direct costs............................. 38,244 42,140 60,141 12,465 22,821 Selling, general and administrative...... 13,631 13,294 19,027 3,834 6,617 Depreciation and amortization............ 2,435 2,251 2,343 515 883 Impairment of long-lived assets.......... -- 11,253 -- -- -- -------- -------- -------- ------- ------- 54,310 68,938 81,511 16,814 30,321 -------- -------- -------- ------- ------- Income (loss) from operations.............. 3,692 (10,365) 6,495 1,159 2,709 Interest income............................ 250 213 1,297 90 433 Interest expense........................... (71) (172) (162) (36) (55) Other income (expense), net................ (375) 14 22 44 (14) -------- -------- -------- ------- ------- (196) 55 1,157 98 364 -------- -------- -------- ------- ------- Income (loss) before provision for income taxes and cumulative effect of accounting change........................ 3,496 (10,310) 7,652 1,257 3,073 Provision for income taxes................. 1,573 320 3,053 515 1,137 -------- -------- -------- ------- ------- Net income (loss) before cumulative effect of accounting change..................... 1,923 (10,630) 4,599 742 1,936 Cumulative effect of change in accounting for income taxes......................... 500 -- -- -- -- -------- -------- -------- ------- ------- Net income (loss).......................... $ 2,423 $(10,630) $ 4,599 $ 742 $ 1,936 ======== ======== ======== ======= ======= Net income (loss) per share: Before cumulative effect of accounting change................................ $ 0.35 $ (12.61) $ 0.68 $ 0.14 $ 0.22 Cumulative effect of change in accounting for income taxes........... 0.09 -- -- -- -- -------- -------- -------- ------- ------- Net income (loss) per share................ $ 0.44 $ (12.61) $ 0.68 $ 0.14 $ 0.22 ======== ======== ======== ======= ======= Weighted average common and common equivalent shares outstanding............ 5,747 843 6,780 5,734 8,628 ======== ======== ======== ======= =======
F-3 51 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEET (in thousands, except share data)
JUNE 30, -------------------- SEPTEMBER 30, 1995 1996 1996 ---- ---- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents: Unrestricted.................................... $ 5,315 $ 16,243 $ 9,281 Restricted...................................... 1,360 858 1,370 Marketable securities.............................. 1,500 29,319 26,425 Accounts receivable, net........................... 24,675 39,277 49,596 Other current assets............................... 4,003 6,905 6,960 ------- -------- -------- Total current assets....................... 36,853 92,602 93,632 Property and equipment, net.......................... 4,671 8,193 12,210 Other assets......................................... 1,726 1,606 1,828 ------- -------- -------- $43,250 $102,401 $107,670 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt............... $ 692 $ 762 $ 774 Accounts payable................................... 2,466 7,003 9,014 Advance billings................................... 14,032 20,008 18,482 Other current liabilities.......................... 8,089 11,401 10,946 ------- -------- -------- Total current liabilities.................. 25,279 39,174 39,216 Long-term debt....................................... 633 360 304 Other liabilities.................................... 1,814 1,655 1,778 ------- -------- -------- Total liabilities.......................... 27,726 41,189 41,298 ------- -------- -------- Commitments and contingencies Stockholders' equity: Convertible preferred stock -- $.01 par value...... 23,683 -- -- Common stock -- $.01 par value; shares authorized: 6,684,077 at June 30, 1995 and 25,000,000 at June 30, 1996 and September 30, 1996; shares issued: 858,364 at June 30, 1995, 7,827,110 at June 30, 1996 and 8,463,674 at September 30, 1996; shares outstanding: 843,658 at June 30, 1995, 7,812,404 at June 30, 1996 and 8,448,968 at September 30, 1996........................... 9 78 84 Additional paid-in capital......................... 406 66,291 68,510 Accumulated deficit................................ (8,826) (5,199) (2,209) Stock subscriptions receivable..................... (157) -- -- Cumulative translation adjustment.................. 409 42 (13) ------- -------- -------- Total stockholders' equity................. 15,524 61,212 66,372 ------- -------- -------- $43,250 $102,401 $107,670 ======= ======== ========
F-4 52 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except number of shares)
CONVERTIBLE COMMON STOCK PREFERRED STOCK -------------------------------- RETAINED ----------------------- ADDITIONAL EARNINGS STOCK NUMBER ISSUANCE NUMBER PAR PAID-IN (ACCUMULATED SUBSCRIPTIONS OF SHARES PRICE, NET OF SHARES VALUE CAPITAL DEFICIT) RECEIVABLE ---------- ---------- ---------- ----- ---------- ------------ ------------- BALANCE AT JUNE 30, 1993............... 2,101,044 $ 22,550 721,045 $ 7 $ 203 $ (619) $(148) Issuance of convertible preferred stock upon exercise of warrants............ 226,700 1,133 (33) Issuance of common stock upon exercise of stock options..................... 102,000 1 75 Income tax benefit from exercise of stock options........................ 80 Proceeds from stock subscriptions receivable........................... 18 Foreign currency translation........... Net income............................. 2,423 ---------- -------- --------- --- ------- -------- ----- BALANCE AT JUNE 30, 1994............... 2,327,744 23,683 823,045 8 358 1,804 (163) Issuance of common stock upon exercise of stock options..................... 21,986 1 65 Repurchase of common shares............ (1,373) (17) Proceeds from stock subscriptions receivable........................... 6 Foreign currency translation........... Net loss............................... (10,630) ---------- -------- --------- --- ------- -------- ----- BALANCE AT JUNE 30, 1995............... 2,327,744 23,683 843,658 9 406 (8,826) (157) Issuance of convertible preferred stock upon exercise of warrants............ 176,887 1,769 Proceeds from stock subscriptions receivable........................... 157 Conversion of preferred stock into common upon initial public offering............................. (2,504,631) (25,452) 4,478,008 44 25,408 Payment of accrued preferred stock dividends............................ (940) Net proceeds from public offerings..... 2,100,000 21 36,866 Issuance of common stock upon exercise of stock options..................... 309,920 3 408 Acquisitions (Note 4).................. 80,818 1 145 (76) Income tax benefit from exercise of stock options........................ 3,058 Net unrealized gain on marketable securities........................... 44 Foreign currency translation........... Net income............................. 4,599 ---------- -------- --------- --- ------- -------- ----- BALANCE AT JUNE 30, 1996............... -- -- 7,812,404 78 66,291 (5,199) -- Issuance of common stock upon exercise of stock options (unaudited)......... 132,412 1 1,428 Acquisitions (Note 4) (unaudited)...... 504,152 5 41 1,024 Income tax benefit from exercise of stock options (unaudited)............ 750 Net unrealized gain on marketable securities (unaudited)............... 30 Foreign currency translation (unaudited).......................... Net income (unaudited)................. 1,936 ---------- -------- --------- --- ------- -------- ----- BALANCE AT SEPTEMBER 30, 1996 (UNAUDITED).......................... -- $ -- 8,448,968 $84 $68,510 $ (2,209) $ -- ========== ======== ========= === ======= ======== ===== CUMULATIVE TOTAL TRANSLATION STOCKHOLDERS' ADJUSTMENT EQUITY ----------- ------------ BALANCE AT JUNE 30, 1993............... $(146) $ 21,847 Issuance of convertible preferred stock upon exercise of warrants............ 1,100 Issuance of common stock upon exercise of stock options..................... 76 Income tax benefit from exercise of stock options........................ 80 Proceeds from stock subscriptions receivable........................... 18 Foreign currency translation........... (308) (308) Net income............................. 2,423 ----- -------- BALANCE AT JUNE 30, 1994............... (454) 25,236 Issuance of common stock upon exercise of stock options..................... 66 Repurchase of common shares............ (17) Proceeds from stock subscriptions receivable........................... 6 Foreign currency translation........... 863 863 Net loss............................... (10,630) ----- -------- BALANCE AT JUNE 30, 1995............... 409 15,524 Issuance of convertible preferred stock upon exercise of warrants............ 1,769 Proceeds from stock subscriptions receivable........................... 157 Conversion of preferred stock into common upon initial public offering............................. -- Payment of accrued preferred stock dividends............................ (940) Net proceeds from public offerings..... 36,887 Issuance of common stock upon exercise of stock options..................... 411 Acquisitions (Note 4).................. 70 Income tax benefit from exercise of stock options........................ 3,058 Net unrealized gain on marketable securities........................... 44 Foreign currency translation........... (367) (367) Net income............................. 4,599 ----- -------- BALANCE AT JUNE 30, 1996............... 42 61,212 Issuance of common stock upon exercise of stock options (unaudited)......... 1,429 Acquisitions (Note 4) (unaudited)...... 1,070 Income tax benefit from exercise of stock options (unaudited)............ 750 Net unrealized gain on marketable securities (unaudited)............... 30 Foreign currency translation (unaudited).......................... (55) (55) Net income (unaudited)................. 1,936 ----- -------- BALANCE AT SEPTEMBER 30, 1996 (UNAUDITED).......................... $ (13) $ 66,372 ====== ========
F-5 53 PAREXEL INTERNATIONAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
THREE MONTHS ENDED FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30, ------------------------------- -------------------- 1994 1995 1996 1995 1996 ------- -------- -------- -------- -------- (UNAUDITED) Cash flows from operating activities: Net income (loss)................................ $ 2,423 $(10,630) $ 4,599 $ 742 $ 1,936 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization.................. 2,435 2,251 2,343 515 883 Restructuring transactions..................... (1,959) (683) (135) (40) -- Impairment of long-lived assets................ -- 11,253 -- -- -- Change in assets and liabilities, net of effects from acquisitions: Restricted cash.............................. (282) (929) 502 (9) (512) Accounts receivable, net..................... (6,309) (281) (15,086) (5,602) (7,713) Other current assets......................... (366) (1,395) 54 704 257 Other assets................................. (531) (79) (144) 66 (71) Accounts payable............................. (1,573) 256 4,605 873 1,638 Advance billings............................. 350 3,953 6,383 2,222 (1,710) Other current liabilities.................... 1,867 1,932 3,347 (840) (858) Other liabilities............................ (239) 56 (18) 11 35 ------- -------- -------- -------- -------- Net cash provided (used) by operating activities... (4,184) 5,704 6,450 (1,358) (6,115) ------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of marketable securities............... (2,787) (3,510) (131,903) (1,300) (10,849) Proceeds from sale of marketable securities...... 4,303 2,710 104,128 1,500 13,773 Cash related to acquisition activities........... (100) -- 52 -- 251 Purchase of property and equipment............... (1,979) (1,460) (5,039) (262) (2,657) ------- -------- -------- -------- -------- Net cash provided (used) by investing activities... (563) (2,260) (32,762) (62) 518 ------- -------- -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of convertible preferred stock.......................................... 1,100 -- 1,769 -- -- Proceeds from issuance of common stock........... 76 66 37,298 -- 1,429 Cash received from stock subscriptions........... 18 6 157 -- -- Payments to acquire treasury stock............... -- (17) -- -- -- Repayments of long-term debt..................... (510) (684) (889) (202) (2,755) Dividends on convertible preferred stock......... -- -- (940) -- -- ------- -------- -------- -------- -------- Net cash provided (used) by financing activities... 684 (629) 37,395 (202) (1,326) ------- -------- -------- -------- -------- Effect of exchange rate changes on unrestricted cash and cash equivalents........................ (24) 134 (155) (76) (39) ------- -------- -------- -------- -------- Net increase (decrease) in unrestricted cash and cash equivalents................................. (4,087) 2,949 10,928 (1,698) (6,962) Unrestricted cash and cash equivalents at beginning of period........................................ 6,453 2,366 5,315 5,315 16,243 ------- -------- -------- -------- -------- Unrestricted cash and cash equivalents at end of period........................................... $ 2,366 $ 5,315 $ 16,243 $ 3,617 $ 9,281 ======= ======== ======== ======= ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest....................................... $ 83 $ 179 $ 165 $ 35 $ 55 Income taxes................................... $ 1,237 $ 565 $ 1,649 $ 315 $ 391 Supplemental disclosure of noncash financing activities: Property and equipment acquired under capital lease obligations.............................. $ 666 $ 1,265 $ 536 $ 410 $ -- Income tax benefit from exercise of stock options........................................ $ 80 -- $ 3,058 $ -- $ 750
