SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
Commission File Number: 0-27058
PAREXEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
Massachusetts 04-2776269
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
195 West Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 487-9900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of February 9, 2000, there
were 24,889,041 shares of PAREXEL International Corporation common stock
outstanding, excluding 377,000 shares in treasury.
PAREXEL INTERNATIONAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1 Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - December 31, 1999 and June 30, 3
1999
Condensed Consolidated Statements of Operations -
Three months ended 4 December 31, 1999 and 1998;
Six months ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - Six months ended 5
December 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results 9
of Operations
Item 3 Quantitative and Qualitative Disclosure About Market Risk 15
Risk Factors 15
Part II. Other Information
Item 1 Legal Proceedings 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 23
Exhibit Index 24
Part I. Financial Information
Item 1 - Financial Statements
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
1999 1999
-------------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $74,539 $62,005
Marketable securities 37,705 27,952
Accounts receivable, net 167,202 150,520
Prepaid expenses 7,176 7,917
Other current assets 17,225 16,432
-------------------- ----------------
Total current assets 303,847 264,826
Property and equipment, net 44,758 47,065
Other assets 22,902 21,674
-------------------- ----------------
$371,507 $333,565
==================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit arrangements $ 394 $ 1,057
Accounts payable 11,907 14,698
Advance billings 103,845 69,776
Other current liabilities 48,636 46,538
-------------------- ----------------
Total current liabilities 164,782 132,069
Other liabilities 8,528 9,464
--------------------
----------------
Total liabilities 173,310 141,533
-------------------- ----------------
Stockholders' equity:
Preferred stock - $0.01 par value; shares
authorized: 5,000,000; none issued and outstanding - -
Common stock - $0.01 par value; shares authorized:
50,000,000; shares issued: 25,295,237 and 25,132,461 at
December 31, 1999 and June 30, 1999, respectively; shares
outstanding: 24,935,237 and 25,103,049 at December 31, 1999
and June 30, 1999, respectively 252 251
Additional paid-in capital 161,085 159,592
Retained earnings 45,288 35,785
Accumulated other comprehensive income (4,752) (3,579)
Treasury stock, at cost (3,676) (17)
-------------------- ----------------
Total stockholders' equity 198,197 192,032
-------------------- ----------------
$371,507 $333,565
==================== ================
See notes to condensed consolidated financial statements.
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
For the three months ended For the six months ended December
December 31, 31,
---------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
Net revenue $97,957 $87,855 $189,725 $170,690
--------------- --------------- ---------------- ---------------
Costs and expenses:
Direct costs 66,790 58,890 128,923 112,627
Selling, general and administrative 19,684 17,215 38,449 34,394
Depreciation and amortization 5,156 4,473 10,251 8,715
Facilities benefit - - (312) -
--------------- --------------- ---------------- ---------------
91,630 80,578 177,311 155,736
--------------- --------------- ---------------- ---------------
Income from operations 6,327 7,277 12,414 14,954
Other income, net 1,848 627 2,622 1,340
--------------- --------------- ---------------- ---------------
Income before provision for income taxes 8,175 7,904 15,036 16,294
Provision for income taxes 3,111 2,763 5,533 5,648
--------------- --------------- ---------------- ---------------
Net income $5,064 $5,141 $9,503 $10,646
=============== =============== ================ ===============
Earnings per share:
Basic $0.20 $0.21 $0.38 $0.43
Diluted $0.20 $0.21 $0.38 $0.42
Shares used in computing earnings per share:
Basic 25,070 24,787 25,112 24,732
Diluted 25,216 25,077 25,261 25,084
See notes to condensed consolidated financial statements.
PAREXEL INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
For the six months ended
December 31,
--------------------------------------
1999 1998
---------------- -----------------
Cash flows from operating activities:
Net income $ 9,503 $ 10,646
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,251 8,715
Changes in operating assets and liabilities, net of effects of acquisition 15,434 (7,060)
---------------- -----------------
Net cash provided by operating activities 35,188 12,301
---------------- -----------------
Cash flows from investing activities:
Purchase of marketable securities (54,505) (30,550)
Proceeds from sale of marketable securities 44,752 50,179
Other investing activities (53) -
Acquisition of business (3,000) -
Purchase of property and equipment (7,874) (8,754)
---------------- -----------------
Net cash (used in) provided by investing activities (20,680) 10,875
---------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,494 2,302
Repurchase of common stock (3,659) -
Repayments on credit arrangements (863) (1,246)
---------------- -----------------
Net cash (used in) provided by financing activities (3,028) 1,056
---------------- -----------------
Effect of exchange rate changes on cash and cash equivalents 1,054 (1,200)
---------------- -----------------
Net increase in cash and cash equivalents 12,534 23,032
Cash and cash equivalents at beginning of period 62,005 39,941
---------------- -----------------
Cash and cash equivalents at end of period $74,539 $62,973
================ =================
See notes to condensed consolidated financial statements.
PAREXEL INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
PAREXEL International Corporation (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (primarily consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended December 31,
1999, are not necessarily indicative of the results that may be expected for
other quarters or the entire fiscal year. Certain prior year balances have been
reclassified in order to conform to current year presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1999.
Note 2 -- Earnings per Share
The following table outlines the basic and diluted earnings per common share
computations (in thousands, except per share data):
For the three months For the six months
ended December 31, ended December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net income attributable to common shares $5,064 $5,141 $9,503 $10,646
========== ========== ========== ==========
Basic Earnings Per Common Share Computation:
Weighted average common shares outstanding 25,070 24,787 25,112 24,732
========== ========== ========== ==========
Basic earnings per common share $0.20 $0.21 $0.38 $0.43
========== ========== ========== ==========
Diluted Earnings Per Common Share Computation:
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 25,070 24,787 25,112 24,732
Shares attributable to common stock options 146 290 149 352
---------- ---------- ---------- ----------
25,216 25,077 25,261 25,084
========== ========== ========== ==========
Diluted earnings per common share $0.20 $0.21 $0.38 $0.42
========== ========== ========== ==========
Note 3 - Comprehensive Income
Comprehensive income has been calculated by the Company in accordance with FASB
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." Comprehensive income, which is comprised of net income
and foreign currency translation adjustments, totaled $3.2 million and $4.4
million for the three months ended December 31, 1999 and 1998, respectively, and
$8.3 million and $9.5 for the six months ended December 31, 1999 and 1998,
respectively.
Note 4 - Segment Information
The Company is managed through three reportable segments, namely, the Contract
Research Services group, Consulting Group and the Medical Marketing Group. The
Contract Research Services group ("CRS") constitutes the Company's core business
and includes clinical trials management, biostatistics and data management, as
well as related medical advisory, information technology, and investigator site
services. PAREXEL's Consulting Group ("PCG") provides technical expertise in
such disciplines as clinical pharmacology, regulatory affairs, industry
training, publishing, and management consulting. These consultants identify
options and propose solutions to address clients' product development,
registration, and commercialization issues. The Medical Marketing Services group
("MMS") provides a full spectrum of market development, product development, and
targeted communications services in support of product launch.
The Company evaluates its segment performance and allocates resources based on
revenue and gross profit (net revenue less direct costs), while other operating
costs are evaluated on a geographical basis. Accordingly, the Company does not
include selling, general and administrative expenses, depreciation and
amortization expense, nonrecurring and merger-related costs, interest income
(expense), other income (expense), and income tax expense in segment
profitability.
For the three months ended For the six months ended
December 31, December 31,
- ----------------------------------------------------------------------------------------------------------------------
($ in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Net revenue:
Contract Research Services $69,470 $58,127 $134,563 $113,902
Consulting Group 16,864 14,385 32,199 27,634
Medical Marketing Services 11,623 15,343 22,963 29,154
-------------- ------------ ----------- ------------
$97,957 $87,855 $189,725 $170,690
============== ============ =========== ============
Gross profit:
Contract Research Services $23,893 $20,648 $47,339 $41,735
Consulting Group 4,056 4,338 7,199 8,493
Medical Marketing Services 3,218 3,979 6,264 7,835
-------------- ------------ ----------- ------------
$31,167 $28,965 $60,802 $58,063
============== ============ =========== ============
Note 5 - Acquisition
On September 1, 1999, the Company acquired CEMAF S.A., a leading Phase I
clinical research and bioanalytical laboratory located in Poitiers, France. The
Company acquired the business and related facilities for an initial cash payment
of approximately $3.0 million in a transaction accounted for as a purchase
business combination. The purchase agreement also provides for the payment of an
additional $3.0 million in May 2000 to purchase certain buildings contingent
upon certain events. In accordance with the terms of the asset purchase
agreement, the Company is contingently obligated to pay up to an additional $4
million in contingent purchase price if CEMAF achieves certain established
earnings targets for the three years ending June 30, 2002. In connection with
recording the assets and liabilities acquired, the Company recorded a charge of
approximately $2.4 million related to the excess cost over the fair value of the
net assets acquired. Pro forma results of operations of the Company, assuming
this acquisition was recorded at the beginning of each period presented, would
not be materially different from actual results presented.
