PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
3151 SOUTH SEVENTEENTH STREET
WILMINGTON, NORTH CAROLINA 28412
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
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TO THE SHAREHOLDERS OF
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
The 1999 Annual Meeting of Shareholders of Pharmaceutical Product
Development, Inc. (the "Company") will be held at the offices of the Company
located at 4025 Paramount Parkway, Morrisville, North Carolina, on Wednesday,
May 12, 1999, at 10:00 a.m., for the following purposes:
1. To elect a board of nine directors.
2. To approve an amendment to the Company's 1995 Equity Compensation Plan
increasing the number of shares of the Company's stock reserved for
issuance under the plan from 2,500,000 shares to 3,500,000 shares.
3. To approve an amendment to the Company's 1995 Equity Compensation Plan
fixing maximum awards which can be made under the plan to certain
executive officers.
4. To approve an amendment to the Company's 1995 Equity Compensation Plan
fixing maximum awards which can be made under the plan to non-employee
directors as a group.
5. To act upon such other matters as may properly come before the meeting
or any adjournment thereof.
These matters are more fully described in the Proxy Statement accompanying this
notice.
The Board of Directors has fixed the close of business on March 15, 1999
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting or any adjournment thereof. All such shareholders are
cordially invited to attend the meeting in person. However, to assure your
representation at the meeting, you are urged to mark, sign, date and return the
enclosed proxy card as promptly as possible in the postage-prepaid envelope
enclosed for that purpose. You can vote in person at the meeting, even if you
returned a proxy.
The Company's Proxy Statement and proxy is submitted herewith along with
the Company's Annual Report to Shareholders for the year ended December 31,
1998.
IMPORTANT - YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN,
DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES.
Wilmington, North Carolina
Dated: March 31, 1999
By Order of the Board of Directors
/s/ Fred B. Davenport, Jr.
By: Fred B. Davenport, Jr.
SECRETARY
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
3151 SOUTH SEVENTEENTH STREET
WILMINGTON, NORTH CAROLINA 28412
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 1999
Your vote is important. Therefore, the Board of Directors is requesting
that you allow your Common Stock to be represented at the Annual Meeting by the
proxies named in the proxy card enclosed with this Proxy Statement. This Proxy
Statement has been prepared by the management of Pharmaceutical Product
Development, Inc. "We", "our", "PPDI" and the "Company" each refers to
Pharmaceutical Product Development, Inc. We will begin sending this Proxy
Statement to our shareholders on or about March 31, 1999.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE
You are entitled to vote your Common Stock if you held shares as of
March 15, 1999. At the close of business on March 15, 1999, a total of
23,617,163 shares of Common Stock were outstanding and entitled to vote. Each
share of Common Stock has one vote.
VOTING BY PROXIES
If your Common Stock is held by a broker, bank or other nominee, they
should send you instructions that you must follow in order to have your shares
voted. If you hold shares in your own name, you may vote by signing, dating and
mailing the proxy card in the postage paid envelope which we have provided to
you. The proxies will vote your shares in accordance with your instructions. Of
course, you can always come to the meeting and vote your shares in person. If
you sign and return a proxy card without giving specific voting instructions,
your shares will be voted as recommended by our Board of Directors. We are not
now aware of any other matters to be presented except for those described in the
Proxy Statement. If any matters not described in the Proxy Statement are
presented at the meeting, the proxies will use their own judgment to determine
how to vote your shares. If the meeting is adjourned, your Common Stock may be
voted by the proxies on the new meeting date as well, unless you revoke your
proxy instructions.
REVOKING YOUR PROXY INSTRUCTIONS
To revoke your proxy, you must either (1) advise the Secretary in
writing before the meeting, (2) deliver later proxy instructions before the
meeting, or (3) attend the meeting and vote in person.
COUNTING VOTES
The Annual Meeting will be held if a majority of the outstanding Common
Stock entitled to vote is represented at the meeting. If you have returned valid
proxy instructions or attend the meeting in person, your Common Stock will be
counted for the purpose of determining whether there is a quorum, even if you
wish to abstain from voting on some or all matters introduced to the meeting.
Broker non-votes also count for quorum purposes. If you hold your Common Stock
through a broker, bank or other nominee, generally the nominee may only vote the
Common Stock which it holds for you in accordance with your instructions.
However, if the nominee has not received your instructions before the meeting,
the nominee may vote on matters which are determined to be
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routine by the Nasdaq National Market. If a nominee cannot vote on a particular
matter because it is not routine, there will be a "broker non-vote" on that
matter. We do not count broker non-votes as votes for or against any proposal.
We do count abstentions as votes against a proposal. Although there is no
definitive statutory or case law in North Carolina regarding broker non-votes
and abstentions, we believe that our intended treatment of them is appropriate.
COST OF THIS PROXY SOLICITATION
We will pay the cost of this proxy solicitation. In addition to
soliciting proxies by mail, our employees may solicit proxies personally and by
telephone. None of these employees will receive any additional compensation for
this. We have retained ChaseMellon Shareholder Services, L.L.C. to assist in the
solicitation of proxies for a fee of $8,500 plus reasonable out-of-pocket costs
and expenses. We will, upon request, reimburse brokers, banks and other nominees
for their expenses in sending proxy material to their principals and obtaining
their proxies.
ATTENDING THE ANNUAL MEETING
If you are a holder of record and you plan to attend the Annual Meeting,
please bring your proxy or a photo identification to confirm your identity. If
you are a beneficial owner of Common Stock held by a bank or broker (i.e., in
"street name"), you will need proof of ownership to be admitted to the meeting.
A recent brokerage statement or letter from a bank or broker are examples of
proof of ownership. If you want to vote in person your Common Stock held in
street name, you must get a proxy in your name from the registered holder.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Our bylaws provide that the number of directors constituting the Board
of Directors shall be not less than eight nor more than twelve. The number of
director seats currently authorized is nine, and nine directors will be elected
at the Annual Meeting.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast at the Annual
Meeting. This means that the nine nominees receiving the highest number of votes
will be elected.
VOTING BY THE PROXIES
The proxies will vote your Common Stock in accordance with your
instructions. Unless you give specific instructions to the contrary, your Common
Stock will be voted for the election of the nominees named in this Proxy
Statement. Each nominee has agreed to serve, and we expect that each of the
nominees will be able to serve. However, if any nominee is unavailable for
election, the proxies will vote your Common Stock to elect a substitute nominee
proposed by the Board of Directors.
NOMINEES
The Nominating Committee unanimously recommends the nominees listed
below. Each nominee currently serves as a director of the Company. None of the
nominees is related by blood, marriage or adoption to any other nominee or any
executive officer of the Company.
STUART BONDURANT, M.D. (age 69) has served as a director of the Company
since October 1994. Dr. Bondurant currently serves as a Professor of the School
of Medicine at the University of North Carolina (Chapel Hill). He served as Dean
of the School of Medicine at the University of North Carolina (Chapel Hill) from
1979 to 1994 and as Interim Dean from July 1996 until May 1997. Dr. Bondurant
served as Director of Epidemiologic Studies at the New York Academy of Medicine
from January 1995 until March 1996. Dr. Bondurant has served as President of the
American College of Physicians and the Association of American Physicians. He
has also served as Vice President of the American Heart Association and the
American Society for Clinical Investigation. He served as the Chairman of the
Board of Directors of the North Carolina Biotechnology Center from 1988 to 1992.
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ABRAHAM E. COHEN (age 62) has served as a director of the Company since
June 1998. Mr. Cohen joined Merck & Co., a pharmaceutical company, in 1957 and
retired in 1992 as a Senior Vice President and as President of the Merck Sharp &
Dohme International Division. He currently serves as Chairman of Kramex
Corporation, a pharmaceutical consulting firm. He is also a director of Akzo
Nobel Nv., Teva Pharmaceutical and Smith Barney, and serves as a consultant to
Chugai, Japan.