F-6 54 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF THE BUSINESS PAREXEL International Corporation (the Company) is a leading contract research organization (CRO), providing clinical research and development services to the worldwide pharmaceutical, biotechnology and medical device industries. The Company designs, initiates and monitors clinical trials, manages and analyzes clinical data, assists with regulatory affairs and offers other related services and products. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of PAREXEL International Corporation and its wholly-owned domestic and foreign subsidiaries. The Company's German and French subsidiaries operate on a fiscal year which ends May 31. All significant intercompany accounts and transactions have been eliminated. 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, revenues and expenses, and disclosure 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 which require the revisions become known. When the revised estimate indicates a loss, such loss is provided for currently in its entirety. "Unbilled accounts receivable" represents revenue recognized in excess of amounts billed. "Advance billings" represents amounts billed in excess of revenue recognized. Investigator Fees Investigator fees are accrued as investigator services are rendered. The timing of payments to investigators is determined by reference to predetermined contractual arrangements, which may differ from the accrual of the expense. Payments to investigators in excess of amounts accrued are classified as prepaid expenses included in other current assets and accrued expenses in excess of amounts paid are classified as other current liabilities. Cash, Cash Equivalents, Marketable Securities and Financial Instruments The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents for purposes of the statement of cash flows. Marketable securities include securities purchased with original maturities of greater than three months. Cash equivalents and marketable securities are classified as available-for-sale and are carried at fair market value, and any unrealized gains or losses are recorded as part of stockholders' equity. Restricted cash consists of advances and deposits from customers subject to certain restrictions. The Company occasionally purchases securities with seven-day put options which 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. At F-7 55 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996, approximately $1.0 million of securities were subject to seven-day put options. The Company does not hold derivative instruments for trading purposes. 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. No single customer accounted for more than 10% of the Company's consolidated net revenue for the years ended June 30, 1994, 1995 or 1996. Property and Equipment Property and equipment is stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets ranging from three to five years. 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 charged to expense as incurred. Intangible Assets Intangible assets consist principally of goodwill, customer lists, covenants not to compete, and other intangible assets attributable to businesses acquired. Goodwill represents the excess of the cost of businesses acquired over the fair value of the related net assets at the date of acquisition. Goodwill and other intangible assets are amortized using the straight-line method over five to ten years. Impairment of Long-Lived Assets The Company periodically assesses the recoverability of the carrying amount of long-lived assets, including intangible assets. A loss is recognized when expected future cash flows (undiscounted and without interest) are less than the carrying amount of the asset. The amount of the impairment loss is determined as the difference by which the carrying amount of the asset exceeds the fair value of the asset. Income Taxes Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109) prospectively. FAS 109 requires the recognition of deferred tax assets (representing future tax benefits) attributable to deductible temporary differences between financial statement and income tax bases of assets and liabilities and to operating loss carryforwards to the extent that realization of these benefits is more likely than not. The cumulative effect of the Company's adoption of FAS 109 increased net income by $500,000 for the year ended June 30, 1994, and primarily related to the future tax benefit of temporary differences within the North American operations. Foreign Currency Assets and liabilities of the Company's international operations are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Accumulated net translation adjustments are included in stockholders' equity. Realized gains and losses recorded in the statement of operations were not material. Net Income (Loss) Per Share Net income (loss) per share is calculated based on the weighted average number of common shares and common equivalent shares assumed outstanding during the period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, certain common and common equivalent shares issued by the F-8 56 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company during the twelve months immediately preceding the initial filing of the registration statement relating to the Company's initial public offering have been included in the calculation of weighted average shares, using the treasury stock method and an assumed initial public offering price of $14 per share, as if these shares were outstanding for all periods prior to the initial public offering. Recently Issued Accounting Standards In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The Company has elected to adopt FAS 123 in fiscal 1997 through disclosure only. Interim Financial Data (Unaudited) The interim financial data at and for the three months ended September 30, 1995 and 1996 included in the accompanying consolidated financial statements are unaudited; however, in the opinion of the Company, the interim financial data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim financial data are not necessarily indicative of the results of operation for a full fiscal year. NOTE 3 -- IMPAIRMENT OF LONG-LIVED ASSETS In fiscal 1991, PAREXEL acquired AFB Arzneimittelforschung GmbH, (which was subsequently renamed PAREXEL GmbH), a contract research organization headquartered in Germany, in exchange for $3.9 million of cash, Convertible Preferred Stock then valued at $1.3 million and the assumption of $16.1 million of liabilities. Since it was acquired, PAREXEL GmbH's financial performance has fallen below management's expectations and experienced a declining revenue base. In fiscal 1993, the Company recorded a charge aggregating $3.3 million with respect to a plan to restructure its German operations. The plan primarily involved the physical consolidation of several operating groups within two facilities and a reduction in employee headcount. The charge included lease abandonment costs, write-offs of leasehold improvements, severance payments and other expenses directly associated with the restructuring plan. There were no material changes in estimates included in this charge, and at June 30, 1996 these actions were complete. As a result of the restructuring effort in fiscal 1993, management budgeted positive operating results that supported the realization of the related net assets. However, in the third quarter of fiscal 1995, PAREXEL GmbH's operations suffered a further decline in net revenue resulting in a net loss for the period. Also during the third quarter, drug development regulations in Germany and Europe were modified, and further changes were being contemplated, all of which were expected to have a detrimental impact on PAREXEL GmbH's operations. Considering the cumulative impact of the above-described factors, management updated its assessment of the realizability of the long-lived assets of PAREXEL GmbH as of the third quarter of fiscal 1995. In accordance with its accounting policy for impaired long-lived assets, management prepared a forecast of PAREXEL GmbH's expected future cash flows on an undiscounted basis and without interest charges. This forecast was based on assumptions developed by management using PAREXEL GmbH's historical experience as well as the best estimate of future trends and events. In the short-term, management had forecasted declining revenue in certain of PAREXEL GmbH's operations in recognition of the current business environment within Germany. In the longer-term, management's assumptions reflected a stabilization of the revenue base, followed by a period of moderate revenue and expense growth (approximately 4% annually). The sum of the forecasted cash flows from management's model was less than the carrying amount of PAREXEL's investment in PAREXEL GmbH. To assess the fair value of PAREXEL GmbH, the Company retained a valuation expert. A discounted cash flow valuation technique was utilized with a discount rate of approximately 19.5% based upon F-9 57 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAREXEL GmbH's calculated cost of capital. The results of this calculation indicated a de minimus valuation and accordingly, in the third quarter of fiscal 1995, the Company recorded an impairment loss on long-lived assets of $11.3 million; comprising $8.7 million in goodwill, $1.4 million in fixed assets and $1.2 million in identifiable intangible assets. NOTE 4 -- ACQUISITIONS On June 28, 1996, the Company acquired, in separate transactions, Sitebase Clinical Systems, Inc., (Sitebase), a provider of remote data entry technology, and Caspard Consultants (Caspard), a Paris-based biostatistical and data management consulting company. The Company issued a total of 80,818 shares of common stock in exchange for all of the outstanding shares of Sitebase and Caspard. Both of these transactions are being accounted for as poolings of interest. The aggregate historical results of operations and financial position of Sitebase and Caspard are not material to the Company's consolidated financial statements. Therefore, prior period amounts have not been restated and results of operations have been included since the date of acquisition. On August 16, 1996, the Company acquired Lansal Clinical Pharmaceutics Limited (Lansal), a contract research organization in Israel. On August 22, 1996, the Company acquired State and Federal Associates, Inc. (S&FA), a strategic healthcare consulting organization located in Washington D.C. Both of these transactions are being accounted for as poolings of interest. The Company issued 504,152 shares of common stock in exchange for all of the outstanding shares of Lansal and S&FA. The aggregate historical results of operations and financial position of Lansal and S&FA are not material to the Company's consolidated financial statement. Therefore, prior period amounts have not been restated and results of operations have been included since the date of acquisition. Pro forma results of the Company, assuming the above acquisitions were made at the beginning of each period presented, would not be materially different from the actual results reported. NOTE 5 -- INVESTMENTS Available-for-sale securities included in cash and cash equivalents as of June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 ---- ---- Money market.................................................... $ -- $ 2,492 Municipal securities............................................ -- 10,000 Repurchase agreements........................................... 2,191 1,141 ------ ------- $2,191 $13,633 ====== =======
Available-for-sale securities included in marketable securities at June 30, 1995 consisted of $1.5 million of municipal securities (which are carried at fair market value which approximates cost). Available-for-sale securities included in marketable securities at June 30, 1996 consisted of the following:
UNREALIZED AMORTIZED -------------- FAIR (in thousands) COST GAINS LOSSES VALUE --------- ----- ------ ----- Municipal securities............................ $16,972 $ 3 $(34) $16,941 Federal Government securities................... 10,344 66 (1) 10,409 Corporate debt securities....................... 1,959 10 -- 1,969 ------- --- ---- ------- $29,275 $79 $(35) $29,319 ======= === ==== =======
The contractual maturity of available-for-sale securities at June 30, 1996 was $39.5 million within one year, $2.8 million over one year and less than five years, and $700,000 over five years. Proceeds from the maturities and sales of available-for-sale securities amounted to approximately $568.1 million for the year ended June 30, 1996 and $2.7 million for the year ended June 30, 1995. Purchases amounted to approximately $607.4 million for the year ended June 30, 1996 and $3.5 million for the year ended June 30, 1995. Gains and F-10 58 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS losses realized upon the sale of securities (the cost of which is based upon the specific identification method) were not significant. NOTE 6 -- ACCOUNTS RECEIVABLE Accounts receivable at June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 ---- ---- Billed......................................................... $14,081 $21,286 Unbilled....................................................... 11,868 19,490 Allowance for doubtful accounts................................ (1,274) (1,499) ------- ------- $24,675 $39,277 ======= =======
NOTE 7 -- PROPERTY AND EQUIPMENT Property and equipment at June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 ---- ---- Computer and office equipment.................................. $ 6,807 $10,527 Computer software.............................................. 1,061 1,725 Furniture and fixtures......................................... 2,117 3,058 Leasehold improvements......................................... 394 652 ------- ------- 10,379 15,962 Less accumulated depreciation and amortization................. 5,708 7,769 ------- ------- $ 4,671 $ 8,193 ======= =======
Included in the above amounts is computer and office equipment acquired under capital lease obligations of approximately $3.0 million and $3.6 million at June 30, 1995 and 1996, respectively. Accumulated depreciation on computer and office equipment under capital leases totalled approximately $1.3 million and $1.8 million at June 30, 1995 and 1996, respectively. Depreciation and amortization expense relating to property and equipment was approximately $1.5 million, $1.7 million and $2.1 million for the years ended June 30, 1994, 1995 and 1996, respectively, of which $286,000, $427,000 and $634,000 related to amortization of property and equipment under capital leases. NOTE 8 -- OTHER CURRENT LIABILITIES Other current liabilities at June 30, 1995 and 1996 consisted of the following:
(in thousands) 1995 1996 ------- ------- Accrued compensation and withholdings.......................... $ 2,068 $ 4,281 Accrued investigator fees...................................... 1,608 1,565 Other.......................................................... 4,413 5,555 ------- ------- $ 8,089 $11,401 ======= =======
NOTE 9 -- CREDIT ARRANGEMENTS The Company has domestic and foreign line of credit arrangements with banks totalling approximately $6.4 million. The lines are collateralized by accounts receivable, are payable on demand and bear interest at the local bank base or money market rate, plus 1% to 3% (resulting in interest rates ranging from 5.5% to F-11 59 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9.25% at June 30, 1996). The lines of credit expire at various dates through December 1996 and are renewable. There were no amounts outstanding under these lines of credit at June 30, 1996. The Company has a $2.4 million capital lease line of credit with a U.S. bank for the financing of property and equipment. This line is collateralized by property and equipment. Borrowings under this line are payable over a three-year term with interest fixed at the five-year U.S. Treasury note rate plus 2.5% (for a total interest rate of 9.2% at June 30, 1996) and are included in long-term debt. This line of credit expires on November 30, 1998 and is renewable annually. Available capacity under this line was approximately $1.2 million at June 30, 1996. Long-term debt at June 30, 1995 and 1996 consisted of borrowings under the capital lease line. The fair value of debt is estimated based on the market value for similar debt and approximates carrying value at June 30, 1995 and 1996. Aggregate lease obligations bear a weighted average interest rate of approximately 7.9% at June 30, 1996. Long-term debt matures as follows: $762,000 in fiscal 1997, $333,000 in fiscal 1998 and $27,000 in fiscal 1999. NOTE 10 -- STOCKHOLDERS' EQUITY On November 22, 1995 the Company sold 1.6 million shares of common stock to the public in the Company's initial public offering at a price of $15.00 per share. Proceeds to the Company, net of offering expenses, amounted to $21.2 million. Upon closing of the initial public offering, the Company received $157,000 in repayment of stock subscriptions receivable, $1.8 million of proceeds from the exercise of preferred stock warrants and all of the preferred stock automatically converted into a total of 4,478,008 shares of common stock. In addition, the Company paid cumulative dividends to preferred stockholders of approximately $940,000. On March 1, 1996, an additional 500,000 shares of the Company's common stock were sold by the Company to the public at a price per share of $33.75. Proceeds to the Company, net of offering expenses, amounted to $15.7 million. At June 30, 1996 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 of the Company (without stockholder approval) with such designations, rights and preferences, including voting rights, dividend rights and rates and terms of redemption, as the Board of Directors may determine from time to time. At June 30, 1994, the Company held 13,333 shares of common stock in treasury, at a cost per share of $0.01. During the year ended June 30, 1995, 1,373 common shares were repurchased at a cost per share of $12.50. There were 14,706 shares of common stock held in treasury at June 30, 1995 and 1996. NOTE 11 -- STOCK AND EMPLOYEE BENEFIT PLANS Common Stock Options The Company's 1986 Incentive Stock Option Plan, 1987 Stock Plan and 1989 Stock Plan (collectively, the Plans) provide for the granting of incentive and non-qualified stock options for the purchase of shares of common stock, and awards and sales of common stock, to directors, officers, employees and consultants, depending upon the provisions of the plan. An aggregate of 638,000 shares of common stock was originally reserved for issuance under the Plans. In September 1995 the Company adopted the 1995 Stock Plan (the 1995 Plan), which provides for the issuance of options to purchase up to 500,000 shares of common stock to employees, officers, consultants and advisors of the Company. The Compensation Committee of the Company's Board of Directors determines the type of grant, option exercise price per share, the vesting period (generally four to five years), and the expiration date at the date of grant. F-12 60 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In September 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (Director Plan). The Director Plan provides for the grant of options to purchase up to 300,000 shares of common stock of the Company to non-employee directors. An aggregate of 86,500 options were granted on November 21, 1995, the effective date of the Company's initial public offering, at an exercise price equal to the initial public offering price of $15.00 per share. The options became exercisable on the first succeeding June 30th after the effective date. All other options become exercisable in three equal annual installments beginning on the first anniversary of the date of grant, subject to specified meeting attendance requirements. In addition to plan options granted, the Company granted at various dates prior to 1989 options to purchase an aggregate of 86,300 shares of common stock at prices ranging from $0.35 to $0.75 not pursuant to any plan. During the year ended June 30, 1994, the Company granted additional options to purchase 40,000 shares of common stock not pursuant to any plan. These options vest over a three year period and have an exercise price of $12.50 per share. Aggregate stock option activity during fiscal 1994, 1995 and 1996 was as follows:
OPTIONS EXERCISE PRICE ------- -------------- Outstanding at June 30, 1993................................... 741,022 $0.25 -- $12.50 Granted................................................... 95,300 12.50 Canceled.................................................. (11,500) 0.60 -- 12.50 Exercised................................................. (102,000) 0.60 -- 0.75 -------- Outstanding at June 30, 1994................................... 722,822 0.25 -- 12.50 Granted................................................... 12,000 12.50 Canceled.................................................. (75,383) 3.00 -- 12.50 Exercised................................................. (21,986) 3.00 -------- Outstanding at June 30, 1995................................... 637,453 0.25 -- 12.50 Granted................................................... 419,000 12.50 -- 47.50 Canceled.................................................. (26,073) 3.00 -- 15.00 Exercised................................................. (309,920) 0.25 -- 10.00 -------- Outstanding at June 30, 1996................................... 720,460 0.35 -- 47.50 ======== Exercisable at June 30, 1996................................... 393,757 0.35 -- 19.38 ======== Available for future grant at June 30, 1996.................... 408,667 ========
All of the foregoing options were granted with an exercise price equal to fair market value at the time of grant. Employee Stock Purchase Plan In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the Purchase Plan). Under the 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 300,000 shares may be issued under the Purchase Plan. F-13 61 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Effective July 1, 1992, the Company matches 100% of each participants' 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 $327,000 and $526,000 for the years ended June 30, 1995 and 1996, respectively. NOTE 12 -- INCOME TAXES Domestic and foreign income (loss) before income taxes for the years ended June 30, 1994, 1995 and 1996 are as follows:
(in thousands) 1994 1995 1996 ---- ---- ---- Domestic.................................................. $2,702 $ 350 $5,526 Foreign................................................... 794 (10,660) 2,126 ------ -------- ------ $3,496 $(10,310) $7,652 ====== ======== ======
The provision for income taxes for the years ended June 30, 1994, 1995 and 1996 are as follows:
(in thousands) 1994 1995 1996 ---- ---- ---- Current: Federal.............................................. $ 881 $ 274 $2,202 State................................................ 421 192 636 Foreign.............................................. 361 78 427 ------ ----- ------ 1,663 544 3,265 ------ ----- ------ Deferred: Federal.............................................. (55) (164) (157) State................................................ (18) (55) (52) Foreign.............................................. (17) (5) (3) ------ ----- ------ (90) (224) (212) ------ ----- ------ $1,573 $ 320 $3,053 ====== ===== ======
Income taxes are greater than the amount of income tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes as a result of the following differences:
(in thousands) 1994 1995 1996 ---- ---- ---- Income tax expense (benefit) at the 34% federal statutory rate.................................................... $1,189 $(3,505) $2,602 State income taxes, net of federal benefit................ 282 92 460 Foreign rate differential................................. 105 (108) (234) Non-deductible amortization of intangible assets.......... 305 169 45 Non-deductible impairment of assets....................... -- 3,348 -- Foreign operating losses without current benefit.......... -- 334 26 Temporary items without current benefit (reversals)....... (341) -- -- Other..................................................... 33 (10) 154 ------ ------- ------ $1,573 $ 320 $3,053 ====== ======= ======
Temporary items without current benefit relate primarily to book and tax differences between the deductibility of restructuring charges incurred in fiscal 1993. F-14 62 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Significant components of the Company's net deferred tax asset as of June 30, 1995 and 1996 are as follows:
(in thousands) 1995 1996 ---- ---- Deferred tax assets: Foreign loss carryforwards....................... $ 6,891 $ 6,048 Facility and other restructuring costs........... 763 -- Accrued expenses................................. 445 497 Property and equipment........................... 703 486 Allowance for doubtful accounts.................. 417 491 Other............................................ 118 477 ------- ------- Gross deferred tax assets........................ 9,337 7,999 Deferred tax asset valuation allowance........... (7,491) (5,926) ------- ------- Total deferred tax assets................... 1,846 2,073 ------- ------- Deferred tax liabilities: Deferred contract profit......................... (463) (274) Other............................................ (289) (292) ------- ------- Total deferred tax liabilities.............. (752) (566) ------- ------- $ 1,094 $ 1,507 ======= =======
The net deferred tax assets are included in the consolidated balance sheet as of June 30, 1995 and 1996 as follows:
(in thousands) 1995 1996 ---- ---- Other current assets.................................. $ 716 $1,255 Other assets.......................................... 378 252 ------ ------ $1,094 $1,507 ====== ======
The net deferred tax asset includes the tax effect of approximately $12 million of pre-acquisition and post-acquisition foreign tax loss carryforwards available to offset future liabilities for foreign income tax. Substantially all of the foreign tax losses are carried forward indefinitely, subject to certain limitations. A valuation allowance has been established for 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. The ultimate realization of these loss carryforwards is primarily dependent upon the generation of sufficient taxable income in respective foreign jurisdictions, primarily Germany. F-15 63 PAREXEL INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 -- GEOGRAPHIC INFORMATION The Company's operations involve a single industry segment providing clinical research and development services. The principal financial information by geographic area for the years ended June 30, 1994, 1995 and 1996 is as follows:
(in thousands) 1994 1995 1996 ---- ---- ---- Net revenue North America.......................................... $37,111 $ 35,037 $ 54,179 Europe................................................. 20,891 23,443 32,834 Asia-Pacific -- 93 993 ------- -------- -------- $58,002 $ 58,573 $ 88,006 ======= ======== ======== Income (loss) from operations North America.......................................... $ 3,908 $ 1,166 $ 5,405 Europe................................................. (216) (11,531) 1,266 Asia-Pacific........................................... -- -- (176) ------- -------- -------- $ 3,692 $(10,365) $ 6,495 ======= ======== ======== Identifiable assets North America.......................................... $21,349 $ 25,288 $ 77,493 Europe................................................. 24,587 17,927 24,752 Asia-Pacific........................................... -- 35 156 ------- -------- -------- $45,936 $ 43,250 $102,401 ======= ======== ========
NOTE 14 -- LEASES The Company leases its facilities under operating leases which include renewal and escalation clauses. Total rent expense was approximately $3.7 million, $4.3 million and $5.1 million for years ended June 30, 1994, 1995 and 1996, respectively. Future minimum lease commitments due under non-cancelable operating leases and capital lease obligations at each fiscal year end are as follows:
CAPITAL OPERATING (in thousands) LEASES LEASES ------ --------- 1997............................................................ $ 823 $ 6,170 1998............................................................ 347 6,146 1999............................................................ 28 5,642 2000............................................................ -- 4,013 2001............................................................ -- 3,699 Thereafter...................................................... -- 1,520 ------ ------- Total obligations............................................... 1,198 $27,190 ======= ------ Less amount representing interest............................... 76 ------ $1,122 ======