Note 6 - Facility benefit
During the fourth quarter of fiscal 1999, the Company accrued a $2.8 million
charge in connection with the centralization of certain facilities. The charge
consisted of future noncancellable lease payments partially offset by estimated
sublease income.
During the six months ended December 31, 1999, the Company recorded $1.1 million
against the accrued costs while also recording a $312,000 benefit primarily
attributable to the favorable impact of a lease buyout agreement not previously
anticipated. At December 31, 1999, the accrual totaled approximately $1.1
million.
Note 7 - Stock Repurchase Program
In September 1999, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to $20 million of the Company's common stock. The
repurchases will be made in the open market subject to market conditions. During
the three months ended December 31, 1999, the Company acquired 360,000 shares at
a total cost of $3.7 million
Note 8 - Recently issued Accounting Standard
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the Staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's first quarter of the
fiscal year 2001. The effects of applying this guidance will be reported as a
cumulative effect adjustment resulting from a change in accounting principle.
The Company does not expect the application to have a material effect on their
financial statements, however the final evaluation of SAB 101 is not yet
complete.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial information discussed below is derived from the Condensed
Consolidated Financial Statements included herein. The financial information set
forth and discussed below is unaudited but, in the opinion of management,
reflects all adjustments (primarily consisting of normal recurring adjustments)
necessary for a fair presentation of such information. The Company's results of
operations for a particular quarter may not be indicative of results expected
during subsequent fiscal quarters or for the entire year.
The statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements that
involve risks and uncertainties. Such forward-looking statements include those
related to the adequacy of the Company's existing capital resources and future
cash flows from operations and the Company's desire to continue to expand
through acquisitions. The forward-looking statements contained in this section
include, but are not limited to, any statements containing the words "expects,"
"anticipates," "estimates," "believes," "may," "will," "should" and similar
expressions, and the negatives thereof. The Company's actual experience may
differ materially from the Company's expectation as discussed in the
forward-looking statement. Factors that could cause such a difference include,
but are not limited to, the Company's ability to efficiently execute the
realignment of the CRS business; the potential loss or cancellation of, or delay
of work under, one or more large contracts; the adequacy and effectiveness of
the Company's sales force in winning new business; the ability to attract, train
and retain qualified employees; the Company's ability to manage adequately its
continued expansion; the potential for significant liability to clients and
third parties; the Company's ability to complete additional acquisitions and to
integrate newly acquired businesses; and future events that have the effect of
reducing the Company's available cash balances such as unexpected operating
losses, capital expenditures or cash expenditures related to possible future
acquisitions; and those discussed below.
Overview
The Company is a leading contract research, medical marketing and consulting
services organization providing a broad spectrum of services from first-in-human
clinical studies through product launch to the pharmaceutical, biotechnology and
medical device industries around the world. The Company's primary objective is
to help its clients rapidly obtain the necessary regulatory approvals for their
products and market those products successfully. The Company provides the
following services to its clients:
o clinical trials management;
o data management;
o biostatistical analysis;
o medical marketing;
o clinical pharmacology;
o regulatory and medical consulting;
o performance improvement;
o industry training and publishing; and
o other drug development consulting services.
The Company is managed through three reportable segments, namely, the Contract
Research Services group, Consulting Group and the Medical Marketing Services
group. The Contract Research Services group ("CRS") constitutes the Company's
core business and includes clinical trials management, biostatistics and data
management, as well as related medical advisory, information technology, and
investigator site services. PAREXEL's Consulting Group ("PCG") provides
technical expertise in such disciplines as clinical pharmacology, regulatory
affairs, industry training, publishing, and management consulting. These
consultants identify options and propose solutions to address clients' product
development, registration, and commercialization issues. The Medical Marketing
Services group ("MMS") provides a full spectrum of market development, product
development, and targeted communications services in support of product launch.
The Company's contracts are typically fixed price, multi-year contracts that
require a portion of the fee to be paid at the time the contract is entered
into, with the balance of the fee paid in installments during the contract's
duration. Net revenue from contracts is generally recognized on a percentage of
completion basis as work is performed. The contracts may contain provisions for
renegotiation of cost overruns arising from changes in the scope of work.
Renegotiated amounts are included in net revenues when earned and realization is
assured.
Generally, the Company's clients can terminate their contracts with the Company
upon sixty days' notice or can delay execution of services. Clients terminate or
delay contracts for a variety of reasons, including, among others:
o the failure of products being tested to satisfy safety requirements,
o unexpected or undesired clinical results of the product,
o the client's decision to forego a particular study,
o insufficient patient enrollment or investigator recruitment, or
o production problems resulting in shortages of the drug.
During the six months ended December 31, 1999, the Company experienced contract
cancellations of $76 million, compared to contract cancellations of $18 million
for the same six month period last fiscal year. Contract backlog at December 31,
1999 was $411 million which compared to contract backlog of $349 million one
year ago. (See Risk Factors "The Loss, Modification, or Delay of Large Contracts
May Negatively Impact the Company's Financial Performance.")
As is customary in the industry, the Company routinely subcontracts with
independent physician investigators in connection with clinical trials and other
third party service providers for laboratory analysis and other specialized
services. These fees are not reflected in net revenues or expenses since such
fees are granted by customers on a "pass through basis," without risk or reward
to the Company.
Direct costs primarily consist of compensation and related fringe benefits for
project-related employees, other project-related costs not reimbursed and
allocated facilities and information systems costs. Selling, general and
administrative expenses primarily consist of compensation and related fringe
benefits for selling and administrative employees, professional services and
advertising costs, as well as allocated costs related to facilities and
information systems.
The Company's stock is quoted on the Nasdaq Stock Market under the symbol
"PRXL."
Results of Operations
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Net revenue increased by $10.1 million, or 11.5%, to $98.0 million for the three
months ended December 31, 1999 from $87.9 million for the same period one year
ago. Contract Research Services revenue increased by $11.3 million, or 19.5%, to
$69.5 million primarily due to an increase in the number of contracts being
serviced by the Company. The Consulting Group's revenue increased by $2.5
million, or 17.2%, to $16.9 million due primarily to the addition of $1.7
million of incremental revenue resulting from the acquisitions of Groupe
PharMedicom S. A. ("PharMedicom") (in March 1999) and CEMAF (in September
1999)., Medical Marketing Services revenue declined by $3.7 million, or 24.2%,
to $11.6 million due primarily to the wind-down of a significant project at the
end of fiscal 1999. The total company increase in net revenue, excluding the
incremental revenue associated with the acquisitions of PharMedicom and CEMAF,
was $7.5 million, or 8.5%. There can be no assurance that the Company can
sustain this rate of increase in net revenue from continuing operations in
future periods. See "Risk Factors."
Direct costs increased by $7.9 million, or 13.4%, to $66.8 million for the three
months ended December 31, 1999 from $58.9 million for the same period one year
ago. The increase in direct costs is primarily due to the 11.5% increase in net
revenues which necessitated increases in hiring and personnel costs, along with
facilities and information system costs necessary to support current and future
levels of operation. Direct costs as a percentage of net revenue increased to
68.2% for the three months ended December 31, 1999 compared to 67.0% for the
same period last fiscal year. This increase is primarily due to additional
investments in the Consulting Group as part of the Company's geographic
expansion efforts and in the Contract Research Services segment as part of the
initiative to realign management and operations along client lines.
Selling, general and administrative expenses increased by $2.5 million, or
14.3%, to $19.7 million for the three months ended December 31, 1999 from $17.2
million for the same period one year ago. The increase is due to increased
personnel, hiring expenses, and facilities costs necessary to accommodate the
Company's growth. Selling, general and administrative expenses as a percentage
of net revenue increased to 20.1% for the three months ended December 31, 1999
from 19.6% for the same period one year ago.