THOMAS D'ALONZO (age 55) has served as a director, President and Chief
Operating Officer of the Company and of its contract research organization
subsidiary, PPD Pharmaco, Inc., since October 1996. Mr. D'Alonzo served as
General Counsel of Adria Laboratories, a pharmaceutical company, from 1977 to
1983 and was employed from 1983 to 1993 in various capacities, including as
President, by Glaxo Inc., a subsidiary of Glaxo Holdings plc, a pharmaceutical
company. Mr. D'Alonzo was President of GenVec, Inc., a gene therapy
biotechnology company, from 1993 until his employment by the Company in October
1996. Mr. D'Alonzo is also a director of Amarillo Biosciences, Inc.
FREDRIC N. ESHELMAN, PHARM.D. (age 50) has served as Chief Executive
Officer and a director of the Company since July 1990, and as Vice Chairman of
the Board of Directors since July 1993. Dr. Eshelman founded the Company's
predecessor and served as its Chief Executive Officer until its sale to the
Company in 1989. Prior to rejoining the Company in 1990, Dr. Eshelman served as
Senior Vice President, Development and as a director of Glaxo Inc., a subsidiary
of Glaxo Holdings plc.
FREDERICK FRANK (age 66) has served as a director of the Company since
September 1996. Mr. Frank also served as a director of Applied Bioscience
International Inc. from 1988 until its acquisition by the Company in September
1996. Mr. Frank has been an investment banker with Lehman Brothers since 1969
and is currently Vice Chairman of that firm. Previously, Mr. Frank served as a
Partner of Lehman Brothers from 1969 to 1972, as Managing Director from 1972 to
1993, and as Senior Managing Director from 1993 to 1995. Mr. Frank also serves
on the Boards of Directors of Diagnostic Products and Physicians' Computer
Network Inc.
DONALD C. HARRISON, M.D. (age 65) was appointed to the Board of
Directors in March 1999. Dr. Harrison has served as Senior Vice President and
Provost for Health Affairs of the University of Cincinnati Medical Center since
1986 and currently is Chief Executive Officer of the Medical Center. Prior to
joining the University of Cincinnati faculty in 1986 as a Professor of Medicine
and Cardiology, Dr. Harrison was employed in various capacities by Stanford
University, including as Chief of Cardiology of Stanford University Hospital
from 1967 to 1986. Dr. Harrison has served as President of the American Heart
Association and as Vice President of the American College of Cardiology. Dr.
Harrison is also a director of Bioconcepts, Inc., UMD, Inc., Novoste, Inc. and
Heart Stent, Inc.
ERNEST MARIO, PH.D. (age 60) has served as non-executive Chairman of the
Board of Directors of the Company since July 1993. Dr. Mario also serves as
Chairman of the Board of Directors and Chief Executive of ALZA Corporation, a
pharmaceutical company. Prior to joining ALZA in 1993, Dr. Mario served as Chief
Executive of Glaxo Holdings plc from 1989 to March 1993 and as Deputy Chairman
and Chief Executive of Glaxo Holdings plc, a pharmaceutical company, from
January 1992 to March 1993. Dr. Mario also is a director of Catalytica, Inc. and
COR Therapeutics Inc.
JOHN A. MCNEILL, JR. (age 49) has served as a director of the Company
since its incorporation in 1989. He served as the Company's President until 1990
and as its Chairman of the Board until July 1993. Mr. McNeill currently serves
as Chief Executive Officer of Liberty Healthcare Services, LLC, a provider of
nursing homes, assisted living facilities, independent living facilities, home
healthcare agencies, home medical equipment and intravenous services.
PAUL J. RIZZO (age 71) was appointed to the Board of Directors in
October 1998. Mr. Rizzo currently is Chairman of the Board of Directors and a
Partner in Franklin Street Partners, an investment company. Mr. Rizzo joined IBM
Corporation in 1958 and retired as Vice Chairman of the Board of Directors in
1987. From 1987 to 1992, he served as dean of the Kenan-Flagler Business School
at the University of North Carolina (Chapel Hill). In 1993 he returned to IBM
Corporation and served as Vice Chairman of the Board of Directors until his
retirement in 1994. Mr. Rizzo also is a director of Ryder Systems, Cox
Enterprises, Inc., Maersk, Inc. and Johnson & Johnson.
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INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is responsible for the general management of the
Company. In 1998, the board held seven meetings. Each incumbent member of the
board during the time he served as a director of the Company attended at least
75% of the 1998 meetings of the Board of Directors and board committees of which
he was a member except Mr. Cohen. Mr. Cohen became a director of the Company in
June 1998 and had a previously scheduled conflict for one of the three meetings
of the Board of Directors held after he became a director.
The Board of Directors has established an Audit Committee, a
Compensation Committee and a Nominating Committee. Mr. Frank, Chairman, Dr.
Mario, Mr. McNeill and Mr. Rizzo are the members of the Audit Committee. The
Audit Committee held two meetings in 1998. The Audit Committee recommends to the
Board of Directors the engagement of the independent auditors and reviews with
the independent auditors the scope and results of the Company audits, the
internal accounting controls of the Company, audit practices and the
professional services furnished by the internal auditors.
Dr. Mario, Chairman, Dr. Bondurant and Mr. McNeill are the members of
the Compensation Committee. The Compensation Committee held four meetings in
1998. The Compensation Committee reviews and approves all compensation
arrangements for the officers of the Company and administers our Equity
Compensation Plan.
Dr. Eshelman, Chairman, Dr. Mario and Mr. Frank are the members of the
Nominating Committee. The Nominating Committee did not hold any meetings in
1998. The Nominating Committee has not established any procedures for
shareholder submission to the committee of nominees for election to the Board of
Directors. However, our bylaws permit any shareholder of record to nominate
directors. You must give written notice of your intent to make nominations by
personal delivery or by certified mail, postage prepaid, to the Secretary of the
Company. If the election is to be held at the Annual Meeting of Shareholders,
you must give your notice not more than 90 days nor less than 50 days before the
meeting. If the election is to be held at a special meeting of shareholders
called to elect directors, you must give your notice by the tenth business day
following the date on which notice of the special meeting is first given to
shareholders. Your notice must include the following: (1) your name and address,
as they appear on the Company's books, and the name and residence address of the
persons to be nominated; (2) the class and number of shares of the Company which
you beneficially own; (3) a representation that you are a shareholder of record
of the Company entitled to vote at the meeting and intend to appear in person or
by proxy to nominate the persons specified in your notice; (4) a description of
all arrangements or understandings between you and each nominee and any other
persons (by name) as to how you will make the nominations; (5) all other
information regarding each nominee you propose which is required to be disclosed
in a solicitation of proxies for election of directors or is required under
Regulation 14A of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), including any information required to be included in
a proxy statement if the nominee had been nominated by the Board of Directors;
and (6) the written consent of each nominee to be named in a proxy statement to
serve as a director if elected.
No shareholder has properly nominated anyone for election as a director
at this Annual Meeting.
PROPOSAL NO. 2 - AMENDMENT TO EQUITY COMPENSATION PLAN TO INCREASE THE NUMBER
OF SHARES RESERVED FOR AWARDS
In March 1999, the Board of Directors unanimously approved an amendment
to and restatement of the Company's 1995 Equity Compensation Plan (the "Equity
Plan") that increases the number of shares reserved for issuance under the
Equity Plan from 2,500,000 shares to 3,500,000 shares. The amended and restated
Equity Plan is attached as Exhibit A to this Proxy Statement.
The Company adopted the Equity Plan in October 1995. The Equity Plan
provides for the granting of incentive and nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, stock awards, performance
shares and other stock-based awards. As of March 15, 1999, the market value of
our Common Stock was $34.875 per share. All employees and directors of the
Company are eligible to participate in the Equity Plan. The Compensation
Committee selects the employees to whom awards will be granted and determines
the type, size and conditions of each award. The Compensation Committee also
interprets and administers the provisions of the
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Equity Plan. The Compensation Committee's decisions are final and binding on the
Company and on persons eligible to participate in the plan.
Currently a total of 2,500,000 shares of Common Stock can be awarded
under the Equity Plan, subject to adjustment if there is a stock split, reverse
stock split or similar alteration in the Company's Common Stock. Common Stock
issued under the Equity Plan is from authorized but unissued shares. Shares of
Common Stock subject to an award that lapses, expires or is otherwise terminated
without shares having been issued are available for new awards.
As of March 15, 1999, approximately 567,278 shares of the Company's
Common Stock remain available for the granting of new awards. The Compensation
Committee has adopted guidelines for awards under the Equity Plan. The Company
retained Frederic W. Cook & Co. to help develop guidelines for awards under the
Equity Plan. The Cook firm reviewed the practices of competitors in developing
the guidelines and we believe that the current guidelines are consistent with
industry standards. We project that by following the guidelines the Common Stock
now available for awards under the plan will be substantially diminished over
the next twelve months. We believe it is important and in the best interests of
the Company to amend the Equity Plan to increase the number of shares reserved
for issuance under the plan. Awards under the Equity Plan are determined by the
Compensation Committee in its discretion. For this reason, we cannot determine
the benefits and amounts that will be received by any individual participant or
group of participants in the future. The Company has never lowered the exercise
price of any award made under the Equity Plan.