NOTE 15 -- RELATED PARTY TRANSACTIONS Certain of the Company's Directors are affiliated with certain of the Company's customers. Net revenue recognized from these customers was $2.3 million, $3.0 million and $8.1 million in fiscal 1994, 1995 and 1996, respectively. Amounts included in accounts receivable at June 30, 1995 and 1996 were $1.2 million and $1.9 million respectively. Related party amounts included in accounts receivable are on standard terms and manner of settlement. F-16 64 ============================================================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ---- Additional Information................ 2 Prospectus Summary.................... 3 Risk Factors.......................... 6 The Company........................... 10 Use of Proceeds....................... 10 Price Range of Common Stock and Dividend Policy..................... 10 Capitalization........................ 11 Selected Consolidated Financial Data................................ 12 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 13 Business.............................. 20 Management............................ 32 Certain Relationships and Related Transactions........................ 39 Principal and Selling Stockholders.... 40 Description of Capital Stock.......... 42 Underwriting.......................... 45 Legal Matters......................... 46 Experts............................... 46 Index to Consolidated Financial Statements.......................... F-1
============================================================================== ============================================================================== 1,275,000 SHARES LOGO COMMON STOCK --------------- PROSPECTUS , 1996 --------------- SMITH BARNEY INC. WILLIAM BLAIR & COMPANY LEHMAN BROTHERS ADAMS, HARKNESS & HILL, INC. ' ============================================================================== 65 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Estimated expenses (other than underwriting discounts and commissions) payable in connection with the sale of the Common Stock offered hereby are as follows: Registration fee.......................................................... $ 36,000 NASD filing fee........................................................... 8,748 Nasdaq Additional Listing fee............................................. 17,500 Printing and engraving expenses........................................... 80,000 Legal fees and expenses................................................... 200,000 Accounting fees and expenses.............................................. 50,000 Blue Sky fees and expenses (including legal fees)......................... 15,000 Transfer agent and registrar fees and expenses............................ 10,000 Miscellaneous............................................................. 82,752 -------- Total........................................................... $500,000 ========
The Company will bear all expenses shown above. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article 6 of the Company's Restated Articles of Organization provides that the Company shall indemnify each person who is or was a director or officer of the Company, and each person who is or was serving or has agreed to serve at the request of the Company as a director or officer of, or in a similar capacity with, another organization against all liabilities, costs and expenses reasonably incurred by any such persons in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding in which they may be involved by reason of being or having been such a director or officer or by reason of any action taken or not taken in such capacity, except with respect to any matter as to which such person shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Company. Section 67 of Chapter 156B of the Massachusetts Business Corporation Law authorizes a corporation to indemnify its directors, officers, employees and other agents unless such person shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that such action was in the best interests of the corporation. Reference is hereby made to Section 9 of the Underwriting Agreement among the Company and the Underwriters, filed as Exhibit 1.1 of this Registration Statement, for a description of indemnification arrangements between the Company and the Underwriters, pursuant to which the Underwriters are obligated, under certain circumstances, to indemnify directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Act"). ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In the three years preceding the filing of this registration statement, the Company has issued the following securities that were not registered under the Act: Since October 15, 1993 and through the date the Company's Registration Statement on Form S-8 was declared effective (December 12, 1995), the Company has issued options to purchase an aggregate of 302,550 shares of Common Stock exercisable at a weighted average price of $14.05. During such time period, options to purchase an aggregate of 24,486 shares of Common Stock were exercised. No underwriter was engaged in connection with the foregoing sales of securities. Sales of Common Stock to directors, officers and employees were made in reliance upon Section 4(2) of the Act as transactions not involving any public offering or in reliance upon Rule 701 under the Act or Regulation S under the Act. The II-1 66 Company has reason to believe that all of the foregoing purchasers were familiar with or had access to information concerning the operations and financial condition of the Company, and all of those individuals acquired the shares for investment and not with a view to the distribution thereof. At the time of issuance, all of the foregoing securities were deemed to be restricted securities for the purposes of the Act and the certificates representing such securities bore legends to that effect. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE. (a) Exhibits.
EXHIBIT NO. DESCRIPTION - ----------- ----------- 1.1 -- Form of Underwriting Agreement. 3.1 -- Amended and Restated Articles of Organization of the Company (filed as exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-1188) and incorporated herein by this reference). 3.2 -- Amended and Restated By-laws of the Company (filed as exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-1188) and incorporated herein by this reference). 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). 4.2 -- Stock Purchase Agreement dated as of May 24, 1996 between the Company, Sitebase Clinical Systems, Inc., Raymond A. Konisky and Karen A. Konisky (filed as exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (File No. 333-06953) and incorporated herein by this reference). 4.3 -- Registration Rights Agreement dated as of June 28, 1996 between the Company, Raymond A. Konisky and Karen A. Konisky (filed as exhibit 4.3 to the Registrant's Registration Statement on Form S-1 (File No. 333-06953) and incorporated herein by this reference). 5.1 -- Opinion of Testa, Hurwitz & Thibeault, LLP. 10.1 -- Stock Restriction and Registration Rights Agreement dated as of June 15, 1990 among the Company and Samuel T. Barnett and Frederic Harwood (filed as exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.2 -- Stock Purchase, Restriction and Registration Rights Agreement dated as of March 11, 1991 between the Company and Prof. Dr. Werner M. Herrmann (filed as exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.3 -- Investment Agreement dated as of December 26, 1990 among the Company and the stockholders named therein (filed as exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.4 -- Investment Agreement dated as of March 31, 1992 among the Company and the stockholders named therein (filed as exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.5 -- Sales Contract dated March 11, 1991 among Prof. Dr. Werner M. Herrmann, Josef H. von Rickenbach and William T. Sobo with respect to the sale by Prof. Dr. Herrmann of a majority interest in AFB Arzneimittelforschung GmbH (filed as exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.6 -- Employment Agreement dated June 30, 1993 between AFB-PAREXEL GmbH Independent Pharmaceutical Research Organization and Prof. Dr. med. Werner M. Herrmann (filed as exhibit 10.6 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference).
II-2 67
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.7 -- Letter Agreement dated June 30, 1993 between the Company and Prof. Dr. Werner M. Herrmann (filed as exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.8 -- Employment Agreement dated July 2, 1987 between Dr. Veronica G.H. Jordan and the Company (filed as exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.9 -- 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 this reference). 10.10 -- 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). 10.11 -- 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). 10.12 -- 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). 10.13 -- 1995 Stock Plan of the Company (filed as exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.14 -- 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). 10.15 -- 1995 Employee Stock Purchase Plan of the Company (filed as exhibit 10.15 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.16 -- 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). 10.17 -- Loan and Security Agreement dated as of July 31, 1992 between the Company, Barnett International Corporation and The First National Bank of Boston, as amended (filed as exhibit 10.17 to the Registrant's Registration Statement on Form S-1 (File No. 333-06953) and incorporated herein by this reference.) 10.18 -- Line of Credit Agreement between PAREXEL GmbH and Deutsche Bank Berlin, dated January 23, 1995 (filed as exhibit 10.24 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 10.19 -- 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). 10.20 -- 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). 10.21 -- 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). 10.22 -- Credit Agreement dated December 30, 1994 between PAREXEL GmbH and The First National Bank of Boston (filed as exhibit 10.30 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference).
II-3 68
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.23 -- Collateral Agreement dated December 30, 1994 between PAREXEL GmbH and The First National Bank of Boston (filed as exhibit 10.31 to the Registrant's Registration Statement on Form S-1 (File No. 33-97406) and incorporated herein by this reference). 11.1 -- Statement re computation of per share earnings. 21.1 -- List of subsidiaries of the Company (filed as exhibit 21.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (File No. 0-27058) and incorporated herein by this reference). 23.1 -- Consent of Price Waterhouse LLP. 23.2 -- Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.1). 24.1 -- Powers of Attorney (see page II-7).
(b) Financial Statement Schedule for the three years ended June 30, 1996:
PAGE NUMBER ------ Schedule II -- Valuation and Qualifying Accounts and Reserves................. S-1
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes (1) to provide to the underwriters at the closing specified in the underwritng agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser; (2) that for purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (3) that for the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 69 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waltham, Massachusetts, on the 21st day of October, 1996. PAREXEL INTERNATIONAL CORPORATION By: /s/ JOSEF H. VON RICKENBACH -------------------------------- Josef H. von Rickenbach President, Chief Executive Officer and Chairman POWER OF ATTORNEY AND SIGNATURES We, the undersigned officer and directors of PAREXEL International Corporation, hereby severally constitute and appoint Josef H. von Rickenbach, William T. Sobo, Jr. and William J. Schnoor, Jr., and each of them singly, as true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, all pre-effective and post-effective amendments to this registration statement, and generally to do all things in our names and on our behalf in such capacities to enable PAREXEL International Corporation to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURES TITLE(S) DATE ---------- -------- ---- /s/ JOSEF H. VON RICKENBACH President, Chief Executive October 21, 1996 - ---------------------------- Officer and Chairman (principal Josef H. von Rickenbach executive officer) /s/ WILLIAM T. SOBO, JR. Senior Vice President and October 21, 1996 - ---------------------------- Treasurer (principal financial William T. Sobo, Jr. and accounting officer) /s/ A. DANA CALLOW, JR. Director October 21, 1996 - ---------------------------- A. Dana Callow, Jr. /s/ PATRICK J. FORTUNE Director October 21, 1996 - ---------------------------- Patrick J. Fortune /s/ WERNER M. HERRMANN Director October 21, 1996 - ---------------------------- Werner M. Herrmann /s/ PETER BARTON HUTT Director October 21, 1996 - ---------------------------- Peter Barton Hutt /s/ JAMES A. SAALFIELD Director October 21, 1996 - ---------------------------- James A. Saalfield II-5 70 SCHEDULE II PAREXEL INTERNATIONAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT BEGINNING OF COSTS AND OTHER AND END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD ----------- ------------ ---------- ---------- ----------- ---------- Allowance for doubtful accounts Year ended June 30, 1994.... $ 242,000 $ 349,000 -- $ (11,000) $ 580,000 Year ended June 30, 1995.... 580,000 1,021,000 -- (327,000) 1,274,000 Year ended June 30, 1996.... 1,274,000 515,000 -- (290,000) 1,499,000 Deferred tax asset valuation allowance Year ended June 30, 1994.... -- -- $6,659,000(1) (588,000) 6,071,000 Year ended June 30, 1995.... 6,071,000 -- 1,620,000 (200,000) 7,491,000 Year ended June 30, 1996.... 7,491,000 -- -- (1,565,000) 5,926,000 - --------------- (1) Recorded in connection with the adoption of Statement of Financial Accounting Standards No. 109 on July 1, 1993.