Depreciation and amortization expense increased by $0.7 million, or 15.3%, to
$5.2 million for the three months ended December 31, 1999 from $4.5 million for
the same period one year ago. This increase was primarily due to an increase in
capital spending on information technology, facility improvements and
furnishings necessary to support the increased level of operations and due to an
increase in goodwill amortization due to the PharMedicom and CEMAF acquisitions.
Depreciation and amortization expense as a percentage of net revenues increased
to 5.3% for the three months end December 31, 1999 from 5.1% for the same period
last fiscal year.
Income from operations decreased $1.0 million, or 13.1%, to $6.3 million for the
three months ended December 31, 1999 from $7.3 million for the same period one
year ago. Income from operations decreased as a percentage of net revenues to
6.5% for the three months ended December 31, 1999 from 8.3% for the same period
last year primarily due to the increase in direct costs noted above.
Other income, net was $1.8 million for the quarter, an increase of $1.2 million
over the same period last fiscal year. The increase was primarily due to a
non-recurring $0.6 million pre-tax gain on the sale of a minority interest held
by the Company and by increased interest income due to higher average balances
of cash and marketable securities.
The Company had an effective income tax rate of 38.1% for the three months ended
December 31, 1999 compared to 35.0% for the same period last fiscal year. The
increase was due to unfavorable changes in the mix of taxable income from the
different jurisdictions which the Company operates.
Six Months Ended December 31, 1999 Compared to Six Months Ended December 31,
1998
Net revenues increased by $19.0 million, or 11.2%, to $189.7 million for the six
months ended December 31, 1999 from $170.7 million from the same six month
period one year ago. Contract Research Services revenue increased by $20.7
million, or 18.1%, to $134.6 million due primarily to an increase in the number
of contracts being serviced by the Company. The Consulting Group's revenue
increased by $4.6 million, or 16.5%, to $32.2 million due primarily to the
addition of $2.7 million of incremental revenue resulting from the acquisitions
of PharMedicom (in March 1999) and CEMAF ( in September 1999). Medical Marketing
Services revenue decreased by $6.2 million, or 21.2%, to $23.0 million due
primarily to the wind down of a significant project at the end of fiscal 1999.
The total company increase in net revenue, excluding the incremental revenue
associated with the acquisitions of PharMedicom and CEMAF, was $14.5 million, or
8.5%. There can be no assurance that the Company can sustain this rate of
increase in net revenue from continuing operations in future periods. See "Risk
Factors."
Direct costs increased by $16.3 million, or 14.5%, to $128.9 million for the six
months ended December 31, 1999 from $112.6 million for the same six month period
one year ago. The increase in direct costs is primarily due to the 11.2%
increase in net revenues which required increases in hiring and personnel costs,
along with facilities and information systems costs necessary to support current
and future levels of operations. Direct costs as a percentage of net revenue
increased to 68.0% for the six months ended December 31, 1999 compared to 66.0%
for the same six months period of last fiscal year. This increase is primarily
due to additional investments in the Consulting Group as part of the Company's
geographic expansion efforts and in the Contract Research Services segment as
part of the initiative to realign management and operations along client lines.
Selling, general and administrative expenses increased by $4.1 million, or
11.8%, to $38.4 million for the six months ended December 31, 1999 from $34.4
million for the same six month period last fiscal year. The increase is due to
increased personnel, hiring expenses, and facilities costs necessary to
accommodate the Company's growth. Selling, general and administrative expenses
as a percentage of net revenue increased slightly to 20.3% for the six months
ended December 31, 1999 from 20.1% for the same six month period last fiscal
year.
Depreciation and amortization expense increased by $1.5 million, or 17.6%, to
$10.3 million for the six months ended December 31, 1999 from $8.7 million for
the same six month period last fiscal year. This increase was primarily due to
an increase in capital spending on information technology, facilities
improvements and furnishings necessary to support the increased level of
operations, and due to an increase in goodwill amortization due to the
PharMedicom and CEMAF acquisitions. Depreciation and amortization expense as a
percentage of net revenue increased to 5.4% for the six months ended December
31, 1999 from 5.1% for the same period last fiscal year.
Income from operations decreased by $2.5 million, or 17.0%, to $12.4 million for
the six months ended December 31, 1999 from $15.0 million for the same six month
period last fiscal year. Operating income as a percentage of net revenues was
6.5% for the six months ended December 31, 1999 compared to 8.8% for the
comparable period one year ago, due primarily to the increase in direct costs
noted above.
Other income, net was $2.6 million for the six months ended December 31, 1999,
an increase of $1.3 million over the same six month period last fiscal year. The
increase is attributed to higher interest income due to higher average balances
of cash and marketable securities and to a non-recurring $0.6 million pre-tax
gain on the sale of a minority interest held by the Company.
The Company had an effective tax rate of 36.8% for the six months ended December
31, 1999 compared to 34.7% for the same six month period last fiscal year. The
increase was due to unfavorable changes in the mix of taxable income from the
different jurisdictions in which the Company operates.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations and growth,
including acquisition costs, with cash flows from operations and the proceeds
from the sale of equity securities. Investing activities primarily reflect
capital expenditures for information systems enhancements and leasehold
improvements.
The Company's contracts are generally fixed price, with some variable
components, and range in duration from a few months to several years. The cash
flows from contracts typically consist of a down payment required at the time
the contract is entered into and the balance in installments over the contract's
duration, usually on a milestone achievement basis. Revenue from the contracts
is generally recognized on a percentage of completion basis as work is
performed. As a result, cash receipts do not necessarily correspond to costs
incurred and revenue recognized on contracts. The Company's operating cash flow
is influenced by changes in the levels of billed and unbilled receivables and
advance billings. These account balances and the number of days revenue
outstanding in accounts receivable, net of advance billings, can vary based on
contractual milestones and the timing and size of cash receipts. The number of
days revenue outstanding in accounts receivable, net of advance billings,
decreased to 45 days at December 31, 1999 compared to 60 days at June 30, 1999.
The decrease is attributed to significant advanced billings on a new series of
contracts and to an increase in customer payments at the end of the calendar
year.
In September 1999 the Board of Directors authorized the repurchase of up to $20
million of the Company's common stock. As of December 31, 1999 a total of
360,000 shares at a total cost of $3.7 million had been repurchased.
The Company's cash and cash equivalents were $74.5 million at December 31, 1999,
and increase of $12.5 million from $62.0 million at June 30, 1999, despite the
common stock repurchases.
Net cash provided by operating activities of $35.2 million resulted primarily
from net income excluding depreciation and amortization of $19.8 million, a
decrease of $17.6 million in accounts receivable net of advanced billings and an
increase in accounts payable and accrued expenses of $1.7 million.
Net cash used for investing activities of $20.7 million consisted primarily of
capital expenditures of $7.9 million, net purchases of marketable securities of
$9.8 million and a $3.0 million cash payment related to a business acquisition.
Financing activities consisted primarily of net proceeds from the issuance of
common stock of $1.5 million which was more than offset by repurchases of the
Company's common stock of $3.7 million and repayment on credit arrangements of
$0.9 million.
The Company has domestic and foreign line of credit arrangements with banks
totaling approximately $14.7 million. At December 31, 1999 the Company had
approximately $14.2 in available credit under these arrangements.
The Company's primary cash needs are for the payment of salaries and fringe
benefits, hiring and recruiting expenses, business development costs,
acquisition-related costs, capital expenditures and facility-related expenses.
The Company believes that its existing capital resources, together with cash
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 financing and the Company may from time to time seek
to obtain funds from public or private issuance of equity or debt securities.
There can be no assurance that such financing will be available on terms
acceptable to the Company.
Year 2000 Readiness Disclosure Statement
Information Systems are an integral part of the services the Company provides.
As such, the Company recognized that it must ensure that its service and
operations would not be adversely affected by Year 2000 software and equipment
failures (the "Year 2000 Issue") which can arise from the use of date-dependant
systems that utilize only two digits to represent the year applicable to a
transaction; for example "99" to represent "1999" rather than the full four
digits. Computer systems engineered in this manner may not operate properly when
the last two digits or the year became "00", as occurred on January 1, 2000.