Following is a description of the types of awards which may be granted
under the Equity Plan:
STOCK OPTIONS. Both incentive and nonqualified options to purchase
shares of Common Stock may be granted under the Equity Plan at an exercise price
determined by the Compensation Committee. In the case of incentive stock
options, the exercise price cannot be less than the fair market value of the
underlying Common Stock on the date of grant (110% of fair market value if
granted to a ten percent shareholder). The exercise price for nonqualified stock
options may be less than the fair market value. The Compensation Committee may
award an optionee the right to receive, prior to the exercise of the options,
payments in cash or stock on the shares of Common Stock subject to any stock
option in amounts per share equal to all dividends paid on outstanding shares of
Common Stock.
Incentive stock options expire not later than ten years after the date
on which they are granted (five years if granted to a ten percent shareholder).
The Compensation Committee determines when nonqualified stock options will
expire. However, options will lapse and cannot be exercised either when the
holder terminates employment with the Company or within a short time thereafter.
The Compensation Committee can permit payment of an option in full or in part by
tendering to the Company shares of Common Stock having a fair market value equal
to the exercise price through a "cashless exercise" procedure.
The holder of an incentive stock option will not recognize income at the
time of grant or exercise of the option. No federal income tax deduction is
available to the Company upon the grant or exercise of an incentive stock
option. However, upon the exercise of an incentive stock option, any excess in
the fair market price of the Common Stock over the exercise price is a tax
preference item which may have alternative minimum tax consequences for the
optionee. If the holder sells the shares more than one year after the date of
exercise and more than two years after the date of grant of the incentive stock
option, the holder normally will recognize a long-term capital gain or loss
equal to the difference between the sale price of the shares and the exercise
price. If the holder does not hold the shares for the required period, when the
holder sells the shares he or she will recognize ordinary income and possibly
capital gain or loss in amounts prescribed by the Internal Revenue Code. The
Company generally will be entitled to a federal income tax deduction equal to
any ordinary income recognized by the holder.
A plan participant to whom a nonqualified stock option is granted will
not recognize income at the time of grant of the option. However, when the
holder exercises the nonqualified stock option, he or she will recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the shares on the date the option is exercised. The holder's tax
basis in these shares will be equal to the exercise price plus the
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amount includable in the holder's gross income, and the holding period for the
shares begins on the date on which the holder recognized taxable income in
respect of the shares. The Company generally will be entitled to a federal
income tax deduction equal to any ordinary income recognized by the holder.
STOCK APPRECIATION RIGHTS. A stock appreciation right or SAR is an award
entitling a plan participant to receive an amount equal to the excess of the
fair market value of a share of Common Stock on the date of exercise over the
exercise price per share specified for the SAR. A SAR granted in connection with
an option will be exercisable to the extent that the related option is
exercisable. Upon the exercise of a SAR related to an option, the option will be
canceled to the extent of the number of shares covered by the exercise. Upon the
exercise of a related option, the SAR will be canceled automatically to the
extent of the number of shares exercised. SARs unrelated to an option will
contain provisions regarding exercisability, vesting and duration as the
Compensation Committee determines, but the term will not be greater than ten
years. Upon exercise of a SAR, payment will be made, at the election of the
Compensation Committee, in cash, in shares of Common Stock or in a combination
thereof.
Under the Equity Plan, the Compensation Committee may grant limited
stock appreciation rights or LSARs to any holder of a stock option. An LSAR is a
SAR which becomes exercisable only in the event of a "change in control" as
defined below. An LSAR will be settled solely in cash.
RESTRICTED STOCK. An award of restricted stock is an award of Common
Stock issued with the restriction that the holder may not dispose of the
restricted stock in any manner. The Compensation Committee can impose additional
restrictions, including restrictions on the rights to vote restricted stock and
on the right to receive dividends. Restricted stock awards may be granted under
the Equity Plan for or without payment. Restrictions on restricted stock can
lapse in installments based on factors selected by the Compensation Committee.
In the event of hardship or other special circumstances of an employee whose
employment with the Company was involuntarily terminated, the Compensation
Committee may waive in whole or part the restrictions with respect to the
restricted stock held by the employee. Prior to expiration of the restricted
period, the holder of a restricted stock award usually has the rights of a
shareholder of the Company, including the right to vote and to receive cash
dividends on the shares subject to the award.
DEFERRED STOCK. An award of deferred stock is an award of Common Stock
to be issued in the future to the recipient. The Compensation Committee may
condition payment for the deferred stock upon the attainment of specified
performance goals or other criteria. Such awards may be granted together with
cash dividend equivalents, and the payment of the cash dividend equivalents also
may be deferred. Unless otherwise determined by the Compensation Committee,
dividend equivalents are deemed to be reinvested in additional shares of
deferred stock, subject to the same deferral limitations as the underlying
award. The Compensation Committee may also determine that a designated
percentage of the total fair market value of the shares of deferred stock will
be payable in cash, and may provide that affected recipients can elect to
receive an additional percentage of the award in cash, subject to certain
limits. The recipient can elect to defer receipt of deferred stock beyond the
expiration of the original deferral periods if the Compensation Committee
approves. The Compensation Committee determines the timing and the amount to be
paid by the recipient of a deferred stock award in exchange for the deferred
stock. The Compensation Committee also has the right to accelerate the vesting
of all or part of any deferred stock based upon factors or criteria that it
feels are relevant.
STOCK AWARDS. The Compensation Committee may grant awards of Common
Stock in payment of compensation that has been earned or as compensation to be
earned. The Compensation Committee determines the terms and timing of the
issuance of Common Stock subject to a stock award. Each stock award is also
subject to such terms and conditions, including restrictions on the resale, as
the Compensation Committee determines.
PERFORMANCE SHARES. A performance share award is an award of a unit
valued by reference to a designated number of shares of Common Stock. Upon the
achievement of performance objectives during a period of time established by the
Compensation Committee when the award is made, the value of the award will be
paid to the recipient in the form of such property as the Compensation Committee
determines, including cash, Common Stock or any combination thereof. Performance
objectives may vary from recipient to recipient and will be based upon such
performance criteria or combination of factors which the Compensation Committee
determines appropriate.
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For example, a performance objective may include minimum earnings per share or
return on equity. Prior to the end of a performance period, the Compensation
Committee may adjust the performance objectives for any performance share award
to reflect any significant events that the Compensation Committee expects to
have a material effect on particular performance objectives. The extent to which
a recipient is entitled to payment in settlement of a performance share award at
the end of the performance period will be determined by the Compensation
Committee based on whether the related performance objectives have been met. A
performance share award will be paid as soon as practicable after the
performance period.
OTHER STOCK-BASED AWARDS. The Compensation Committee may also grant
other awards that are valued in reference to or based on Common Stock, including
convertible preferred stock, convertible debentures, exchangeable securities,
phantom stock and stock awards or options valued by reference to book value or
performance. Subject to the terms of the applicable award, award recipients will
be entitled to receive interest or dividend equivalents with respect to the
shares covered by the award.
ADDITIONAL INFORMATION. In the event of a change in control or potential
change in control and if the Board of Directors has approved the change in
control, the Compensation Committee can approve accelerations of various awards
made under the Equity Plan. Subject to approval by the Compensation Committee,
all performance share awards are deemed to have been fully earned, and a
percentage of payments due thereon equal to the percentage of the performance
period that has elapsed shall be made as soon as practicable after a change in
control. The Compensation Committee may declare any or all then outstanding
options, and any and all related stock rights outstanding for at least six
months, to be immediately vested and exercisable. The Compensation Committee may
also declare all restrictions applicable to awards of restricted stock, deferred
stock or other stock-based awards to have lapsed. Unless otherwise determined by
the Compensation Committee, the value of all outstanding options, restricted
stock, deferred stock, performance shares, stock awards and other stock-based
awards, to the extent vested, will be cashed out at the highest price per share
of Common Stock paid in any transaction reported on the exchange or market on
which the Common Stock is then traded, or paid or offered during the 60-day
period immediately preceding the change of control.