S-1 EX-1.1 2 UNDERWRITING AGREEMENT 1 DRAFT 10/21/96 11:15pm 1,275,000 Shares(1) PAREXEL INTERNATIONAL CORPORATION Common Stock UNDERWRITING AGREEMENT ---------------------- October , 1996 SMITH BARNEY INC. WILLIAM BLAIR COMPANY, L.L.C. LEHMAN BROTHERS INC. ADAMS, HARKNESS & HILL, INC. As Representatives of the Several Underwriters c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: PAREXEL International Corporation, a Massachusetts corporation (the "Company"), proposes to issue and sell an aggregate of 1,066,900 shares of its common stock, $0.01 par value per share, to the several Underwriters named in Schedule II hereto (the "Underwriters") and the persons named in Schedule I hereto (the "Selling Stockholders") propose to sell to the several Underwriters an aggregate of 208,100 shares of common stock of the Company. The Company and the Selling Stockholders are hereinafter sometimes referred to as the "Sellers". The Company's common stock, $0.01 par value, is hereinafter referred to as the "Common Stock" and the 1,275,000 shares of Common Stock to be issued and sold to the Underwriters by the Company and the Selling Stockholders are hereinafter referred to as the "Firm Shares". The Company also proposes to sell to the Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to an additional 191,250 shares (the "Additional Shares") of Common Stock. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares". The Company and the Selling Stockholders wish to confirm as follows their respective agreements with you (the "Representatives") and the other several Underwriters on whose behalf you are acting, in connection with the several purchases of the Shares by the Underwriters. [FN] - ----------------------- (1) Plus an option to acquire up to 191,250 additional shares to cover over allotments. 2 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 under the Act (the "registration statement"), including a prospectus subject to completion relating to the Shares. The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective, or, if the registration statement became effective prior to the execution of this Agreement, as supplemented or amended prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the registration statement at the time of the initial filing of the registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. 2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments as you may determine in order to avoid fractional shares, the Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $[00.00] per Share (the "purchase price per share"), the number of Firm Shares which bears the same proportion to the aggregate number of Firm Shares to be issued and sold by the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company and the Selling Stockholders. Subject to such adjustments as you may determine in order to avoid fractional shares, each Selling Stockholder agrees, subject to all the terms and conditions set forth herein, to sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter, severally and not jointly, agrees to purchase from each Selling Stockholder at the purchase price per share that number of Firm Shares which bears the same proportion to the number of Firm Shares set forth opposite the name of such Selling Stockholder in Schedule I hereto as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) -2- 3 bears to the aggregate number of Firm Shares to be sold by the Company and the Selling Stockholders. The Company also agrees, subject to all the terms and conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company at the purchase price per share, pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to an aggregate of 191,250 Additional Shares from the Company. Additional Shares may be purchased only for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. Certificates in transferable form for the Shares which each of the Selling Stockholders agrees to sell pursuant to this Agreement have been placed in custody with [ ] (the "Custodian") for delivery under this Agreement pursuant to a Custody Agreement and Power of Attorney (the "Custody Agreement") executed by each of the Selling Stockholders appointing and as agents and attorneys-in-fact (the "Attorneys-in-Fact"). Each Selling Stockholder agrees that (i) the Shares represented by the certificates held in custody pursuant to the Custody Agreement are subject to the interests of the Underwriters, the Company and each other Selling Stockholder, (ii) the arrangements made by the Selling Stockholders for such custody are, except as specifically provided in the Custody Agreement, irrevocable, and (iii) the obligations of the Selling Stockholders hereunder and under the Custody Agreement shall not be terminated by any act of such Selling Stockholder or by operation of law, whether by the death or incapacity of any Selling Stockholder or the occurrence of any other event. If any Selling Stockholder shall die or be incapacitated or if any other event shall occur before the delivery of the Shares hereunder, certificates for the Shares of such Selling Stockholder shall be delivered to the Underwriters by the Attorneys-in-Fact in accordance with the terms and conditions of this Agreement and the Custody Agreement as if such death or incapacity or other event had not occurred, regardless of whether or not the Attorneys-in-Fact or any Underwriter shall have received notice of such death, incapacity or other event. Each Attorney-in-Fact is authorized, on behalf of each of the Selling Stockholders, to execute this Agreement and any other documents necessary or desirable in connection with the sale of the Shares to be sold hereunder by such Selling Stockholder, to make delivery of the certificates for such Shares, to receive the proceeds of the sale of such Shares, to give receipts for such proceeds, to pay therefrom any expenses to be borne by such Selling Stockholder in connection with the sale and public offering of such Shares, to distribute the balance thereof to such Selling Stockholder, and to take such other action as may be necessary or desirable in connection with the transactions contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement. 3. TERMS OF PUBLIC OFFERING. The Sellers have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon - 3 - 4 after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the Underwriters of and payment for the Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on October __, 1996 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement among you, the Company and the Attorneys-in-Fact. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than two nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Shares may be varied by agreement among you and the Company. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 9:30 A.M., New York City time, on the second business day preceding the Closing Date or any Option Closing Date, as the case may be. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, against payment of the purchase price therefor by certified or official bank check or checks payable in New York Clearing House (next day) funds to the order of the Company and the Attorneys-in-Fact. 5. AGREEMENTS OF THE COMPANY. The Company agrees with the several Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Company will endeavor to cause the Registration Statement or such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus or for - 4 - 5 additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) within the period of time referred to in paragraph (f) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act or the regulations thereunder to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (c) The Company will furnish to you, without charge (i) five signed copies of the registration statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits to the registration statement, (ii) such number of conformed copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request, (iii) such number of copies of the Incorporated Documents, without exhibits, as you may request, and (iv) five copies of the exhibits to any documents incorporated by reference in the Registration Statement, any Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto (the "Incorporated Documents"). (d) The Company will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus or, prior to the end of the period of time referred to in the first sentence in subsection (f) below, file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may request. The Company consents to the use of the Prospectus (and of any amendment or - 5 - 6 supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus (or to file under the Exchange Act any document which, upon filing, becomes an Incorporated Document) in order to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto (or to such document), and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that the Company and you, as Representatives of the several Underwriters, agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act. (i) During the period of five years hereafter, the Company will furnish to you (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may request. (j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provisions hereof (otherwise than pursuant to the second paragraph of Section 12 hereof or by notice given by you terminating this Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or - 6 - 7 refusal on the part of the Company or the Selling Stockholders to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Representatives for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) incurred by you in connection herewith. (k) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder substantially in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) The Company agrees that without the prior written consent of Smith Barney Inc. the Company will not (and, except as may be disclosed in the Prospectus, will not announce or disclose any intention to) sell, offer to sell, solicit an offer to buy, contract to sell, grant any option to purchase, or otherwise transfer or dispose of, any shares of Common Stock, or any securities convertible into or exercisable or exchangable for Common Stock, for a period of 90 days after the date of the final Prospectus relating to the offering of the Shares to the public by the Underwriters. Prior to the expiration of such period, the undersigned will not announce or disclose any intention to do anything after the expiration of such period which the undersigned is prohibited, as provided in the preceding sentence, from doing during such period. (n) The Company has furnished or will furnish to you "lock-up" letters, in form and substance satisfactory to you, signed by each of its current officers and directors and each of its stockholders designated by you. (o) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (p) The Company will use its best efforts to have the shares of Common Stock which it agrees to sell under this Agreement listed, subject to notice of issuance, on the Nasdaq National Market on or before the Closing Date. 6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling Stockholders agrees with the several Underwriters as follows: (a) Such Selling Stockholder will cooperate to the extent necessary to cause the registration statement or any post-effective amendment thereto to become effective at the earliest possible time. - 7 - 8 (b) Such Selling Stockholder will pay all Federal and other taxes, if any on the transfer or sale of the Shares being sold by the Selling Stockholder to the Underwriters. (c) Such Selling Stockholder will do or perform all things required to be done or performed by the Selling Stockholder prior to the Closing Date or any Option Closing Date, as the case may be, to satisfy all conditions precedent to the delivery of the Shares pursuant to this Agreement. (d) Such Selling Stockholder has executed or will execute a "lock-up" letter as provided in Section 5(n) above and will not sell, contract to sell or otherwise dispose of any Common Stock, except for the sale of Shares to the Underwriters pursuant to this Agreement, prior to the expiration of 180 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc.. (e) Except as stated in this Agreement and in the Prepricing Prospectus and the Prospectus, such Selling Stockholder will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (f) Such Selling Stockholder will advise you promptly, and if requested by you, will confirm such advice in writing, within the period of time referred to in Section 5(f) hereof, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations or of any change in information relating to such Selling Stockholder or the Company or any new information relating to the Company or relating to any matter stated in the Prospectus or any amendment or supplement thereto which comes to the attention of such Selling Stockholder that suggests that any statement made in the Registration Statement or the Prospectus (as then amended or supplemented, if amended or supplemented) is or may be untrue in any material respect or that the Registration Statement or Prospectus (as then amended or supplemented, if amended or supplemented) omits or may omit to state a material fact or a fact necessary to be stated therein in order to make the statements therein not misleading in any material respect, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented, if amended or supplemented) in order to comply with the Act or any other law. 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Underwriter that: (a) A registration statement on Form S-1 (File No. 333-_______) and a related preliminary prospectus with respect to the Shares have been prepared and filed with the Commission by the Company in conformity with the requirements of the Act, and the Company has so prepared and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. There have - 8 - 9 been or will promptly be delivered to you three signed copies of such registration statement and amendments, three copies of each exhibit filed therewith, and conformed copies of such registration statement and amendments (but without exhibits) and of the related preliminary prospectus or prospectuses and final forms of prospectus for each of the Underwriters. Such registration statement (as amended, if applicable) at the time it becomes effective and the prospectus constituting a part thereof (including the information, if any, deemed to be part thereof pursuant to Rule 430A(b) and/or Rule 434), as from time to time amended or supplemented, are hereinafter referred to as the "Registration Statement," and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement became or becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b)), the term Prospectus shall refer to such revised prospectus from and after the time it was provided to the Underwriters for such use. If the Company elects to rely on Rule 434 of the Act, all references to "Prospectus" shall be deemed to include, without limitation, the form of prospectus and the term sheet, taken together, provided to the Underwriters by the Company in accordance with Rule 434 of the Act ("Rule 434 Prospectus"). Any registration statement (including any amendment or supplement thereto or information which is deemed part thereof) filed by the Company under Rule 462(b) ("Rule 462(b) Registration Statement") shall be deemed to be part of the "Registration Statement" as defined herein, and any prospectus (including any amendment or supplement thereto or information which is deemed part thereof) included in such registration statement shall be deemed to be part of the "Prospectus", as defined herein, as appropriate. The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder are hereinafter collectively referred to as the "Exchange Act." (b) The Commission has not issued any order preventing or suspending the use of any preliminary prospectus, and each preliminary prospectus has conformed in all material respects with the requirements of the Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and when the Registration Statement became or becomes effective, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable, and the Prospectus and any amendments or supplements thereto, contained or will contain all statements that are required to be stated therein in accordance with the Act and in all material respects conformed or will in all material respects conform to the requirements of the Act, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from any preliminary prospectus, the Registration Statement, the Prospectus or any such amendment or supplement in reliance upon and in conformity with - 9 - 10 written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for use in the preparation thereof. (c) The Company and its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective places of incorporation, with corporate power and authority to own their properties and conduct their business as described in the Prospectus; the Company and each of its subsidiaries are duly qualified to do business as foreign corporations under the corporation law of, and are in good standing as such in, each jurisdiction in which they own or lease substantial properties, have an office, or in which substantial business is conducted and such qualification is required, except in any such case where the failure to so qualify or be in good standing would not have a material adverse effect upon the Company and its subsidiaries taken as a whole; and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. Each of the Company and its subsidiaries are in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from state, federal and other regulatory authorities which are material to the conduct of its business, all of which are valid and in full force and effect. (d) Except as disclosed in the Registration Statement, the Company owns directly or indirectly 100 percent of the issued and outstanding capital stock of each of its subsidiaries, free and clear of any claims, liens, encumbrances or security interests and all of such capital stock has been duly authorized and validly issued and is fully paid and nonassessable. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than Barnett International Corporation, a Massachusetts corporation; PAREXEL International Holding Corporation, a Delaware corporation; PAREXEL International Securities Corporation, a Massachusetts corporation; PAREXEL International, Inc., a Delaware corporation; PAREXEL GmbH Independent Pharmaceutical Research Organization, a corporation organized under the laws of Germany; PAREXEL Unternehens beteilung GmbH, a corporation organized under the laws of Germany; PAREXEL International Limited, a corporation organized under the laws of the United Kingdom; AFB CLINLAB Laborleistungs - Organisationgesellschaft mbH, a corporation organized under the laws of Germany; PAREXEL, International, a corporation organized under the laws of France; PAREXEL International SRL, a corporation organized under the laws of Italy; and PAREXEL International Pty Ltd, a corporation organized under the laws of Australia. (e) The issued and outstanding shares of capital stock of the Company as set forth in the Prospectus have been duly authorized and validly issued, are fully paid and nonassessable, and conform to the description thereof contained in the Prospectus (which description correctly states the capitalization of the Company). (f) The Shares to be sold by the Company have been duly authorized and when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and will conform to the description thereof contained in the Prospectus (which - 10 - 11 description correctly states the capitalization of the Company). No preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Common Stock or Additional Shares or the issuance and sale thereof other than those that have been expressly waived prior to the date hereof and those that will automatically expire upon the consummation of the transactions contemplated on the Closing Date. No further approval or authorization of any shareholder, the Board of Directors or others is required for the issuance and sale or transfer of the Shares except as may be required under the Act, the Exchange Act or under state or other securities or blue sky laws. (g) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. The making and performance by the Company of this Agreement has been duly authorized by all necessary corporate action and will not violate any provision of the charter or bylaws of the Company or any of its Subsidiaries and will not result in the breach of any provision of any material agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which the Company or any subsidiary is a party or by which the Company, any subsidiary or the property of any of them may be bound or affected, or any material order, rule or regulation applicable to the Company or any subsidiary of any court or regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any subsidiary or any of their respective properties except in any such case for any violation which would not have a material adverse effect upon the Company and its subsidiaries taken as a whole. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement or the consummation of the transactions contemplated herein or therein, except for compliance with the 1933 Act and blue sky laws applicable to the public offering of the Shares by the several Underwriters and clearance of such offering with the National Association of Securities Dealers, Inc. ("NASD"). This Agreement has been duly executed and delivered by the Company. (h) The accountants who have expressed their opinions with respect to certain of the financial statements and schedules included in the Registration Statement are, to the best of the Company's knowledge, independent accountants as required by the Act. (i) The consolidated financial statements and schedules of the Company included in the Registration Statement (A) present fairly the consolidated financial position of the Company as of the respective dates of such financial statements, and the consolidated results of operations and cash flows of the Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed in the Prospectus; and (B) present fairly the information required to be stated in the Registration Statement. The financial information set forth in the Prospectus under "Selected Consolidated Financial Data" presents fairly, on the basis stated in the Prospectus, the information set forth therein. No other financial statement or schedules are required to be included in the Registration Statement. - 11 - 12 (j) Neither the Company nor any subsidiary is in violation of its charter or in default under any consent decree, or in default with respect to any material provision of any lease, loan agreement, franchise, license, permit or other contract obligation to which it is a party; and there does not exist any state of facts which constitutes an event of default as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default except, in each case, for defaults which neither singly nor in the aggregate would have a material adverse effect on the Company and its subsidiaries taken as a whole. (k) There are no material legal or governmental proceedings pending, or to the Company's knowledge, threatened to which the Company or any subsidiary is or may be a party or of which material property owned or leased by the Company or any subsidiary is or may be subject, or related to environmental or discrimination matters which are not disclosed in the Prospectus, or which question the validity of this Agreement or any action taken or to be taken pursuant hereto or thereto, or might prevent consummation of the transactions contemplated hereby. (l) There are no holders of securities of the Company having rights to registration thereof or preemptive rights to purchase Common Stock except as disclosed in the Prospectus. Holders of registration rights who are not Selling Stockholders have waived such rights with respect to the offering being made by the Prospectus. (m) The Company and each of its subsidiaries have good and marketable title to all the properties and assets reflected as owned in the financial statements hereinabove described (or elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those, if any, reflected in such financial statements (or elsewhere in the Prospectus) or which are not material to the Company and its subsidiaries taken as a whole. The Company and each of its subsidiaries hold their respective leased properties which are material to the Company and its subsidiaries taken as a whole under valid, enforceable and binding leases except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. The agreements to which the Company or one of its subsidiaries is a party described in the Prospectus are valid agreements, enforceable by the Company and its subsidiaries (as applicable), except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles and, to their knowledge, the other contracting party or parties thereto are not in material breach or material default under any of such agreements. (n) The Company has not taken and will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (o) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as contemplated by the Prospectus, the - 12 - 13 Company and its subsidiaries, taken as a whole, have not incurred any material liabilities or obligations, direct or contingent, paid or declared a dividend (except as contemplated by the Registration Statement), nor entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in their condition (financial or otherwise) or results of operations nor any material change in their capital stock, short-term debt or long-term debt. (p) There is no material document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or has not been filed as required. (q) The Company, together with its subsidiaries, owns and possesses all right, title and interest in and to, or has duly licensed from third parties, all trademarks, copyrights and other proprietary rights ("Trade Rights") material to the business of the Company and each of its subsidiaries taken as a whole. Neither the Company nor any of its subsidiaries has received any notice of infringement, misappropriation or conflict from any third party as to such material Trade Rights which has not been resolved or disposed of and neither the Company nor any of its subsidiaries has infringed, misappropriated or otherwise conflicted with material Trade Rights of any third parties, which infringement, misappropriation or conflict would have a material adverse effect upon the Company and its subsidiaries taken as a whole. (r) The conduct of the business of the Company and each of its subsidiaries is in compliance in all respects with applicable federal, state, local and foreign laws and regulations, except where the failure to be in compliance would not have a material adverse effect upon the Company and its subsidiaries taken as a whole. (s) Other than the stock sold in connection with the Company's initial public offering and second public offering pursuant to registration statements on Form S-1 (File Nos. 33- 97406 and 333-01180) or pursuant to a registration statement on Form S-8 (File No. 33-80301), all offers and sales of the Company's capital stock prior to the date hereof were at all relevant times exempt from the registration requirements of the Act and were duly registered with or the subject of an available exemption from the registration requirements of the applicable state securities or blue sky laws. (t) The Company has filed all necessary federal and state income and franchise tax returns and has paid all taxes shown as due thereon, and there is no tax deficiency that has been, or to the knowledge of the Company might be, asserted against the Company or any of its properties or assets that would or could be expected to have a material adverse affect upon the Company and its subsidiaries taken as a whole. All tax liabilities of the Company and its subsidiaries are adequately provided for on the books of the Company and its subsidiaries. (u) A registration statement relating to the Common Stock has been declared effective by the Commission pursuant to the Exchange Act and the Common Stock is duly - 13 - 14 registered thereunder. The Shares have been listed on the Nasdaq National Market subject to notice of issuance or sale of the Shares, as the case may be. (v) The Company is not, and does not intend to conduct its business in a manner in which it would become, an "investment company" as defined in Section 3(a) of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (w) The Company and its subsidiaries maintain insurance of the types and in the amounts generally deemed adequate for their respective businesses and consistent with insurance coverage maintained by similar companies in similar businesses in similar geographic areas, including but not limited to, insurance covering real and personal property owned or leased by the Company or its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against (including without limitation errors and omissions), all of which insurance is in full force and effect. (x) To the best of the Company's knowledge, no labor disturbance by the employees of the Company or any of its subsidiaries exists or is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers that might be expected to have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries taken as a whole. No collective bargaining agreement exists with any of the Company's or any of its subsidiaries' employees and, to the Company's knowledge, no such agreement is imminent. (y) The Company has not distributed and will not distribute prior to the Closing Date or any date on which Option Shares are to be purchased, as the case may be, any offering material in connection with the offering and sale of the Shares other than the Prospectus, the Registration Statement and the other materials permitted by the Act. (z) Neither the Company nor any of its subsidiaries has at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (aa) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will - 14 - 15 provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (bb) The Company has complied with all registration, filing, and reporting requirements of the Exchange Act and the Nasdaq National Market. 8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling Stockholder represents and warrants to each Underwriter that: (a) Subject to the rights of the Custodian under the Custody Agreement, such Selling Stockholder on the First Closing Date or the Second Closing Date, as hereinafter defined, as the case may be, will have, valid marketable title to the Shares proposed to be sold by such Selling Stockholder hereunder on such date and full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver such Shares hereunder, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights; and upon delivery of and payment for such Shares hereunder, the Underwriters will acquire valid marketable title thereto, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights. (b) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which might be reasonably expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (c) Such Selling Stockholder has executed and delivered a Custody Agreement and Power of Attorney (the "Custody Agreement and Power of Attorney") among the Selling Stockholder, [ ] as custodian (the "Custodian"), [ ], (the "Agents"), naming the Agents as such Selling Stockholder's attorneys-in-fact (and, by the execution by any Agent of this Agreement, such Agent hereby represents and warrants that he has accepted his appointment as attorney-in-fact by the Selling Stockholders pursuant to the Custody Agreement and Power of Attorney) for the purpose of entering into and carrying out this Agreement, and the Custody Agreement and Power of Attorney has been duly executed by such Selling Stockholder and a copy thereof has been delivered to you. (d) Such Selling Stockholder further represents, warrants and agrees that such Selling Stockholder has deposited in custody, under the Custody Agreement and Power of Attorney, certificates in negotiable form for the Shares to be sold hereunder by such Selling Stockholder, for the purpose of further delivery pursuant to this Agreement. Each Agent has been authorized by such Selling Stockholder to execute and deliver this Agreement and the Custodian has been authorized to receive and acknowledge receipt of the proceeds of sale of the Shares to be sold by such Selling Stockholder against delivery thereof and otherwise act on behalf of such Selling Stockholder. - 15 - 16 (e) All authorizations, approvals, consents and orders necessary for the execution and delivery by such Selling Stockholder of the Custody Agreement and Power of Attorney, the execution and delivery by or on behalf of such Selling Stockholder of this Agreement and the sale and delivery of the Selling Stockholder Shares under this Agreement (other than, at the time of the execution hereof (if the Registration Statement has not yet been declared effective by the Commission), the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state or other securities or Blue Sky laws) have been obtained and are in full force and effect; such Selling Stockholder, if other than a natural person, has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be; and such Selling Stockholder has full right, power and authority to enter into and perform its obligations under this Agreement and such Custody Agreement and Power of