The Company established a Year 2000 Program in 1998 to address the Year 2000
Issue. As of the date of this filing, the Company has incurred no significant
disruption to its service associated with the Year 2000 Issue, either from its
own information systems or from critical vendor or supplier services.
The Company estimates the aggregate cost of its Year 2000 Program will be
approximately $3.3 million. Through the quarter ending December 31, 1999, the
Company has incurred approximately $3.2 million of these costs.
Recently issued Accounting Standard
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the Staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's first quarter of the
fiscal year 2001. The effects of applying this guidance will be reported as a
cumulative effect adjustment resulting from a change in accounting principle.
The Company does not expect the application to have a material effect on their
financial statements, however the final evaluation of SAB 101 is not yet
complete.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Market risk is the potential loss arising from adverse changes in the market
rates and prices, such as foreign currency rates, interest rates, and other
relevant market rate or price changes. In the ordinary course of business, the
Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates, and the Company regularly evaluates
its exposure to such changes. The Company's overall risk management strategy
seeks to balance the magnitude of the exposure and the costs and availability of
appropriate financial instruments. The Company occasionally purchases securities
with seven-day put options that allow the Company to sell the underlying
securities in seven days at par value. The Company uses these derivative
financial instruments on a limited basis to shorten contractual maturity dates,
thereby managing interest rate risk. The Company does not hold derivative
instruments for trading purposes.
RISK FACTORS
In addition to other information in this report, the following risk factors
should be considered carefully in evaluating the Company and its business,
including forward-looking statements made in the section of this report entitled
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other forward-looking statements that the Company may make from
time to time.
The Loss, Modification, or Delay of Large Contracts May Negatively Impact the
Company's Financial Performance
Generally, the Company's clients can terminate their contracts with the Company
upon sixty days' notice or can delay execution of services. Clients terminate or
delay their contracts for a variety of reasons, including:
o products being tested fail to satisfy safety requirements;
o products have unexpected or undesired clinical results;
o the client decides to forego a particular study, perhaps for economic
reasons;
o not enough patients enroll in the study;
o not enough investigators are recruited; or
o production or formulation problems cause shortages of the drug.
In addition, the Company believes that drug companies may proceed with fewer
clinical trials if they are trying to reduce costs. These factors may cause drug
companies to cancel or delay contracts with contract research organizations at a
higher rate than in the past. The loss or delay of a large contract or the loss
or delay of multiple contracts could have a material adverse effect on the
Company's financial performance, and on its revenue growth rates.
The Company's Operating Results Have Fluctuated Between Quarters and Years and
May Continue to Fluctuate in the Future
The Company's quarterly operating results have varied, and will continue to
vary. Factors that affect these variations include:
o the level of new business authorizations in a particular quarter or year;
o the timing of the initiation, progress, delay or cancellation of projects;
o exchange rate fluctuations between quarters or years;
o the mix of services offered in a particular quarter or year;
o the timing of the opening of new offices;
o the timing of other internal expansion costs;
o the timing and amount of costs associated with integrating acquisitions; and
o the timing and amount of startup costs incurred in connection with the
introduction of new products and services.
A high percentage of the Company's operating costs are fixed. Therefore, the
timing of the completion, delay or loss of contracts, or in the progress of
client projects, can cause the Company's operating results to vary substantially
between reporting periods.
The Company Depends on a Small Number of Industries and Clients for All of its
Business
The Company primarily depends on research and development expenditures by
pharmaceutical and biotechnology companies. The Company's operations could be
materially and adversely affected if:
o its clients' businesses experience financial problems or are affected by a
general economic downturn;
o consolidation in the drug or biotechnology industries leads to a smaller
client base for the Company; or
o its clients reduce their research and development expenditures.
Furthermore, the Company has benefited to date from the increasing tendency of
pharmaceutical companies to out-source large clinical research projects. If this
trend slows or reverses, the Company's operations could be materially and
adversely affected. In fiscal 1999, the Company's five largest clients accounted
for 44% of its consolidated net revenue, and one client accounted for 20% of
consolidated net revenue. For the six months ended December 31, 1999, the
Company's five largest clients accounted for 47% of its consolidated net
revenue, and one client accounted for 24% of consolidated net revenue. The
Company could suffer a material adverse effect if it lost the business of a
significant client.
The Company's Business Has Expanded Rapidly and the Company Must Properly Manage
that Expansion
The Company's business has expanded substantially, particularly over the past
few years. This may strain the Company's operational, human and financial
resources. In order to manage expansion, the Company must:
o continue to improve its operating, administrative and information systems;
o accurately predict its future personnel and resource needs to meet client
contract commitments;
o track the progress of ongoing client projects; and
o attract and retain qualified management, sales, professional, scientific and
technical operating personnel.
In addition, the Company recently realigned its Contract Research Services
business into discrete operating units. If the Company cannot execute the
realignment of the Contract Research Services business efficiently, the Company
could experience a material adverse effect.
The Company will face additional risks in expanding its foreign operations.
Specifically, the Company may find it difficult to:
o assimilate differences in foreign business practices;
o hire and retain qualified personnel; and
o overcome language barriers.
If an acquired business does not meet the Company's performance expectations,
the Company may have to restructure the acquired business or write-off the value
of some or all of the assets of the acquired business. If the Company fails to
properly manage its expansion, the Company could experience a material adverse
effect.
The Company May Not Be Able to Make Strategic Acquisitions in the Future
The Company relies on its ability to make strategic acquisitions to sustain its
growth. The Company has made a number of acquisitions and will continue to
review future acquisition opportunities. The Company may not be able to acquire
companies on terms and conditions acceptable to the Company. In addition, the
Company faces several obstacles in connection with the acquisitions it
consummates, including:
o The Company may encounter difficulties and will encounter expenses in
connection with the acquisitions and the subsequent assimilation of the
operations and services or products of the acquired companies;
o The Company's management will necessarily divert attention from other
business concerns; and
o The Company could lose some or all of the key employees of the acquired
company.
The Company may also face additional risks when acquiring foreign companies,
such as adapting to different business practices and overcoming language
barriers. In the event that the operations of an acquired business do not meet
the Company's performance expectations, the Company may have to restructure the
acquired business or write-off the value of some or all of the assets of the
acquired business. The Company may experience difficulty integrating acquired
companies into its operations.
The Company Relies on Highly Qualified Management and Technical Personnel Who
May Not Remain with the Company
The Company relies on a number of key executives, including Josef H. von
Rickenbach, its President, Chief Executive Officer and Chairman. The Company
maintains key man life insurance on Mr. von Rickenbach. The Company has entered
into agreements containing non-competition restrictions with its senior
officers. However, the Company does not have employment agreements with most of
its senior officers and if any of these key executives leave the company, it
could have a material adverse effect on the Company. In addition, in order to
compete effectively, the Company must attract and maintain qualified sales,
professional, scientific and technical operating personnel. Competition for
these skilled personnel, particularly those with a medical degree, a Ph.D. or
equivalent degrees is intense. The Company may not be successful in attracting
or retaining key personnel.
The Company May Not Have Adequate Insurance and May Have Substantial Exposure to
Payment of Personal Injury Claims
Clinical research services primarily involve the testing of experimental drugs
on consenting human volunteers pursuant to a study protocol. Such services
involve a risk of liability for personal injury or death to patients who
participate in the study or who use a drug approved by regulatory authorities
after the clinical research has concluded, due to, among other reasons, possible
unforeseen adverse side effects or improper administration of the new drug by
physicians. In certain cases, these patients are already seriously ill and are
at risk of further illness or death. The Company's financial stability could be
materially and adversely affected if the Company had to pay damages or incur
defense costs in connection with a claim that is outside the scope of an
indemnity or insurance coverage. The Company's financial stability could also be
materially and adversely affected in cases where the indemnity, although
applicable, is not honored in accordance with its terms. In addition, the
Company could be adversely and materially affected if its liability exceeds the
amount of its insurance. The Company may not be able to continue to secure
insurance on acceptable terms.
The Company's Stock Price Is Volatile and Could Decline
The market price of the Company's common stock has fluctuated widely in the past
and may continue to do so in the future in response to quarter-to-quarter
variations in:
o operating results;
o earnings estimates by analysts;
o market conditions in the industry;
o prospects of health care reform;
o changes in government regulation; and
o general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may adversely affect the
market price of the Company's common stock. Since the Company's common stock has
historically traded at a relatively high price-earnings multiple, due in part to
analysts' expectations of continued earnings growth, the price of the stock
could quickly and substantially decline as a result of even a relatively small
shortfall in earnings or a change in analysts' expectations. Investors in the
Company's common stock must be willing to bear the risk of such fluctuations in
earnings and stock price.