A "change in control" shall have taken place upon the occurrence of any
of the following events. First, any person other than the Company or any
employee benefit plan of the Company (1) makes a tender or exchange offer for
the Company's Common Stock under which shares of Common Stock are purchased, or
(2) becomes the beneficial owner of at least 20% of the Common Stock. Second,
the holders of Common Stock approve a definitive agreement or plan to merge or
consolidate the Company with another corporation, to sell or otherwise dispose
of all or substantially all of its assets, or to liquidate the Company. Third,
during any period of 24 consecutive months, the individuals who at the beginning
of the period constituted the Board of Directors (together with any new director
whose election by the Board of Directors or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved)
no longer constitute at least a majority of the Board of Directors.
A "potential change in control" shall have occurred when (1) the holders
of Common Stock approve an agreement which, if consummated, would result in a
change in control of the Company, or (2) any person (other than the Company or
any Company employee benefit plan) becomes the beneficial owner of securities of
the Company representing five percent or more of the combined voting power of
the Company's outstanding securities and the Board of Directors passes a
resolution to the effect that a potential change in control has occurred for
purposes of the Equity Plan.
The Equity Plan will remain in effect until terminated by the Board of
Directors. After termination by the Board of Directors, the Equity Plan will
continue in effect until all awards granted under the plan are satisfied by the
issuance of shares of Common Stock or the payment of cash or otherwise
terminated under the terms of the plan or under any award agreements. The Board
of Directors may terminate or amend the Equity Plan at any time. However, no
termination or amendment can adversely affect a recipient's rights under any
award previously granted under the Equity Plan, except with the consent of the
holder of the award and except in the case of a termination for cause or for
competing with the Company. No amendment is effective unless approved by the
shareholders of the
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Company if such approval is required to comply with Rule 16b-3 under Securities
Exchange Act, or with any other law or regulation, or with the Nasdaq National
Market or other stock exchange rule.
This amendment requires approval by the majority of all eligible votes
present or represented by proxy at a meeting of shareholders at which a quorum
is present.
PROPOSAL NO. 3 - AMENDMENT TO EQUITY COMPENSATION
PLAN TO LIMIT AWARDS TO CERTAIN EXECUTIVE OFFICERS
In March 1999, the Board of Directors unanimously approved an amendment
to the Equity Plan which limits awards to any employee who is covered by Section
162(m) of the Internal Revenue Code to a total of 500,000 shares over any
three-year period. Employees covered under this section of the Internal Revenue
Code include the employees whose compensation must be disclosed in the Summary
Compensation Table set forth in the Company's annual proxy statement. The
purpose of the amendment is to prevent the Company's loss of an income tax
deduction for compensation recognized by these covered employees arising from
certain awards made to them under the Equity Plan. See "Proposal No. 2 -
Amendment to Equity Compensation Plan to Increase the Number of Shares Reserved
for Awards" for a description of the Equity Plan. The proposed limitation is
approximately one-third of the total number of shares available for awards under
the Equity Plan, assuming the requested increase in the number of shares
reserved for awards under the Equity Plan is approved by the Shareholders. See
"Proposal No. 2 - Amendment to Equity Compensation Plan to Increase the Number
of Shares Reserved for Awards" for a discussion of the requested increase.
This amendment to the Equity Plan requires approval by the majority of
all eligible votes present or represented by proxy at a meeting of shareholders
at which a quorum is present.
PROPOSAL NO. 4 - AMENDMENT TO EQUITY COMPENSATION PLAN TO LIMIT
AWARDS TO NON-EMPLOYEE DIRECTORS
In March 1999, the Board of Directors unanimously approved an amendment
to the Equity Plan to limit awards to non-employee directors as a group to
250,000 shares over any three-year period. Although the directors are permitted
to approve their own compensation, including compensation in the form of awards
under the Equity Plan, the Company believes that it is in the best interests of
the shareholders to set a limit on awards which can be made to directors. See
"Proposal No. 2 - Amendment to Equity Compensation Plan to Increase the Number
of Shares Reserved for Awards" for a description of the Equity Plan.
This amendment to the Equity Plan requires approval by the majority of
all eligible votes present or represented by proxy at a meeting of shareholders
at which a quorum is present.
OTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The following table shows the number of shares of the Company's Common
Stock as of February 28, 1999, by (1) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (2) each
director and nominee for director, (3) each of our executive officers named in
the Summary Compensation Table below, and (4) all directors and current
executive officers of the Company as a group. Except as indicated in footnotes
to this table, the persons named in this table have sole voting and investment
power with respect to all shares of Common Stock shown.
8
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Name Owned (1) Owned
---- -------------- ----------
<S> <C> <C>
American Express Company (2) 1,718,600 7.3%
Stuart Bondurant (3) 14,000 *
Abraham E. Cohen (4) 4,000 *
Thomas D'Alonzo (5) 66,424 *
Fred B. Davenport, Jr. (6) 61,000 *
Fredric N. Eshelman (7) 3,027,544 12.8%
Frederick Frank (8) 17,864 *
Franklin Resources, Inc. (9) 1,540,455 6.5%
Donald C. Harrison, M.D. (4) 4,000 *
Joseph H. Highland (10) 110,469 *
Rudy C. Howard (11) 65,415 *
Ernest Mario (12) 512,209 2.2%
John A. McNeill, Jr. (13) 1,356,939 5.7%
Ronald B. McNeill (14) 1,188,144 5.0%
Paul J. Rizzo (4) 4,000 *
J. & W. Seligman & Co. Incorporated (15) 1,561,752 6.6%
All directors and current executive
officers as a group (12 persons) (16) 5,153,396 21.6%
</TABLE>
- ------------
* Less than one percent.
(1) As of February 28, 1999, the Company had 23,594,390 shares of Common Stock
outstanding. Share ownership in each case also includes shares issuable
upon exercise of outstanding options that can be exercised within 60 days
after February 28, 1999 for purposes of computing the percentage of Common
Stock owned by the person named. Options owned by such person are not
included for purposes of computing the percentage owned by any other
person.
(2) Based on information contained in Schedule 13G filed with the Securities
and Exchange Commission on or about January 22, 1999. The address of
American Express Company is IDS Tower 10, Minneapolis, Minnesota 55440.
(3) Includes 13,000 shares of Common Stock issuable pursuant to options.
(4) Includes 4,000 shares of Common Stock issuable pursuant to options.
(5) Includes 58,333 shares of Common Stock issuable pursuant to options and
1,500 shares of Common Stock held by Mr. D'Alonzo's wife.
(6) Includes 1,000 shares of Common Stock held through an individual retirement
account for the benefit of Mr. Davenport and 60,000 shares of Common Stock
issuable pursuant to options.
(7) Includes 16,666 shares of Common Stock issuable pursuant to options. The
address of Dr. Eshelman is 6814 Towles Road, Wilmington, North Carolina
28409.
(8) Includes 17,053 shares of Common Stock issuable pursuant to options.
(9) Based on information contained in Schedule 13G filed with the Securities
and Exchange Commission on or about February 2, 1999. The address of
Franklin Resources, Inc. is 777 Mariners Island Blvd., P.O. Box 7777, San
Mateo, California 94403-7777.
(10) Includes 14,526 shares of Common Stock held by the Highland-Mills
Foundation, of which Dr. Highland is an officer and trustee, and 35,705
shares of Common Stock issuable pursuant to options.
(11) Includes 4,100 shares of Common Stock held through an individual retirement
account for the benefit of Mr. Howard, 58,333 shares of Common Stock
issuable pursuant to options, 1,250 shares of Common Stock issuable
pursuant to options held by Mr. Howard's wife, who is also employed by the
Company, and 1,215 shares of Common Stock held by Mr. Howard's wife.
(12) Includes 284,388 shares of Common Stock held in a family partnership; 2,867
shares of Common Stock held in trust for Dr. Mario's granddaughter for
which Mildred Mario, Dr. Mario's wife, is the trustee; 2,120 shares of
Common Stock held in trust for Dr. Mario's grandson for which Mrs. Mario is
the trustee; 4,953 shares of Common Stock held in trust for Mrs. Mario;
4,953 shares of Common Stock held in trust for Dr. Mario; 80 shares of
Common Stock held by Dr. Mario's wife; and 16,333 shares of Common Stock
issuable pursuant to options.