Attorney, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder under this Agreement. (f) This Agreement has been duly authorized by such Selling Stockholder that is not a natural person and has been duly executed and delivered by or on behalf of such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as the indemnification and contribution provisions hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach of or default under any material bond, debenture, note or other evidence of indebtedness, or any material contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any Selling Stockholder Shares hereunder may be bound or to which any of the property of such Selling Stockholders is subject, to the best of such Selling Stockholders' knowledge, result in any violation of any law, order, rule, regulation, writ, injunction or decree of any court or governmental agency or body or, if such Selling Stockholder is other than a natural person, result in any violation of any provisions of the charter, bylaws or other organizational documents of such Selling Stockholder. (g) Such Selling Stockholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. (h) Such Selling Stockholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date and will advise one of its Attorneys prior to the Closing Date if any statement to be made on behalf of such Selling Stockholder in any certificate required by this Agreement would be inaccurate if made as of the Closing Date. (i) Such Selling Stockholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to - 16 - 17 purchase any of the Shares that are to be sold by the Company or any of the other Selling Stockholders to the Underwriters pursuant to this Agreement; and such Selling Stockholder does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus. (j) Such Selling Stockholder is not aware (without having conducted any investigation or inquiry) that any of the representations and warranties of the Company above is untrue or inaccurate in any material respect. (k) Each preliminary prospectus, insofar as it has related to such Selling Stockholder and, to the knowledge of such Selling Stockholder (without having conducted any investigation or inquiry) in all other respects, as of its date, has conformed in all material respects with the requirements of the Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and at the time of effectiveness of the Registration Statement, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date hereinafter defined, as the case may be, (1) such parts of the Registration Statement and the Prospectus and any amendments or supplements thereto as relate to such Selling Stockholder, and the Registration Statement and the Prospectus and any amendments or supplements thereto, to the knowledge of such Selling Stockholder (without having conducted any investigation or inquiry) in all other respects, contained or will contain all statements that are required to be stated therein in accordance with the 1933 Act and in all material respects conformed or will in all material respects conform to the requirements of the 1933 Act, and (2) neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as it relates to such Selling Stockholder, and, to the knowledge of such Selling Stockholder (without having conducted any investigation or inquiry) in all other respects, included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that neither clause (1) nor (2) shall have any effect if information has been given by such Selling Stockholder to the Company and the Representatives in writing which would eliminate or remedy any such untrue statement or omission. (l) Such Selling Stockholder agrees with the Company and the Underwriters to execute and deliver a Lock-up Letter in substantially the form attached as Exhibit ___ hereto. In order to document the Underwriter's compliance with the reporting and withholding provisions of the Internal Revenue Code of 1986, as amended, with respect to the transactions herein contemplated, each of the Selling Stockholders agrees to deliver to you prior to or on the First Closing Date, as hereinafter defined, a properly completed and executed United States Treasury Department Form W-8 or W-9 (or other applicable form of statement specified by Treasury Department regulations in lieu thereof). - 17 - 18 9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use therein; or (ii) if such statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the Act. In addition to its other obligations under this Section 9(a), the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 9(a), it will reimburse the Underwriters on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Selling Stockholder, severally in proportion to the number of Shares to be sold by such Selling Stockholder as compared to the total number of Shares offered hereby, agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may - 18 - 19 become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of such Selling Stockholders), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that no Selling Stockholder will be liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use therein; or (ii) if such statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the Act. In addition to their other obligations under this Section 9(a), the Selling Stockholders agree that, subject to the limitations set forth in the immediately succeeding paragraph and as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 9(a), they will reimburse the Underwriters on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Selling Stockholders' obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which the Selling Stockholders may otherwise have. Without limiting the full extent of the Company's agreement to indemnify each Underwriter, as provided in Section 9(a), each Selling Stockholder shall be liable under the indemnity agreements contained in this Section only for an amount not exceeding the initial public offering price of the Shares sold by such Selling Stockholder to the Underwriters minus the amount for the underwriting discount paid thereon to the Underwriters by such Selling Stockholder. In addition, each Underwriter agrees with each of the Selling Stockholders that any claim for indemnity or reimbursement pursuant to this Section 9(b) shall be first sought to be - 19 - 20 satisfied by the Company and shall be only then sought to be satisfied by the Selling Stockholders in accordance with this Section 9(b) if, and to the extent that, such claim for indemnity has not been satisfied in full by the Company. Notwithstanding the foregoing, each Underwriter agrees that it will not seek to satisfy any claim for indemnity or reimbursement against the Selling Stockholders listed in Schedule I until after such Underwriter has obtained a court-approved settlement or a final adjudication in a court of competent jurisdiction against the Company. (c) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company or any Selling Stockholder, such Underwriter or such controlling person shall promptly notify the parties against whom indemnification is being sought (the "indemnifying parties"), and such indemnifying parties shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the indemnifying parties have agreed in writing to pay such fees and expenses, (ii) the indemnifying parties have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying parties and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and any indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed as they are incurred. The indemnifying parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the indemnifying parties agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (d) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, each Selling Stockholder, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the - 20 - 21 Company and the Selling Stockholders to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors, any such officer, any Selling Stockholder, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (d), such Underwriter shall have the rights and duties given to the Company by paragraph (c) above (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officer, the Selling Stockholders, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (c) above. The foregoing indemnity agreement shall be in addition to any liability which any Underwriter may otherwise have. (e) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under paragraphs (a) or (d) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (f) The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to - 21 - 22 in paragraph (e) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (e) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule II hereto (or such numbers of Firm Shares increased as set forth in Section 12 hereof) and not joint. (g) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (h) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 9 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 9 and the representations and warranties of the Company and the Selling Stockholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or the Selling Stockholders or any person controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 9. 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) If, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the registration statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings, if any, - 22 - 23 required by Rules 424 and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the registration statement or the prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company or the Subsidiaries not contemplated by the Prospectus, which in your opinion, as Representatives of the several Underwriters, would materially adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Company or any officer or director of the Company or any Selling Stockholder which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the Act or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, as Representatives of the several Underwriters, materially adversely affect the market for the Shares. (c) You shall have received on the Closing Date, an opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the Company and for [designated Selling Shareholders], dated the First Closing Date or the Second and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Company has been duly qualified to do business as a foreign corporation under the corporation law of, and is in good standing as such in, the jurisdictions listed in an exhibit to such opinion; (ii) an opinion to the same general effect as clause (1) of this subparagraph (i) in respect of each direct and indirect subsidiary of the Company, as well as an opinion that the execution and performance of this Agreement will not violate such subsidiary's charter or bylaws (except that such opinion with respect to PAREXEL unternehens beteilung GmbH, PAREXEL International SRL, PAREXEL GmbH Independent Pharmaceutical Research Organization, PAREXEL International Limited, AFB CLINLAB Laborleistungs - - Organisationgesellschaft mbH, PAREXEL International Pty Ltd and PAREXEL, International shall be based solely upon opinions of local counsel and that the portion of such opinion addressing the due qualification of PAREXEL International, Inc. shall be based solely on an opinion of local counsel); - 23 - 24 (iii) to such counsel's knowledge, the Company does not own or control, directly or indirectly, any corporation, association or other entity other than Barnett International Corporation, a Massachusetts corporation; PAREXEL International Holding Corporation, a Delaware corporation; PAREXEL International Securities Corporation, a Massachusetts corporation; PAREXEL International, Inc., a Delaware corporation; PAREXEL unternehens beteilung GmbH, a corporation organized under the laws of Germany; PAREXEL International SRL, a corporation organized under the laws of Italy; PAREXEL GmbH Independent Pharmaceutical Research Organization, a corporation organized under the laws of Germany; PAREXEL International Limited, a corporation organized under the laws of the United Kingdom; AFB CLINLAB Laborleistungs - Organisationgesellschaft mbH, a corporation organized under the laws of Germany; PAREXEL, International, a corporation organized under the laws of France; and PAREXEL International Pty Ltd, a corporation organized under the laws of Australia; (iv) all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized, validly issued and is fully paid and nonassessable, and, except as disclosed in the Registration Statement, the Company owns directly or indirectly 100 percent of the outstanding capital stock of each subsidiary, and to the best knowledge of such counsel, such stock is owned free and clear of any claims, liens, encumbrances or security interests; (v) the authorized capital stock of the Company, of which there is outstanding the amount set forth in the Registration Statement and Prospectus (except for subsequent issuances, if any, pursuant to stock options or other rights referred to in the Prospectus), conforms as to legal matters in all material respects to the description thereof in the Registration Statement and Prospectus; (vi) the issued and outstanding capital stock of the Company has been duly authorized and validly issued and is fully paid and nonassessable and has not been issued in violation of any preemptive right, co-sale right, registration right, right of first refusal or other similar right; (vii) the certificates for the Shares to be delivered hereunder are in due and proper form, and when duly countersigned by the Company's transfer agent and delivered to you or upon your order against payment of the agreed consideration therefor in accordance with the provisions of this Agreement and the Pricing Agreement, the Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable and will not be issued in violation of any preemptive right, registration right, co-sale right, right of first refusal or other similar right and the stockholders of the Company have no preemptive or, to such counsel's knowledge, other rights to purchase any of the Shares; (viii) the Registration Statement has become effective under the Act, and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and the Registration Statement (including the - 24 - 25 information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b) and/or Rule 434, if applicable), the Prospectus and each amendment or supplement thereto (except for the financial statements and other statistical or financial data included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act; the statements in the Registration Statement and the Prospectus summarizing statutes, rules and regulations are, to the best knowledge of such counsel, accurate and fairly and correctly present the information required to be presented by the Act or the rules and regulations thereunder, in all material respects and such counsel does not know of any statutes, rules and regulations required to be described or referred to in the Registration Statement or the Prospectus that are not described or referred to therein as required; and such counsel does not know of any legal or governmental proceedings pending or threatened required to be described in the Prospectus which are not described as required, nor of any contracts or documents of a character required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement which are not described or filed, as required; (ix) the statements under the captions "Management," "Certain Relationships and Related Transactions" and "Description of Capital Stock" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present, in all material respects, the information called for with respect to such documents and matters; (x) this Agreement and the Pricing Agreement and the performance of the Company's obligations hereunder have been duly authorized by all necessary corporate action and this Agreement and the Pricing Agreement have been duly executed and delivered by and on behalf of the Company; and no approval, authorization or consent of any public board, agency, or instrumentality of the United States or of any state or other jurisdiction is necessary in connection with the issue or sale of the Shares by the Company pursuant to this Agreement (other than under the Act, applicable blue sky laws and the rules of the NASD) or the consummation by the Company of any other transactions contemplated hereby; (xi) the execution and performance of this Agreement will not violate the Company's charter or bylaws, or contravene any of the provisions of, or result in a default under, any agreement filed as an exhibit to the Registration Statement (except that such opinion with respect to Exhibits [10.6, 10.18, 10.22 AND 10.23] shall be based solely upon an