The Company's Business Depends on Continued Comprehensive Governmental
Regulation of the Drug Development Process
In the United States, governmental regulation of the drug development process
has become more extensive. In Europe, governmental authorities are coordinating
common standards for clinical testing of new drugs, leading to changes in the
various requirements currently imposed by each country. In April 1997, Japan
legislated good clinical practices and legitimatized the use of contract
research organizations. The Company's business could be materially and adversely
affected if governments relaxed their regulatory requirements or simplified
their drug approval procedures, since such actions would eliminate much of the
demand for the Company's services. In addition, if the Company was unable to
comply with any applicable regulation, the relevant governmental agencies could
terminate the Company's ongoing research or disqualify research data.
The Company Faces Intense Competition
The Company primarily competes against in-house departments of drug companies,
full service contract research organizations, and to a lesser extent,
universities, teaching hospitals and other site organizations. Some of these
competitors have greater capital, technical and other resources than the
Company. Contract research organizations generally compete on the basis of:
o previous experience;
o medical and scientific expertise in specific therapeutic areas;
o the quality of services;
o the ability to organize and manage large-scale trials on a global basis;
o the ability to manage large and complex medical databases;
o the ability to provide statistical and regulatory services;
o the ability to recruit investigators and patients;
o the ability to integrate information technology with systems to improve the
efficiency of contract research;
o an international presence with strategically located facilities;
o financial strength and stability; and
o price.
The contract research organizations industry is fragmented, with several hundred
small, limited-service providers and several large, full-service contract
research organizations with global operations. The Company competes against
large contract research organizations, including Quintiles Transnational
Corporation, Covance Inc., and Pharmaceutical Product Development, Inc., for
both clients and acquisition candidates. In addition, the Company competes for
contract research organizations contracts as a result of the consolidation
within the drug industry and the growing tendency of drug companies to outsource
to a small number of preferred contract research organizations.
The Company May Lose Business Opportunities as a Result of Health Care Reform
Numerous governments have undertaken efforts to control growing health care
costs through legislation, regulation and voluntary agreements with medical care
providers and drug companies. In the last few years, the U.S. Congress has
entertained several comprehensive health care reform proposals. The proposals
were generally intended to expand health care coverage for the uninsured and
reduce the growth of total health care expenditures. While the U.S. Congress did
not adopt any of the proposals, members of Congress may raise similar proposals
in the future. If any of these proposals are approved by the U.S. Congress, drug
and biotechnology companies may react by spending less on research and
development. If this were to occur, the Company would have fewer business
opportunities. The Company is unable to predict the likelihood that health care
reform proposals will be enacted into law or the effect such laws would have on
the Company's business.
Many governments outside the U.S. have also reviewed or undertaken health care
reform. The Company cannot predict the impact that any pending or future foreign
health care reform proposals may have on its business in other countries.
The Company is Subject to Currency Translation Risks
The Company derived approximately 43% of its net revenue for fiscal 1999 from
operations outside of North America. For the six months ended December 31, 1999,
the Company derived approximately 42% of its net revenue from operations outside
of North America. The Company's revenues and expenses from foreign operations
are usually denominated in local currencies. The Company is therefore subject to
exchange rate fluctuations between local currencies and the United States
dollar. To the extent that the Company cannot shift this currency translation
risk to other parties, the Company's operating results could be materially and
adversely affected. The Company does not currently hedge against the risk of
exchange rate fluctuations.
Third Party May Have Difficulty Acquiring the Company
Certain provisions of the Company's Restated Articles of Organization, as
amended, and Restated By-Laws contain provisions that 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, the Board of Directors of the Company may issue preferred stock in the
future without further stockholder approval. The Board of Directors of the
Company would determine the terms and conditions, as well as the rights,
privileges and preferences of such preferred stock. The holders of common stock
would be subject to, and may be adversely affected by, the rights of any holders
of preferred stock that the Board of Directors of the Company may issue. The
Company benefits from its Board of Directors' ability to issue the preferred
stock by affording the Company desirable flexibility in connection with possible
acquisitions and other corporate purposes. However, the Company's Board of
Directors' ability to issue the preferred stock could also 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.
Part II. Other Information
Item 1. Legal Proceedings
The Company has been named as one of many defendants in approximately
20 actions pending in the courts of two states related to a drug for
which the Company provided clinical research services. These actions
were brought by individual plaintiffs and not as class actions. The
Company has provided notice of these matters to its insurance carrier
and has submitted requests for indemnification to the companies for
whom the Company provided clinical research services pursuant to the
Company's contracts with such companies.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 11, 1999, the Company held its 1999 Annual Meeting of
Stockholders.
(b) Not applicable.
(c) At the meeting, the stockholders of the Company voted:
(1) to elect the following persons to serve as Class I directors,
to serve for a three-year term (until the Annual Meeting of
Stockholders in 2002) The votes cast were as follows:
For Withheld
----------- ----------
Patrick J. Fortune, Ph.D. 21,114,439 421,277
Prof. Dr. med. Werner M. Herrmann 19,305,396 2,230,320
(2) to approve an amendment to the Company's 1995 Stock Plan (the
"Plan") to increase the number of shares currently reserved for
issuance under the Plan by 800,000 shares. The votes cast were
as follows:
For Against Abstain Unvoted
---------- --------- --------- ---------
18,179,631 2,711,888 644,197 720,244
(3) to ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending June 30, 2000.
The votes cast were as follows:
For Against Abstain Unvoted
---------- --------- --------- ---------
21,470,952 25,926 38,838 720,244
(d) Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
10.1 Amended and Restated Employment Agreement dated
December 6, 1999 between Josef H. von Rickenbach
and the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated January 25,
2000 reporting financial results for the three months ended
December 31, 1999.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on this 10th day of February 2000.
PAREXEL International Corporation
By:/s/ Josef H. von Rickenbach
Josef H. von Rickenbach
President, Chief Executive Officer and Chairman
By:/s/ William T. Sobo, Jr
William T. Sobo, Jr.
Senior Vice President, Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
10.1 Amended and restated Employment Agreement dated December 6,
1999 between Josef H. von Rickenbach and the Company
27 Financial Data Schedule
EXHIBIT 10.1
Amended and Restated
Employment Agreement
Amended and Restated Agreement dated this 6th day of December, 1999
between PAREXEL International Corporation, a Massachusetts corporation having
its principal place of business in Waltham, Massachusetts (the "Company"), and
Josef H. von Rickenbach residing in Lexington, Massachusetts (the "Employee").
WITNESSETH:
WHEREAS, the Company considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interests of the Company and its stockholders; and
WHEREAS, on the date of this agreement Employee is the President, Chief
Executive Officer and Chairman of the Board of Directors of the Company and has
developed an intimate and thorough knowledge of the Company's business methods
and operations; and
WHEREAS, the retention of Employee's services, for and on behalf of the
Company, is materially important to the preservation and enhancement of the
value of the Company's business; and
WHEREAS, the Company is desirous of formalizing Employee's employment
upon the terms and conditions contained herein; and Employee is desirous of
continuing to be employed by the Company in accordance with such terms and
conditions,
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee agrees to be employed by the Company in accordance with and pursuant to
the terms and conditions set forth below.
2. Term of Employment. This Agreement shall be for an initial term of
three (3) years. Upon the first anniversary hereof (and upon each successive
anniversary thereafter), this Agreement shall be automatically renewed for a
three (3) year term commencing on the date of such renewal (i.e. each such
renewal term will extend the term in effect immediately prior to such renewal by
one year), unless either party hereto notifies the other in writing of its
intent not to renew this Agreement upon not less than ninety (90) days notice
prior to the renewal date hereof. In the event either party gives the other
proper notice of non-renewal, then this Agreement shall only continue for the
balance of the then existing term. Notwithstanding anything contained herein to
the contrary, any term of employment may be earlier terminated as provided in
Section 8 hereof.
3. Position and Responsibilities
(a) Employee will occupy the position of President and Chief
Executive Officer of the Company.