(13) Includes 19,035 shares of Common Stock held in trust for Mr. McNeill's
three children, all of whom reside with Mr. McNeill. Also includes 8,000
shares of Common Stock issuable pursuant to options. The address of Mr.
McNeill is 304 East Oliver Street, Whiteville, North Carolina 28472.
9
<PAGE>
(14) Includes 5,000 shares held by Mr. McNeill's wife and 10,000 shares of
Common Stock held in trust for Mr. McNeill's daughter, who resides with Mr.
McNeill. The address of Mr. McNeill is 248 Chimney Lane, Wilmington, North
Carolina 28409.
(15) Based on information contained in Schedule 13G filed with the Securities
and Exchange Commission on or about February 4, 1999. The address of J. &
W. Seligman & Co. Incorporated is 100 Park Avenue, New York, New York
10017.
(16) Includes all shares referenced in the table above except those owned by
Joseph H. Highland, Ronald B. McNeill, American Express Company, Franklin
Resources, Inc. and J. & W. Seligman & Co. Incorporated. Also includes
20,001 shares underlying options held by a current executive officer who
was not an executive officer on December 31, 1998.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors. Non-employee directors
receive an annual retainer of $20,000 payable in quarterly installments after
each regularly scheduled meeting of directors. Each non-employee director also
receives $1,000 for each meeting of the Board of Directors attended in person
and $1,000 for attendance of the Annual Meeting of Shareholders. In addition,
each non-employee director receives $750 for each committee meeting attended,
and the chairman of each committee receives $1,000 for attendance of each
meeting of his committee. In the discretion of the Chairman of the Board of
Directors, each non-employee director receives $500 for each Board and committee
meeting attended by telephone. In addition, each non-employee director is
granted options to purchase 4,000 shares of Common Stock of the Company on the
date the non-employee director is first elected to the Board of Directors and on
each date the non-employee director is re-elected to the Board.
EXECUTIVE COMPENSATION TABLES
<TABLE>
<CAPTION>
1. SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -----------
OTHER ANNUAL SECURITIES ALL OTHER
BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($) OPTIONS(#) ($)
- ---------------------------- ---- --------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fredric N. Eshelman (2) 1998 $ 425,000 $ 127,500 $ -- 30,000 $ 5,736
Vice Chairman and 1997 423,750 63,563 -- 50,000 6,316
Chief Executive Officer 1996 395,003 58,751 -- -- 2,603,536
Thomas D'Alonzo (3) 1998 $ 226,869 $ 68,061 $ -- 15,000 $ 5,763
President and 1997 225,000 33,750 -- 25,000 7,054
Chief Operating Officer 1996 35,914 -- -- 75,000 --
Rudy C. Howard (4) 1998 $ 204,090 $ 61,227 $ -- 10,000 $ 5,536
Chief Financial Officer, 1997 179,167 27,178 -- 10,000 7,394
Vice President Finance 1996 160,003 74,751 -- 60,000 5,000
and Treasurer
Fred B. Davenport, Jr. (5) 1998 $ 200,500 $ 60,150 $ -- 10,000 $ 5,506
General Counsel and 1997 200,000 30,000 -- 15,000 5,968
Vice President Legal 1996 13,646 -- -- 55,000 --
Joseph H. Highland (6) 1998 $ 229,103 $ 61,000 $ -- -- $ 37,724
Chief Executive Officer 1997 229,103 7,000 -- 7,000 37,845
of APBI Environmental 1996 223,630 44,500 -- 4,054 228,652
Sciences Group, Inc.
("ENVIRON")
</TABLE>
- --------------------
(1) All bonuses were paid in the calendar year following the year in which
they were earned as set forth in this table except for $50,000 of Mr.
Howard's 1996 bonus which was paid in 1996.
10
<PAGE>
(2) Dr. Eshelman was awarded options to acquire 50,000 shares and 30,000
shares of Common Stock on December 18, 1997 and December 1, 1998,
respectively. Dr. Eshelman received other compensation in 1998
consisting of $736 in taxable benefit of premiums paid for group term
life insurance on his behalf and $5,000 in 401(k) plan matching
contributions. Dr. Eshelman received other compensation in 1997
consisting of $1,566 in taxable benefit of premiums paid for group term
life insurance on his behalf and $4,750 in 401(k) plan matching
contributions. Dr. Eshelman received other compensation in 1996
consisting of life insurance premiums paid by the Company of $1,053,
401(k) plan matching contributions of $4,750 and an S Corporation
dividend distribution of $2,597,733. The S corporation dividend
distribution represented (a) an amount sufficient to pay income taxes on
1995 earnings of the Company that were treated as having been earned by
Dr. Eshelman as a shareholder, including income required to be
recognized by him arising from the Company's adoption of the accrual
method of accounting for tax purposes effective January 1, 1995, and (b)
his share, based on his ownership interest in the Company during the
period for which the distribution was made, of substantially all of the
Company's previously earned and undistributed taxable Subchapter S
income through September 30, 1995.
(3) Mr. D'Alonzo became President and Chief Operating Officer of the Company
on October 21, 1996. Mr. D'Alonzo was awarded options to acquire 75,000
shares, 25,000 shares and 15,000 shares of Common Stock on October 4,
1996, December 18, 1997 and December 1, 1998, respectively. Mr. D'Alonzo
received other compensation in 1998 consisting of $763 in taxable
benefit of premiums paid for group term life insurance on his behalf and
$5,000 in 401(k) plan matching contributions. Mr. D'Alonzo received
other compensation in 1997 consisting of $2,304 in taxable benefit of
premiums paid for group term life insurance on his behalf and $4,750 in
401(k) plan matching contributions.
(4) Mr. Howard was awarded options to acquire 45,000, 15,000, 10,000 and
10,000 shares of Common Stock on January 24, 1996, September 26, 1996,
December 18, 1997 and December 1, 1998. Mr. Howard received other
compensation in 1998 consisting of $457 in taxable benefit of premiums
paid for group term life insurance on his behalf and $5,079 in 401(k)
plan matching contributions. Mr. Howard received other compensation in
1997 consisting of $622 in taxable benefit of premiums paid for group
term life insurance on his behalf, $4,750 in 401(k) plan matching
contributions and $2,022 of compensation for forfeited paid time off.
Mr. Howard received other compensation in 1996 for reimbursement of
relocation expenses.
(5) Mr. Davenport became General Counsel of the Company on December 1, 1996.
Mr. Davenport was awarded options to acquire 55,000, 15,000 and 10,000
shares of Common Stock on September 26, 1996, December 18, 1997 and
December 1, 1998, respectively. Mr. Davenport received other
compensation in 1998 consisting of $506 in taxable benefit of premiums
paid for group term life insurance on his behalf and $5,000 in 401(k)
plan matching contributions. Mr. Davenport received other compensation
in 1997 consisting of $1,218 in taxable benefit of premiums paid for
group term life insurance on his behalf and $4,750 in 401(k) matching
contributions.
(6) Dr. Highland was awarded options to acquire 4,054 and 7,000 shares of
Common Stock on September 26, 1996 and December 18, 1997, respectively.
Dr. Highland received other compensation in 1998 consisting of $21,438
paid to him under the ENVIRON Deferred Compensation Plan, $2,351 in
taxable benefit of premiums paid for group term life insurance on his
behalf, $4,500 in 401(k) plan matching contributions and $9,435 in
contributions on his behalf to the APBI Environmental Sciences Group,
Inc. Pension Plan, a money purchase plan. Dr. Highland received other
compensation in 1997 consisting of $15,169 paid to him under the ENVIRON
Deferred Compensation Plan, $3,755 in taxable benefit of premiums paid
for group term life insurance on his behalf, $4,500 in 401(k) plan
matching contributions and $14,421 in contributions on his behalf to the
APBI Environmental Sciences Group, Inc. Pension Plan. In 1996, Dr.
Highland received $185,000 for using his best efforts to promote the
merger of Applied Bioscience International Inc. with the Company to
ENVIRON employees, to foster morale among ENVIRON employees and to
assist the Company in developing a business plan for ENVIRON following
the merger. Dr. Highland received additional other compensation in 1996
consisting of $14,310 paid to him under the ENVIRON Deferred
Compensation Plan, $2,288 in taxable benefit of premiums paid for group
term life insurance on his behalf, $8,133 in taxable benefit of amounts
paid for wrap-around medical insurance coverage on his behalf, $4,500 in
401(k) plan matching contributions and $14,421 in contributions on his
behalf to the APBI Environmental Sciences Group, Inc. Pension Plan.