opinion of local counsel) or, so far as is known to such counsel, violate any material statute, order, rule or regulation of any regulatory or governmental body having jurisdiction over the Company or any of its subsidiaries, except in any such case for any violation which would not have a material adverse effect upon the Company and its subsidiaries taken as a whole; (xii) to such counsel's knowledge, other than stock sold in connection with the Company's initial public offering and second public offering pursuant to registration statements on Form S-1 (File No. 33-97406 and 33-01180) or pursuant to a registration statement - 25 - 26 on Form S-8 (File No. 333-80301), all offers and sales of the Company's capital stock were at all relevant times exempt from the registration requirements of the Act; (xiii) with respect to each Selling Stockholder, this Agreement has been duly executed and delivered by or on behalf of each such Selling Stockholder and the Agents and the Custodian for each such Selling Stockholder have been duly and validly authorized to carry out all transactions contemplated herein on behalf of each such Selling Stockholder; and the performance of this Agreemente Selling Stockholder to the Shares being purchased from such Selling Stockholder) and the consummation of the transactions herein contemplated by such Selling Stockholders will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any indenture, mortgage, deed of trust, note agreement or other agreement or instrument known to such counsel to which any of such Selling Stockholders is a party or by which any are bound or to which any of the property of such Selling Stockholders is subject, or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any of such Selling Stockholders or any of their properties; and no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the sale of Shares to be sold by such Selling Stockholders hereunder, except such as have been obtained under the Act and such as may be required under applicable blue sky laws in connection with the purchase and distribution of such Shares by the Underwriters and the clearance of such offering with the NASD; (xiv) each Selling Stockholder has full right, power and authority to enter into this Agreement and to sell, transfer and deliver the Shares to be sold on the First Closing Date or the Second Closing Date, as the case may be, by such Selling Stockholder hereunder and good and marketable title to such Shares so sold, free and clear of all voting trust arrangements, liens, encumbrances, equities, claims and community property rights whatsoever, has been transferred to the Underwriters (who counsel may assume to be bona fide purchasers, without notice of any defect in the title of any such who have purchased such Shares hereunder; and (xv) the Company is not an "investment company" or a person "controlled by" an "investment company" within the meaning of the Investment Company Act. In addition, such counsel shall state that, although they have not verified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel which causes them to believe that, at the time the Registration Statement became effective, the Registration Statement (other than the financial statements, including supporting schedules and financial data derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or at the First Closing Date or any later date on which the Options Shares are to be purchased, as the case may be, the Prospectus (except as aforesaid) contained an untrue statement of a material fact or omitted to state - 26 - 27 a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may state that they are relying solely upon the certificate of [THE FIRST NATIONAL BANK OF BOSTON], the transfer agent for the Common Stock, as to the number of shares of Common Stock at any time or times outstanding, and, with regard to the factual basis for the opinion set forth in clause (xiii), solely upon a certificate of such Selling Stockholder. It is understood that such counsel will not render opinions under clauses (xiii) and (xiv) insofar as such clauses relate to Mr. Herrmann and involve matters of German law. Such counsel may also rely, as to questions of law not involving the laws of the United States or The Commonwealth of Massachusetts or the General Corporation Law of the State of Delaware, solely upon the opinions of local counsel and, as to factual matters, solely on certificates of the Selling Stockholders and of officers of the Company and of state officials, in which case their opinion is to state that they are so doing and copies of said opinions or certificates are to be attached to the opinion unless said opinions or certificates (or, in the case of certificates, the information therein) have been furnished to the Representatives in other form. (d) An opinion of counsel to each of the Selling Stockholders other than the Selling Stockholders represented by Testa, Hurwitz & Thibeault, LLP, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the matters set forth in subsections (f)(i)(xiii) and (xiv), above. In rendering this opinion, such counsel may state that they are relying solely upon a certificate of such Selling Stockholder for the factual basis of the opinion. (e) You shall have received on the Closing Date, an opinion of [ ] Esq., corporate counsel for the Company, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) the Company and each of the Subsidiaries has full corporate power and authority, and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Company and the Subsidiaries taken as a whole), to own their respective properties and to conduct their respective businesses as now being conducted, as described in the Prospectus; (ii) except as disclosed in the Prospectus, the Company owns of record, directly or indirectly, all the outstanding shares of capital stock of each of the Subsidiaries free and clear of any lien, adverse claim, security interest, equity, or other encumbrance; (iii) other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, or to which the Company or any of the - 27 - 28 Subsidiaries, or any of their property, is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto); (iv) there are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement or any Incorporated Document that are not described or filed as required, as the case may be; (v) the Company and the Subsidiaries own all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and [corporate counsel for the Company] is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing; (vi) neither the Company nor any of the Subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; (vii) except as described in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and such counsel does not know of any commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company; and (viii) except as described in the Prospectus, there is no holder of any security of the Company or any other person who has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any Common Stock or other securities of the Company included in the registration statement or the right, as a result of the filing of the registration statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (f) You shall have received on the Closing Date an opinion of Ropes & Gray, counsel for the Underwriters, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, with respect to the matters referred to in clauses (v), (vii), (viii), (xii) and (xx) of the foregoing paragraph (d) and such other related matters as you may request. (g) You shall have received letters addressed to you, as Representatives of the several Underwriters, and dated the date hereof and the Closing Date from Price Waterhouse LLP, independent certified public accountants, substantially in the forms heretofore approved by you. - 28 - 29 (h) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or Supplement thereto); (iii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); and (v) all the representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 10(h) and in Section 10(i) hereof. (i) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (j) All the representations and warranties of the Selling Stockholders contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by or on behalf of the Selling Stockholders to the effect set forth in this Section 10(j) and in Section 10(k) hereof. (k) The Selling Stockholders shall not have failed at or prior to the Closing Date to have performed or complied with any of their agreements herein contained and required to be performed or complied with by them hereunder at or prior to the Closing Date. (l) Prior to the Closing Date the shares of Common Stock which the Company agrees to sell pursuant to this Agreement shall have been listed, subject to notice of issuance, on the Nasdaq National Market. (m) The Sellers shall have furnished or caused to be furnished to you such further certificates and documents as you shall have requested. - 29 - 30 All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Company or any Attorney-in-Fact or any Selling Stockholder and delivered to you, as Representatives of the Underwriters, or to counsel for the Underwriters, shall be deemed a representation and warranty by the Company, the Selling Stockholders or the particular Selling Stockholder, as the case may be, to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 10, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (d) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c), (e) and (f) shall be revised to reflect the sale of Additional Shares. 11. EXPENSES. The Company agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by it of its obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the original issuance and sale of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the listing of the Shares on the Nasdaq National Market; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Shares; and (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company and the Selling Stockholders. 12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment - 30 - 31 thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, as Representatives of the several Underwriters, by notifying the Company and the Selling Stockholders. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule II hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule II hereto who, with your approval and the approval of the Company, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase. Any notice under this Section 12 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 13. TERMINATION OF AGREEMENT. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company or any Selling Stockholder, by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York or Massachusetts shall have been - 31 - 32 declared by either federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth in the last paragraph on the cover page, the stabilization legend on the inside cover page, and the statements in the first and third paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 7(b) and 9 hereof. 15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12 and 13 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 195 West Street, Waltham, Massachusetts 02154, Attention: Mr. Josef H. von Rickenbach, President, Chief Executive Officer and Chairman, with a copy to William J. Schnoor, Jr. of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts 02110; or (ii) if sent to the Selling Stockholders mailed or delivered to the Agents and the Custodian at such address as they have previously furnished to the Company, with a copy to William J. Schnoor, Jr. of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts 02110; or (iii) if to you, as Representatives of the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 9 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser. 16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. - 32 - 33 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters. Very truly yours, PAREXEL INTERNATIONAL CORPORATION By ........................ Chairman of the Board Each of the Selling Stockholders named in Schedule I hereto By ........................ Attorney-in-Fact By ........................ Attorney-in-Fact Confirmed as of the date first above mentioned on behalf of themselves and the other several Underwriters named in Schedule II hereto. SMITH BARNEY INC. As Representatives of the Several Underwriters By SMITH BARNEY INC. By .......................... Managing Director - 33 - 34 SCHEDULE I PAREXEL INTERNATIONAL CORPORATION
Number of Selling Stockholders Firm Shares -------------------- ----------- Martin J. Miller 125,000 Josef M. von Rickenbach 30,000 Howard M. Tag 15,700 A. Dana Callow, Jr. 15,000 Peter B. Malamas 7,500 Veronica Jordan 5,000 William T. Sabo, Jr. 5,000 Peter Barton Hutt 3,600 Laurie M. Hughes 1,300 - ------------------------------------------------------------------------ Total........ 208,100 -------
- 34 - 35 SCHEDULE II PAREXEL INTERNATIONAL CORPORATION
Additional Underwriter Firm Shares Firm Shares - ----------- ----------- ----------- Smith Barney Inc..................... William Blair & Company, L.L.C....... Lehman Brothers Inc. ................ Adams, Harkness & Hill, Inc.......... - ---------------------------------------------------------------------------- Total................................ 1,275,000 191,250
- 35 - EX-5.1 3 OPINION OF TESTA, HURWITZ & THIBEAULT, LLP 1 EXHIBIT 5.1 October 21, 1996 PAREXEL International Corporation 195 West Street Waltham, MA 02154 RE: Registration Statement on Form S-1 Relating to 1,466,250 shares of Common Stock Dear Sir or Madam: This opinion relates to an aggregates of 1,466,250 shares of Common Stock, par value $.01 per share (the "Common Stock"), of PAREXEL International Corporation (the "Company"), which are the subject matter of a Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 22, 1996 (the "Registration Statement"). The 1,466,250 shares of Common Stock covered by the Registration Statement consist of 1,275,000 shares being sold by the Company and certain Selling Stockholders to be named in the prospectus (the "Prospectus") included in the Registration Statement and an additional 191,250 shares subject to an overallotment option granted to the underwriters by the Company. Based upon such investigation as we have deemed necessary, we are of the opinion that when the shares of Common Stock to be sold by the Company and the Selling Stockholders pursuant to the Prospectus have been issued or sold and paid for in accordance with the terms described in the Prospectus, such shares of Common Stock will have been validly issued and will be fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm in the Prospectus under caption "Legal Matters." Very truly yours, TESTA, HURWITZ & THIBEAULT, LLP EX-11.1 4 COMPUTATION OF NET INCOME 1 EXHIBIT 11.1 PAREXEL INTERNATIONAL CORPORATION STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED JUNE 30, SEPTEMBER 30, -------------------------- --------------- 1994 1995 1996 1995 1996 ------ -------- ------ ------ ------ Net income (loss)................................... $2,423 $(10,630) $4,599 $ 742 $1,936 Net interest income pursuant to APB 15, paragraph 38(b)............................................. 123 -- -- 47 -- ------ -------- ------ ------ ------ Net income (loss) attributable to common shares..... $2,546 $(10,630) $4,599 $ 789 $1,936 ====== ======== ====== ====== ====== Weighted average common shares outstanding: a. Shares attributable to common stock outstanding.................................. 750 842 6,452 844 8,385 b. Shares attributable to convertible preferred stock outstanding............................ 4,200 -- -- 4,237 -- c. Shares attributable to common stock options and preferred stock warrants pursuant to APB 15, paragraph 38(b).......................... 796 -- 328 652 243 d. Shares attributable to common stock options pursuant to SAB 83........................... 1 1 -- 1 -- ------ -------- ------ ------ ------ Weighted average common shares outstanding.......... 5,747 843 6,780 5,734 8,628 ====== ======== ====== ====== ====== Net income (loss) per share......................... $ 0.44 $ (12.61) $ 0.68 $ 0.14 $ 0.22 ====== ======== ====== ====== ======
EX-23.1 5 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated August 22, 1996 relating to the financial statements of PAREXEL International Corporation, which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended June 30, 1996 listed under Item 16(b) of this Registration Statement when such schedule is read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included this schedule. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Consolidated Financial Data." PRICE WATERHOUSE LLP Boston, Massachusetts October 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----