(b) Employee will report directly to the Board of Directors
and shall have such duties and responsibilities as are set forth in the By-Laws
of the Company, which duties and responsibilities shall include, but not be
limited to, overall management responsibilities for the operation and
administration of the Company as well as such other duties and responsibilities,
consistent with Employee's position as President and Chief Executive Officer, as
shall be defined by the Board of Directors.
(c) Employee will be expected to be in the full-time
employment of the Company, to devote substantially all of his business time and
attention, and exert his best efforts to the performance of his duties
hereunder, and to serve the Company diligently and to the best of his ability;
provided, however, nothing set forth herein shall prohibit Employee from (i)
serving as a member of the board of directors of an unaffiliated company
(including, without limitation, not-for-profit entities) not in competition with
the Company subject, however, in each such case of board membership, to prior
approval of the Board of Directors of the Company and (ii) engaging in
charitable and community activities to the extent that such activities do not,
either individually or in the aggregate, impair the ability of Employee to
perform his duties and obligations under this Agreement; provided, further, that
Employee shall promptly notify the Board of Directors of any such outside
activities and in the event the Board of Directors reasonably determines that
any such activity or activities materially interfere with the ability of
Employee to perform his duties and obligations as President and Chief Executive
Officer of the Company, Employee agrees to promptly cease such outside activity
or activities.
4. Compensation. The Company shall pay to Employee a salary (the "base
salary") at a monthly rate of twenty nine thousand, one hundred sixty seven
dollars ($29,167), subject to deductions for social security, payroll
withholding and all other legally required or authorized deductions and
withholdings. Employee's salary shall be payable at the same time and on the
same basis as the Company pays its executive employees in general. The Board of
Directors or the Compensation Committee thereof shall review Employee's base
salary no less frequently than annually. In no event shall Employee's base
salary be decreased during his period of employment.
5. Annual Incentive Payments. In addition to the base salary referenced
in Section 4, Employee shall be entitled to annual (i.e. fiscal year) bonuses
("incentive payments") if he satisfies agreed upon goals/objectives to be
established by the Board of Directors or Compensation Committee at its sole and
absolute discretion in consultation with Employee on an annual basis, with the
goals/objectives for any fiscal year to be established by the end of the first
quarter of such fiscal year. The amount of such bonuses, if any, shall be
determined by the Board of Directors or Compensation Committee. In no event
shall Employee's target bonus opportunity for any fiscal year be less than the
amount, if any, by which $560,000 exceeds Employee's base salary for such fiscal
year.
6. Stock Options and Other Long Term Incentive Programs. Employee shall
continue to be entitled to receive stock options pursuant to the Company's
Amended and Restated 1995 Stock Plan (or any successor plan or additional plans
the Company may adopt in the future), including in each case any amendments
thereto. The number of shares covered by any such option grants, the exercise
price per share and other terms and conditions governing such options shall be
determined by the Stock Option Committee, subject however to the terms of such
1995 Plan and any other applicable option plan, each as amended from time to
time, and, to the extent applicable, the provisions of this Agreement. The Stock
Option Committee is not under any obligation, express or implied, to make any
option grants, and any such grants will be made by the Stock Option Committee
acting in its sole discretion. In addition, Employee shall also be eligible to
participate in any other long term incentive program covering executive
employees generally. To the extent permitted by law and the governing provisions
of the plan documents, in the event of a termination, Employee shall have the
authority to direct the payment by the Company of any lump sum amounts received
pursuant to any long term incentive or pension program into a tax-free rollover,
if applicable.
7. Benefits; Expenses; Vacations.
-----------------------------
(a) Employee shall be entitled to receive the same standard
employee benefits, perquisites and services as other executive employees of the
Company receive generally. Employee shall also be entitled to fully participate
in all of the Company's future employee benefit programs, perquisites and
services in accordance with their then existing terms.
(b) Employee shall be entitled to reimbursement for all
approved and reasonable travel and other business expenses incurred by him in
connection with his services to the Company pursuant to the terms of this
Agreement. All business expenses for which Employee seeks reimbursement from the
Company shall be adequately documented by Employee in accordance with the
Company's procedures covering expense reimbursement, and in compliance with
regulations of the U.S. Internal Revenue Service.
(c) Employee shall be entitled to vacation days in accordance
with the Company's employment policies and practices applicable to executive
employees of the Company generally, as such policies and practices are from time
to time in effect.
8. Employment Termination. The employment of Employee pursuant
to this Agreement shall terminate upon the occurrence of any of the following:
(a) Expiration of the employment term set forth in Section 2.
(b) For Cause (as defined in Section 10) upon written notice
by the Company to the Employee.
(c) Death or thirty (30) days after the disability (as defined
in Section 10) of Employee.
(d) At the election of either the Company without Cause (as
defined below) or Employee without Good Reason (as defined below), upon not less
than sixty (60) days prior written notice of termination.
(e) At the election of Employee for Good Reason (as defined in
Section 10), upon not less than thirty (30) days prior written notice of
termination, which written notice must be given by Employee within ninety (90)
days after the occurrence of such Good Reason.
9. Effect of Termination.
---------------------
(a) Termination at the Expiration of the Employment Term. In
the event Employee has a termination from employment pursuant to Section 8(a),
the Company shall pay him within thirty (30) days of the last day of the term of
this Agreement, a lump sum payment equal to any base salary (less applicable
deductions), incentive payments and benefits, perquisites and services earned by
Employee or otherwise payable to him through the last day of the term of this
Agreement pursuant to Section 2, but not yet paid to Employee.
In the event of termination pursuant to Section 8(a) where
Employee has given a notice of non-renewal in accordance with Section 2: all (i)
vested stock options shall remain exercisable in accordance with their terms and
(ii) non-vested stock options shall be canceled in accordance with their terms;
and all (i) unvested portions of any other long term incentive programs
referenced in Section 6 shall be canceled and (ii) vested portions of any other
long term incentive programs referenced in Section 6 shall be paid to Employee
in accordance with their terms.
In all other events of termination pursuant to Section 8(a):
all previously granted, but unexercised stock options which are outstanding on
Employee's date of termination shall remain (or shall become) fully vested and
exercisable as of such date, and shall be exercisable in accordance with their
terms; provided, however, that any such acceleration of exercisability shall not
extend the period after a termination of employment within which any option may
be exercised by Employee in accordance with the provisions of the relevant
option agreement and option plan. In addition, any amounts or awards to which
Employee may be entitled under any other long term incentive program referenced
in Section 6 (whether or not vested) shall be paid to Employee in a lump-sum
within thirty (30) days of his termination.
(b) Termination for Cause or at Election of Employee. In the
event Employee's employment is terminated by the Company for Cause pursuant to
Section 8(b), or at the election of the Employee pursuant to Section 8(d), the
Company shall pay Employee within thirty (30) days of his termination a lump sum
equal to any base salary (less applicable deductions), incentive payment and
benefits, perquisites and services earned by Employee or otherwise payable to
him through the last day of his actual employment by the Company, but not yet
paid to Employee.
All (i) vested stock options shall remain exercisable in
accordance with their terms and (ii) non-vested stock options shall be canceled
in accordance with their terms. All (i) unvested portions of any other long term
incentive programs referenced in Section 6 shall be canceled and (ii) vested
portions of any other long term incentive programs referenced in Section 6 shall
be paid to Employee in accordance with its terms.
(c) Termination at the Election of the Company Without Cause
or at the Election of Employee for Good Reason, Other than in Connection with a
Change of Control. In the event that Employee's employment is terminated at the
election of the Company without Cause pursuant to Section 8(d), or at the
election of the Employee for Good Reason pursuant to Section 8(e), in each case
other than in circumstances covered by Section 9(d) below, the Company shall
continue to pay Employee his then base salary (less applicable deductions),
incentive payments and benefits, perquisites and services otherwise payable to
him through the date which is three (3) years after the date the Employee's
employment is terminated. The incentive payments referred to in the preceding
sentence for each year of the severance payments shall be equal to the greater
of Employee's target incentive award for the year of his termination, or his
actual incentive payment for the immediately preceding year.
All previously granted, but unexercised stock options which
are outstanding on Employee's date of termination shall remain (or shall become)
fully vested and exercisable as of such date, and shall be exercisable in
accordance with their terms; provided, however, that any such acceleration of
exercisability shall not extend the period after a termination of employment
within which any option may be exercised by Employee in accordance with the
provisions of the relevant option agreement and option plan. In addition, any
amounts or awards to which Employee may be entitled under any other long term
incentive program referenced in Section 6 (whether or not vested) shall be paid
to Employee in a lump-sum within thirty (30) days of his termination.