11
<PAGE>
2. STOCK OPTION/SAR GRANTS TABLE - 1998 GRANTS
<TABLE>
POTENTIAL REALIZABLE VALUE AT
ANNUALIZED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM (2)
---------------------------------------------------- ----------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (#) (3) ($/SH) DATE 5% ($) 10%($)
- ---- --------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fredric N. Eshelman 30,000 8.60% $28.00 11/30/08 $528,300 $1,338,600
Thomas D'Alonzo 15,000 4.30% 28.00 11/30/08 264,150 669,300
Rudy C. Howard 10,000 3.04% 28.00 11/30/08 176,100 446,200
Fred B. Davenport, Jr. 10,000 3.04% 28.00 11/30/08 176,100 446,200
- ----------------------
</TABLE>
(1) All options to executive officers named in this table were granted under
the Equity Plan on December 1, 1998. The exercise price per share of the
options granted equals the fair market value per share of the Company's
Common Stock on the date of grant. The options are exercisable over a term
of ten years from the date of grant. Shares subject to the options granted
vest ratably over the three-year period starting on the date of the grant,
with vesting occurring on the anniversary dates of the grant. All options
are non-qualified stock options and expire three months after termination
of employment. However, if employment is terminated because of death or
disability, the options can be exercised until one year after death or
disability.
(2) Potential realizable value of each grant is calculated assuming that the
market price of the underlying security appreciates at annualized rates of
5% and 10%, respectively, over the ten-year term of the option. The
assumed annual rates of appreciation of 5% and 10% would result in the
price of the Common Stock increasing to $45.61 and $72.62 per share,
respectively, for options expiring November 30, 2008. Actual gains, if
any, on stock option exercises depend on the future performance of the
Common Stock and overall stock market conditions. The amounts shown in
this table may not be achieved.
(3) The Company granted options to acquire 349,000 shares of Common Stock in
1998.
- --------------------------------------------------------------------------------
3. AGGREGATED OPTION/SAR EXERCISES IN 1998
AND OPTION/SAR VALUES AS OF YEAR-END 1998(1)
<TABLE>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
YEAR-END (#) AT FISCAL YEAR-END (2) ($)
------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Fredric N. Eshelman 16,666 63,334 $277,072 $616,053
Thomas D'Alonzo 58,333 56,667 410,411 443,964
Rudy C. Howard 58,333 21,667 631,329 148,026
Fred B. Davenport, Jr. 60,000 20,000 265,313 186,875
Joseph H. Highland 35,705 3,766 269,398 30,234
- ------------------
</TABLE>
(1) This table sets forth information as of December 31, 1998 regarding the
number and value of options held by each of the executive officers named.
None of the named executive officers exercised stock options during 1998.
(2) The value of the options is based on the difference between the exercise
price and $30.0625, the closing price per share of the Company's Common
Stock on the National Association of Securities Dealers' Automated
Quotation National Market System on December 31, 1998.
12
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
Fred Eshelman, Chief Executive Officer, entered into a new employment
agreement with the Company effective July 1, 1997. Under the employment
agreement, Dr. Eshelman was employed for a one-year term which expired on June
30, 1998. The employment agreement provides for automatic one-year renewals
unless either party gives notice that the agreement will not be renewed, and the
agreement automatically renewed for a second one-year term beginning July 1,
1998. Dr. Eshelman's annual base salary remained at $425,000 for the second
one-year term.
Tom D'Alonzo entered into an employment agreement with the Company on
October 5, 1996 to serve as President and Chief Operating Officer of the
Company. The employment agreement provides for automatic one-year renewals
unless either party gives notice that the agreement will not be renewed. The
agreement was renewed for a third one-year term starting October 21, 1998. Mr.
D'Alonzo's annual base salary for the renewal term was initially set at $237,000
and was increased effective April 1, 1999 to $245,000.
Rudy Howard, Chief Financial Officer, entered into a new employment
agreement with the Company effective January 1, 1998. The employment agreement
provides for automatic one-year renewals unless either party gives notice that
the agreement will not be renewed, and the agreement was renewed for a second
one-year term beginning January 1, 1999. Mr. Howard's annual base salary during
the renewal term is $212,000.
Fred Davenport entered into an employment agreement with the Company on
September 26, 1996 to serve as General Counsel of the Company. The employment
agreement provides for automatic one-year renewals unless either party gives
notice that the agreement will not be renewed. The agreement was renewed for a
third one-year term starting December 1, 1998.
Mr. Davenport's base salary for the renewal term is $212,000.
Each of the executive officers named in the Summary Compensation Table,
including Dr. Highland, entered into a severance agreement with the Company on
February 2, 1998. Each severance agreement provides that upon termination of the
executive officer's employment within one year after a change of control of the
Company, including required relocation that he declines, the executive officer
will be paid an amount equal to his annual W-2 compensation for the prior 12
months in the case of Dr. Eshelman, Mr. D'Alonzo and Dr. Highland, and twice his
annual W-2 compensation for the prior 12 months in the case of Mr. Howard and
Mr. Davenport. In addition, all outstanding unvested stock options granted at
least six months prior to the executive officer's termination of employment will
vest upon termination. The additional compensation amounts to be paid to Mr.
Howard and Mr. Davenport in the event of their termination of employment after a
change in control of the Company reflect similar preexisting compensation
arrangements which they had with the Company in the event of their termination
of employment upon a change in control of the Company. These prior arrangements
were terminated when Mr. Howard and Mr. Davenport entered into new severance
agreements with the Company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Ernest Mario, Chairman, Stuart Bondurant and John A. McNeill, Jr. are the
members of the Company's Compensation Committee. All of the committee members
are outside directors.
Executive Pay Policy.
---------------------
The Compensation Committee believes that the Company should have a
compensation system that is performance-oriented and designed to achieve
long-term shareholder returns. To help the Company to achieve these objectives,
the committee recommended that the Company retain Frederic W. Cook & Co., Inc.,
a consulting firm, to conduct a study of the competitiveness of the Company's
executive compensation practices. The committee also suggested that the Cook
firm should be asked to recommend appropriate changes to short-term and
long-term executive incentive plans that will help the Company to achieve its
stated objectives. The Company retained the Cook firm in June 1997 and received
its report in September 1997. A summary of the significant findings and
recommendations contained in the Cook report was included in last year's report
of the Compensation Committee.
13
<PAGE>
Using the Cook firm's recommendations as a guide, the Compensation
Committee approved changes in the executive cash bonus plan and adopted a new
set of guidelines for grants of stock options. The committee believes that the
changes have enabled the Company to attract and retain executives. All of the
current executive officers named in the Summary Compensation Table have extended
their employment with the Company for additional one-year terms under their
respective employment agreements. (Dr. Highland served as Chief Executive
Officer of the Company's ENVIRON subsidiary, which was sold to ENVIRON
employees, including Dr. Highland, in a management buyout completed effective
January 31, 1999.) In addition, the committee believes that the changes made are
consistent with its stated objective of establishing a compensation system that
is performance-oriented and is intended to achieve long-term shareholder
returns.
Specific Compensation Programs.
-------------------------------
The Company's compensation policy for its executive officers includes a
mix of base salary, annual cash bonus awards and long-term incentive
compensation in the form of stock options.
BASE SALARY. The committee reviews the base salaries of the Company's
executive officers annually. In its December 1998 annual reviews of the
Company's executive officers other than Dr. Eshelman, the committee approved
modest increases in the base salaries of Mr. D'Alonzo, Mr. Howard and Mr.
Davenport. Each received a $12,000 increase in his base salary, a 5.3% increase
for Mr. D'Alonzo and a 6% increase for each of Mr. Howard and Mr. Davenport. Mr.
D'Alonzo received an additional salary increase of $8,000, or 3.6% of his salary
prior to his December 1998 annual review, effective April 1, 1999. Neither Mr.
D'Alonzo nor Mr. Davenport received a salary increase following their 1997
annual reviews. The committee has continued to adhere to its general policy that
executive employment agreements will be for one-year terms, with a provision for
successive one-year renewal terms unless either party gives notice to the other
that the agreement will not be renewed. All of the employment agreements that
the Company has with its executive officers include these terms. The committee's
experience has been that a one-year employment term with annual performance
reviews encourages better performance by executives.