(d) Termination at the Election of the Company Without Cause
or at the Election of Employee for Good Reason, in Connection with a Change of
Control. In the event that, during the period beginning twelve (12) months prior
to a Change of Control (as defined in Section 10) and subsequent to the
commencement of substantive discussions that ultimately result in the Change of
Control and ending eighteen (18) months following such Change of Control,
Employee's employment is terminated at the election of the Company without Cause
pursuant to Section 8(d), or at the election of the Employee for Good Reason
pursuant to Section 8(e) (provided that any such termination by Employee must
occur promptly (and in any event within ninety (90) days) after the occurrence
of the event or events constituting Good Reason), the Company shall pay Employee
within thirty (30) days following the Change of Control (if Employee's
employment was terminated on or prior to the Change of Control) or within thirty
days following the date Employee's employment is terminated (if such employment
is terminated after the Change of Control):
(i) if Employee's employment was terminated on or
prior to the Change of Control, a lump-sum equal to the amount of base
salary (less applicable deductions), incentive payments and benefits,
perquisites and services that would have been payable to Employee had
he remained an employee of the Company through the date of the Change
of Control; and
(ii) a lump-sum equal to the amount of base salary
(less applicable deductions), incentive payments and benefits,
perquisites and services otherwise payable to him through the date
which is three (3) years after the date the Employee's employment is
terminated (with incentive payments for each year of the severance
payments being equal to the greater of Employee's target incentive
award for the year of his termination, or his actual incentive payment
for the immediately preceding year); and
(iii) All previously granted, but unexercised stock
options which are outstanding on Employee's date of termination shall
remain (or shall become) fully vested and exercisable as of such date,
and shall be exercisable in accordance with their terms; provided,
however, that: (1) any acceleration of exercisability shall not occur
to the extent that: (I) the Change of Control is intended to be
accounted for as a pooling of interests, and (II) the Company
concludes, after consulting with its independent accountants, that such
acceleration would prevent the Change of Control transaction from being
accounted for as a pooling of interests for financial accounting
purposes; (2) any such acceleration of exercisability shall not occur
as to any option if the Change of Control does not occur within the
period within which Employee may exercise such option after a
termination of employment in accordance with the provisions of the
relevant option agreement and option plan and (3) any such acceleration
of exercisability shall not extend the period after a termination of
employment within which any option may be exercised by Employee in
accordance with the provisions of the relevant option agreement and
option plan. In addition, any amounts or awards to which Employee may
be entitled under any other long term incentive program referenced in
Section 6 (whether or not vested) shall be paid to Employee in a
lump-sum within thirty (30) days of his termination.
In addition, upon the request of Employee, the Company shall
provide outplacement services through one (1) or more outside firms of
Employee's choosing up to an aggregate amount of thirty-five thousand dollars
($35,000), with such services to extend until the earlier of: (i) twelve (12)
months following the termination of Employee's employment or (ii) the date
Employee secures full time employment.
Any amounts or benefits payable to Employee under this Section
9(d) shall be in lieu of, and not in addition to any other amounts or benefits
under this Agreement which might otherwise have been or be payable to Employee.
In that regard, any amounts and benefits set forth in this Section 9(d) shall
be, as applicable, eliminated or reduced by any and all other severance or other
amounts or benefits paid or payable to Employee as a result of the termination
of his employment, including any amounts that were paid to Employee pursuant to
Section 9(c) if Employee's employment was terminated prior to a Change of
Control that was later determined to give rise to benefits pursuant to this
Section 9(d).
(e) Termination for Death or Disability. In the event
Employee's employment is terminated by death or disability pursuant to Section
8(c), the Company shall pay to the estate of Employee, or to Employee, as the
case may be, within thirty (30) days of Employee's death, or disability a
lump-sum equal to his then base salary, incentive payments and benefits,
perquisites and services otherwise payable to him through the date which is
three (3) years after the date of the Employee's death or disability, or such
other period as may be required by law; provided, however, any amounts payable
as a result of Employee's disability shall be reduced by any Company provided
long term disability payments received by him. The incentive payments referred
to in the preceding sentence for each year of the three year period following
the Employee's death or disability shall be equal to the greater of Employee's
target incentive amount for the year of his death or disability, or his actual
incentive payment for the immediately preceding year.
All previously granted, but unexercised stock options which
are outstanding on Employee's date of termination shall remain (or shall become)
fully vested and exercisable as of the date of his death or disability and shall
be exercisable in accordance with their terms. In addition, any amounts or
awards to which Employee may be entitled under any other long term incentive
program referenced in Section 6 as a result of Employee's death or disability,
shall be paid to the estate of Employee, or to Employee, as the case may be, in
a lump-sum within thirty (30) days of Employee's death, or sixty (60) days after
termination for disability.
10. Certain Definitions.
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(a) "Change of Control" Definition. For purposes of this
Agreement, "Change of Control" shall mean the closing of:
(i) a merger, consolidation, liquidation or
reorganization of the Company into or with another Company or other
legal person, after which merger, consolidation, liquidation or
reorganization the capital stock of the Company outstanding prior to
consummation of the transaction is not converted into or exchanged for
or does not represent more than 50% of the aggregate voting power of
the surviving or resulting entity;
(ii) the direct or indirect acquisition by any person
(as the term person is used in Section 13(d) (3) or 14(d) (2) of the
Securities Exchange Act of 1934, as amended) of more than 50% of the
voting capital stock of the Company, in a single or series of related
transactions, or
(iii) the sale, exchange, or transfer of all or
substantially all of the Company's assets (other than a sale, exchange
or transfer to one or more entities where the stockholders of the
Company immediately before such sale, exchange or transfer retain,
directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the entities to which the assets were
transferred).
(b) "Good Reason" Definition. For purposes of this Agreement,
Good Reason shall mean (i) the assignment to Employee of any duties inconsistent
in any adverse, material respect with his position, authority, duties or
responsibilities as President and Chief Executive Officer of the Company, or any
other action by the Company which results in a material diminution in such
position, authority, duties or responsibilities, (ii) a material reduction in
the aggregate of Employee's base or incentive compensation or the termination of
Employee's rights to any employee benefits, except to the extent that any such
benefit is replaced with a comparable benefit, or a reduction in scope or value
thereof, other than as a result of across-the-board reductions or terminations
affecting officers of the Company generally, (iii) a relocation of Employee's
place of business to a new location more than 40 (forty) miles distant from the
Employee's prior place of business, provided, however, that travel consistent
with past practices for business purposes shall not be considered "relocation"
for purposes of this clause (iii), or (iv) prior to a Change in Control the
failure by the Company to effect the nomination of Employee for election to the
Company's Board of Directors upon the expiration of Employee's then-current term
as a director.
(c) "Cause" Definition. For the purposes of this Agreement,
"Cause" shall mean: (i) any material breach by Employee of this Agreement or a
refusal by Employee to comply in all material respects with a directive(s)
reasonably assigned by the Company's Board of Directors; (ii) the commission by
Employee of a felony, either in connection with the performance of his
obligations to the Company or which adversely affects Employee's ability to
perform such obligations; (iii) gross negligence, breach of fiduciary duty or
breach of any confidentiality, non-competition or developments agreement in
favor of the Company; or (iv) the commission by Employee of an act of fraud or
embezzlement or other acts which result in loss, damage or injury to the
Company, whether directly or indirectly. Any notice of termination of employment
for cause shall set forth in reasonable detail the facts and circumstances
claimed to provide the basis for such termination under the provisions contained
herein and the date of termination ("Termination Date"). With respect to
termination pursuant to subsection (i) hereof, Employee shall be given the
opportunity to cease or correct the performance (or nonperformance) giving rise
to such notice within a reasonable period of time from receipt of notice, but in
no event to exceed sixty (60) days; and, in the judgment of the Board of
Directors, upon failure of Employee to cease or correct such performance (or
nonperformance) within such sixty (60) day period, Employee's employment shall
automatically terminate. With respect to termination pursuant to subsection
(iii) hereof, Employee shall be given the opportunity to cease or correct the
performance (or nonperformance) giving rise to such notice within a reasonable
period of time from receipt of notice, but in no event to exceed twenty (20)
days; and, in the judgment of the Board of Directors, upon failure of Employee
to cease or correct such performance (or nonperformance) within such twenty (20)
day period, Employee's employment shall automatically terminate.