ANNUAL BONUS AWARDS. All current employment agreements with executive
officers provide for payment of cash bonus awards in the discretion of the
Compensation Committee. In 1997 the Compensation Committee approved new bonus
plans for both its life sciences and environmental consulting divisions which
include recommendations made by the Cook firm. Under the PPD Pharmaco, Inc.
Employee Incentive Compensation Plan effective January 1, 1998, target bonuses
for executives who participate in the plan were increased from 20% to 30% of
base salary. The potential for larger cash bonuses under the two new bonus plans
was intended to further incentivize the Company's executives, as well as other
employees of the Company. All of the executive officers named in the Summary
Compensation Table except Dr. Highland earned target bonuses in 1998 under the
PPD Pharmaco, Inc. incentive plan. Dr. Highland's bonus for 1998 was determined
by his new employer after the Company's sale of its ENVIRON subsidiary.
STOCK OPTION AWARDS. All annual stock option awards received by
executive officers named in the Summary Compensation Table were made under the
comprehensive guidelines for grants of nonqualified stock options adopted by the
committee in December 1997. Initial and annual awards of stock options are based
upon the position held by an executive and the size of the stock option awards
generally are tied to the Company's overall performance. The committee in its
discretion may also issue stock option grants in lieu of increases in base
salary or cash bonus awards to incentivize executives. The committee believes
that this approach is consistent with its stated objective of establishing a
performance-based executive compensation system since the value of the
executive's stock options generally will be related to the Company's overall
performance.
Chief Executive Officer Compensation.
-------------------------------------
Dr. Eshelman's current base salary of $425,000 was established effective
January 1, 1997. His base salary was not increased when he signed a new
employment agreement with the Company in June 1997 and it was not increased when
his agreement renewed for a second one-year term effective July 1, 1998. The
committee reviewed Dr. Eshelman's base salary in March 1998 and concluded that
his current base salary was competitive and fair based upon the Company's
performance at the time of the review. The committee reviewed Dr. Eshelman's
base salary
14
<PAGE>
again in March 1999 as part of his annual performance review. Based
on his and the Company's performance in the last twelve months, the committee
increased his salary to $485,000, a 14.1% increase, effective July 1, 1999 when
Dr. Eshelman's employment agreement is renewed for another one-year term. Dr.
Eshelman also earned a bonus of $127,500 under the 1998 PPD Pharmaco, Inc.
Employee Incentive Compensation Plan, which was paid in March 1999. Based upon
the criteria discussed in "Specific Compensation Programs - Stock Option
Awards", the Committee approved an annual grant of 30,000 nonqualified stock
options to Dr. Eshelman on December 1, 1998 at an exercise price of $28.00 per
share.
Submitted by:THE COMPENSATION COMMITTEE
Ernest Mario, Ph.D., Chairman
Stuart Bondurant, M.D.
John A. McNeill, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was an officer or
employee of the Company at any time in 1998. Mr. McNeill served as the Company's
President from 1989 until 1993. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
15
<PAGE>
PERFORMANCE GRAPH
Below is a graph which compares the cumulative total shareholder return
on the Company's Common Stock from January 24, 1996, the effective date of the
Company's initial public offering, through December 31, 1998, against the
cumulative total return for the same period on the NASDAQ Stock Market (U.S.)
Index and the NASDAQ Health Services Index. The results are based on an assumed
$100 invested on January 24, 1996 and reinvestment of all dividends.
[LINE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
<TABLE>
Comparison of Cumulative Total Return Among PPDI and the
NASDAQ U.S. Stock and NASDAQ Health Services Indices
______________ Pharmaceutical Product Development, Inc. - - - - - - - - NASDAQ U.S. Stock Index
- - - - - - - - - - NASDAQ Health Services Index
<S> <C> <C> <C> <C> <C> <C> <C>
CRSP Total Returns Index for: 1/24/96 6/28/96 12/31/96 6/30/97 12/31/97 6/30/98 12/31/98
----------------------------- ------- ------- -------- ------- -------- ------- --------
PPDI 100.000 131.373 99.02 86.275 60.294 86.275 117.892
NASDAQ U.S. Stock Index 100.000 114.346 124.214 139.010 152.390 183.469 214.221
NASDAQ Health Services Index 100.000 102.507 98.606 102.766 100.491 100.171 86.174
</TABLE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals to be included in the Proxy Statement for our next
annual meeting of shareholders must be received by the Company not later than
December 2, 1999. Under the Company's bylaws, shareholder proposals to be
considered at our next annual meeting must be received by the Company not later
than 50 days prior to that meeting. All submissions must comply with all of the
requirements of the Company's bylaws and Rule 14a-8 of the Securities Exchange
Act. Proposals should be mailed to Fred B. Davenport, Jr., Secretary,
Pharmaceutical Product Development, Inc., 3151 South Seventeenth Street,
Wilmington, North Carolina 28412.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our officers and
directors and persons who own more than 10% of our outstanding Common Stock to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and such shareholders are required by
regulations under the Securities Exchange Act to furnish us with copies of all
forms they file under Section 16(a).
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Based solely on our review of the copies of such forms we have received,
we believe that during 1998 all of our officers, directors and shareholders
described above complied with all Section 16(a) filing requirements.
OTHER MATTERS
The Board of Directors of the Company has appointed the firm of
PriceWaterhouseCoopers L.L.P., Raleigh, North Carolina ("PWC") to serve as the
independent auditors of the Company for the fiscal year ended December 31, 1998.
Coopers & Lybrand L.L.P., now a part of PWC, has audited our accounts since
1994. PWC has advised the Company that it does not have, and has not had, any
direct or indirect financial interest in the Company or its subsidiaries in any
capacity other than that of serving as independent auditors. Representatives of
PWC are expected to attend the Annual Meeting. They will have an opportunity to
make a statement if they desire, and they also will be available to respond to
appropriate questions.
By Order of the Board of Directors
/s/ Fredric N. Eshelman, Pharm.D.
Fredric N. Eshelman, Pharm.D.
Chief Executive Officer
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Exhibit A
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
EQUITY COMPENSATION PLAN
Effective as of October 30, 1995
Amended and Restated
Effective May 12, 1999
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
EQUITY COMPENSATION PLAN
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed, for the benefit of the Company, to attract and retain
for the Company personnel of exceptional ability; to motivate such personnel
through added incentives to make a maximum contribution to greater
profitability; to develop and maintain a highly competent management team; and
to be competitive with other companies with respect to executive compensation.
1.2 Awards under the Plan may be made to Participants in the form of (i)
Incentive Stock Options; (ii) Nonqualified Stock Options; (iii) Stock
Appreciation Rights; (iv) Restricted Stock; (v) Deferred Stock; (vi) Stock
Awards; (vii) Performance Shares; and (viii) Other Stock-Based Awards and other
forms of equity-based compensation as may be provided and are permissible under
this Plan and the law.
1.3 The Plan shall be effective as of October 30, 1995 (the "Effective Date"),
subject to the approval of shareholders of the Company within 12 months before
or after such date.
ARTICLE II - DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
2.1 "Acceleration Event" means the occurrence of an event defined in Article
XIII of the Plan.
2.2 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended. All citations to sections of the Act or rules
thereunder are to such sections or rules as they may from time to time
be amended. All citations to sections of the act or rules thereunder are
to such sections or rules as they may from time to time be amended or
renumbered.
2.3 "Agreement" means the written agreement evidencing each Award granted to
a Participant under the Plan.
2.4 "Award" means an award granted to a Participant in accordance with the
provisions of the Plan, including, but not limited to, a Stock Option,
Stock Right, Restricted Stock, Deferred Stock, Stock Awards, Performance
shares, Other Stock-Based Awards, or any combination of the foregoing.
2.5 "Board" means the Board of Directors of Pharmaceutical Product
Development, Inc.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
2.7 "Committee" means the Compensation Committee or such other committee
consisting of two or more members as may be appointed by the Board to
administer this Plan pursuant to Article III. To the extent required by
Rule 16b-3 under the Act, the Committee shall consist of individuals who
are members of the Board and who are Non-Employee Directors. Committee
members may also be appointed for such limited purposes as may be
provided by the Board.