(d) "Disability" Definition. For purposes of this Agreement,
the term "disability" shall mean the inability of Employee due to a physical or
mental disability, for a period of ninety (90) days (whether or not consecutive)
during any three hundred sixty five (365) day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both Employee and the Company; provided, however,
if Employee and the Company do not agree on a physician, Employee and the
Company shall each select a physician and these two together shall select a
third physician, and such third physician's determination as to disability shall
be binding on all parties.
11. Gross-up Provision.
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(a) Notwithstanding any provision of this Agreement, or any
other agreement, plan or arrangement to the contrary, if any portion of the
Contingent Payments made or to be made to the Employee would result in the
imposition of an Excise Tax, then :
(i) if the After-Tax Proceeds With Gross-Up exceed
the After-Tax Proceeds With Cut-Back, the Company shall pay to Employee
an amount in cash equal to the Gross-Up Amount; or
(ii) if the After-Tax Proceeds With Cut-Back exceed
the After-Tax Proceeds With Gross-Up, Employee shall not be paid the
Gross-Up Amount and the aggregate amount of all payments to which
Employee is entitled under this Agreement and all other agreements,
plans and arrangements shall be reduced to the minimum extent necessary
so that the aggregate present value of such payments equals no more
than 299% of Employee's Base Amount.
(b) All determinations required under this Section 11 shall be
made by the Company's independent accountants, after due consideration of
Employee's comments with respect to the interpretation hereof, and all such
determinations shall be conclusive, final and binding on the parties hereto,
subject to a Final Determination.
(c) For purposes of this Section 11:
"After-Tax Proceeds With Cut-Back" shall mean the fair market
value of all Contingent Payments to Employee reduced to the minimum extent
necessary so that the aggregate present value of such payments equals 299% of
the Employee's Base Amount, and reduced further by the aggregate amount of all
Taxes which would be imposed on Employee with respect to such Contingent
Payments. The amount of Taxes deemed imposed with respect to such Contingent
Payments shall be determined as if all events that could give rise to a Tax with
respect to such Contingent Payments had occurred.
"After-Tax Proceeds With Gross-Up" shall mean the fair market
value of all Contingent Payments to the Employee plus the Gross-Up Amount,
reduced by the aggregate amount of all Taxes which would be imposed on Employee
with respect to such Contingent Payments. The amount of Taxes deemed imposed
with respect to such Contingent Payments shall be determined as if all events
that could give rise to a Tax with respect to such Contingent Payments had
occurred.
"Base Amount" shall have the meaning set forth in Section
280G(b)(3) of the Code and Proposed Treasury Regulation Section 1.280G-1, Q/A34,
or any successor provisions of law.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor provision of law.
"Contingent Payments" shall mean all payments in the nature of
compensation payable to (or for the benefit of) Employee which would otherwise
be treated as "excess parachute payments" (within the meaning of Section
280G(b)(1) of the Code) determined as if the thresholds set forth in Section
280G(b)(2)(A)(ii) of the Code were satisfied with respect to Employee.
"Change in Control" shall mean a change in the ownership or
effective control of the Company or in the ownership of a substantial portion of
the assets of the Company, in each case determined in accordance with the
provisions of Section 280G(b)(2)(A) and the Proposed Treasury Regulations
promulgated thereunder.
"Excise Tax" shall mean any Tax imposed upon Employee pursuant
to Section 4999 of the Code.
"Final Determination" shall mean any final determination of
liability that, under applicable law, is not subject to further appeal, review
or modification through proceedings or otherwise, including but not limited to
the expiration of a statute of limitations or a period for the filing of claims
for refunds, amended returns or appeals from adverse determinations.
"Gross-Up Amount" shall mean the lesser of (i) $500,000 and
(ii) the quotient equal to (A) the aggregate excise taxes which would be imposed
on Employee under Section 4999 of the Code in connection with a Change in
Control of the Company, determined without regard to the provisions of this
Section 11, divided by (B) one minus the highest marginal income and excise Tax
rate applicable to Employee for the calendar year in which occurred the Change
in Control, determined as if all Contingent Payments were paid without regard to
the provisions of this Section 11.
"Taxes" shall mean all federal, state and local income,
employment and excise taxes (including Excise Taxes) imposed by any governmental
authority.
12. Employee's Obligations. Nothing herein shall affect Employee's
obligations under any key employee, non-competition, confidentiality, option or
similar agreement between the Company and Employee currently in effect or which
may be entered into in the future. Notwithstanding the foregoing, the Company
and Employee hereby agree that the duration of Employee's obligations pursuant
to Section 3.2 of the Key Employee Confidentiality and Invention Agreement dated
as of July 31, 1986 by and between the Company and Employee ("Key Employee
Agreement") is hereby extended so that, in the event of termination of
Employee's employment in the circumstances contemplated by Sections 9(c) or 9(d)
above, Employee's obligations under Section 3.2 of the Key Employee Agreement
shall remain in effect until the last day of the term of this Agreement but for
such termination of employment.
13. Waivers. This Agreement may be modified, and the rights and
remedies of any provision hereof may be waived, only in writing, signed by both
the Company and Employee. No waiver by either party of any breach by the other
or any provision hereof shall be deemed to be a waiver of any later or other
breach hereof, or as a waiver of any other provision of this Agreement.
14. Governing Law; Waivers; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts. The provisions of this Agreement may be amended, waived or
rescinded only upon the written agreement of the Company and Employee. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the other provisions of this Agreement and this Agreement shall be
construed and reformed to the fullest extent possible.
15. Termination of All Prior Agreements; Entire Agreement. Upon
execution of this Agreement, all prior employment agreements shall be terminated
and of no further force or effect, except for the Key Employee Agreement, which
shall continue in full force and effect in accordance with its terms. This
Agreement, the relevant option agreements relating to the options that have been
or may be granted to Employee, and the Key Employee Agreement constitute the
entire agreement and understanding between the Company and Employee with respect
to the subject matter hereof and supersede any other prior agreements or
understandings whether oral or written.
16. Expenses. The Company shall pay or cause to be paid and shall be
solely responsible for any and all attorney's fees and expenses incurred by
Employee (i) in connection with Employee's review and execution of this
Agreement; and (ii) to enforce his rights under this Agreement, solely in the
event that the Company is found by a court of competent jurisdiction, an
arbitrator or through a mutual settlement agreement to have failed to perform
any of its obligations under this Agreement.
17. Liquidated Damages. The parties hereto expressly agree that the
payments by the Company to Employee in accordance with the terms of this
Agreement will be liquidated damages, and that Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, nor shall any profits, income, earnings or other
benefits from any source whatsoever create any mitigation offset, reduction, or
any other obligation on the part of Employee.
18. Agreement Binding; Assignment. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the Company,
and any successor (whether directly or indirectly, by purchase, merger,
consolidation, reorganization or otherwise) of the Company; provided, however,
that as a condition of closing a transaction which results in a Change of
Control, the Company shall obtain the written agreement of any successor
(whether directly or indirectly, by purchase, merger, consolidation,
reorganization or otherwise) of the Company to be bound by the provisions of
this Agreement as if such successor were the Company and for purposes of this
Agreement, any such successor of the Company shall be deemed the "Company" for
all purposes. Employee may not assign any of his rights or obligations under
this Agreement; the rights and obligations of the Company under this Agreement
shall inure to the benefit of, and shall be binding upon, the successors and
assigns of the Company.
19. Notices. Any notice required or permitted to be given pursuant to
this Agreement shall be in writing, and sent to the party for whom (or which) it
is intended at the address of such parties set forth below by registered or
certified mail, return receipt requested, or at such other address either party
shall designate by notice to the other in the manner provided herein for giving
notice.
If to the Company PAREXEL International Corporation
195 West Street
Waltham, MA 02154
Attn: Chairman of Compensation Committee
If to the Employee Josef H. von Rickenbach
31 Fairbanks Road
Lexington, MA 02173
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement (which may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument) as of the
date and year first above written.
PAREXEL International Corporation
By:/s/ William T. Sobo, Jr.
William T. Sobo, Jr.
Title: Chief Financial Officer
By:/s/ Josef H. von Rickenbach
Josef H. von Rickenbach