2.8 "Company" means Pharmaceutical Product Development, Inc., a North
Carolina corporation, and its successors and assigns. The term "Company"
shall include any corporation which is a member of a controlled group of
corporations (as defined in Section 414(b) of the Code, as modified by
Section 415(h) of the Code) which includes the Company; any trade or
business (whether or not incorporated) which is under common control (as
defined in Section 414(c) of the Code, as
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modified by Section 415(h) of the Code) with the Company; any
organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Section 414(m) of the Code)
which includes the Company; and any other entity required to be
aggregated with the Company pursuant to regulations under Section 414(o)
of the Code. With respect to all purposes of the Plan, including, but
not limited to, the establishment, amendment, termination, operation and
administration of the Plan, Pharmaceutical Product Development, Inc.
shall be authorized to act on behalf of all other entities included
within the definition of Company.
2.9 "Deferred Stock" means the stock awarded under Article IX of the Plan.
2.10 "Disability" means disability as determines under procedures established
by the Committee or in any Award.
2.11 "Discount Stock Options" means the Nonqualified Stock Options which
provide for an exercise price of less than the Fair Market Value of the
Stock at the date of the Award.
2.12 "Non-Employee Director" shall have the meaning set forth in Rule 16b-3
under the Act.
2.13 "Early Retirement" means retirement from active employment with the
Company, with the express consent of the Committee, pursuant to the
early retirement provisions established by the Committee or in any
Award.
2.14 "Eligible Participant" means any employee of the Company, as shall be
determined by the Committee, as well as any other person, including
directors, subject to such limitations imposed on a person designated as
a Non-Employee Director, whose participation the Committee determines is
in the best interest of the Company, subject to limitations as may be
provided by the Code, the Act or the Committee.
2.15 "Fair Market Value" means, with respect to any given day, the closing
price of the Stock reported on the stock exchange on which the Stock is
then listed for such day, as reported by such source as the Committee
may select, provided there was a sale of at least 100 shares of Stock on
such date. If there was not a sale of at least 100 shares of Stock on
such day, the Fair Market Value shall be determined based on the closing
price of the Stock reported on the stock exchange as of the last date on
which there was a sale of at least 100 shares of Stock. The Committee
may establish an alternative method of determining Fair Market Value.
2.16 "Incentive Stock Option: means a Stock Option granted under Article IV
of the Plan, and as defined in Section 422 of the Code.
2.17 "Limited Stock Appreciation Rights" means a Stock Right which is
exercisable only in the event of a Change in Control and/or a Potential
Change in Control, as described in Section 6.9 of the Plan, which
provides for an amount payable solely in cash, equal to the excess of
the Stock Appreciation Right Fair Market Value of a share of Stock on
the day the Stock Right is surrendered over the price at which a
Participant could exercise a related Stock Option to purchase the share
of Stock.
2.18 "Nonqualified Stock Option" means a Stock Option granted under Article V
of the Plan.
2.19 "Normal Retirement" means retirement from active employment with the
Company on or after age 65, or pursuant to such other requirements as
may be established by the Committee or in any Award.
2.20 "Option Grant Date" means, as to any Stock Option, the latest of:
(a) The date on which the Committee grants the Stock Option by
entering into an Award Agreement with the Participant;
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(b) The date the Participant receiving the Stock Option becomes an
employee of the Company, to the extent employment status is a
condition of the grant or a requirement of the Code or the Act;
or
(c) Such other date (later than the dates described in (i) and (ii)
above) as the Committee may designate.
2.21 "Participant" means an Eligible Participant to whom an Award of
equity-based compensation has been granted and who has entered into an
Agreement evidencing the Award.
2.22 "Performance Share" means an Award under Article XI of the Plan of a
unit valued by reference to a designated number of shares of Stock,
which value may be paid to the Participant by delivery of such property
as the Committee shall determine, including without limitation, cash or
Stock, or any combination thereof, upon achievement of such Performance
objectives during the Performance Period as the Committee shall
establish at the time of such Award or thereafter.
2.23 "Plan" means the Pharmaceutical Product Development, Inc. Equity
Compensation Plan, as amended from time to time.
2.24 "Restricted Stock" means an Award of Stock under Article VIII of the
Plan, which Stock is issued with the restriction that the holder may not
sell, transfer, pledge, or assign such Stock and with such other
restrictions as the Committee, in its sole discretion, may impose,
including without limitation, any restriction on the right to vote such
Stock, and the right to receive any cash dividends, which restrictions
may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.
2.25 "Restriction Period" means the period commencing on the date an Award of
Restricted Stock is granted and ending on such date as the Committee
shall determine.
2.26 "Retirement" means Normal or Early Retirement.
2.27 "Stock" means shares of common stock of Pharmaceutical Product
Development, Inc., as may be adjusted pursuant to the provisions of
Section 3.11.
2.28 "Stock Appreciation Right" means a Stock Right, as described in Article
VI of this Plan, which provides for an amount payable in Stock and/or
cash, as determined by the Committee, equal to the excess of the Fair
Market Value of a share of Stock on the day the Stock Right is exercised
over the price at which the Participant could exercise a related Stock
Option to purchase the share of stock.
2.29 "Stock Appreciation Right Fair Market Value" means a value established
by the Committee for the exercise of a Stock Appreciation Right or a
Limited stock Appreciation Right.
2.30 "Stock Award" means an Award of Stock granted in payment of
compensation, as provided in Article X of the Plan
2.31 "Stock Option" means an Award under Article IV or V of the Plan of an
option to purchase Stock. A Stock Option may be either an Incentive
Stock Option or a Nonqualified Stock Option.
2.32 "Stock Right" means an Award under Article VI of the Plan. A Stock Right
may be either a Stock Appreciation Right or a Limited Stock Appreciation
Right.
2.33 "Termination of Employment" means the discontinuance of employment of a
Participant with the Company for any reason. The determination of
whether a Participant has discontinued employment shall be made by the
Committee in its discretion. In determining whether a Termination of
Employment has occurred, the Committee may provide that service as a
consultant or service with a business enterprise in which the Company
has a significant ownership interest
3
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shall be treated as employment with the Company. The Committee shall
have the discretion, exercisable either at the time the Award is granted
or at the time the Participant terminates employment, to establish as a
provision applicable to the exercise of one or more Awards that during
the limited period of exercisability following Termination of
Employment, the Award may be exercised not only with respect to the
number of shares of Stock for which it is exercisable at the time of the
Termination of Employment but also with respect to one or more
subsequent installments for which the Award would have become
exercisable had the Termination of Employment not occurred.
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. A Committee member who
is not a Non-Employee Director, with respect to action to be taken by
the Committee, shall not be able to participate in the decision to the
extent prescribed by Rule 16b-3 under the Act. The Committee, in its
discretion, may delegate to one or more of its members such of its
powers as it deems appropriate. The Committee also may limit the power
of any member to the extent necessary to comply with Rule 16b-3 under
the Act or any other law. Members of the Committee shall be appointed
originally, and as vacancies occur, by the Board, to serve at the
pleasure of the Board. The Board may serve as the Committee, if by the
terms of the Plan all Board members are otherwise eligible to serve on
the Committee.
3.2 The Committee shall meet at such times and places as it determines. A
majority of its members shall constitute a quorum, and the decision of
the majority of those present at any meeting at which a quorum is
present shall constitute the decision of the Committee. A memorandum
signed by all of its members shall constitute the decision of the
Committee without necessity, in such event, for holding an actual
meeting.
3.3 The Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the persons who are eligible to receive
an Award, and to act in all matters pertaining to the granting of an
Award and the contents of the Agreement evidencing the Award, including
without limitation, the determination of the number of Stock Options,
Stock Rights, shares of Stock or Performance Shares subject to an Award
and the form, terms, conditions and duration of each Award, and any
amendment thereof consistent with the provisions of the Plan. All acts,
determinations and decisions of the Committee made or taken pursuant to
grants of authority under the Plan or with respect to any questions
arising in connection with the administration and interpretation of the
Plan, including the severability of any and all of the provisions
thereof, shall be conclusive, final and binding upon all Participants,
Eligible Participants and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and procedures of
general application for the administration of this Plan, as it deems
appropriate.
3.5 Without limiting the foregoing Sections 3.1, 3.2, 3.3 and 3.4, and
notwithstanding any other provisions of the Plan, the Committee is
authorized to take such action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to an
Award in the event of an Acceleration Event as defined in Article XIII.
Such action may include, but shall not be limited to, establishing,
amending or waiving the forms, terms, conditions and duration of an
Award and the Award Agreement, so as to provide for earlier, later,
extended or additional times for exercise or payment, differing methods
for calculating payments, alternate forms and amounts of payment, an
accelerated release of restrictions or other modifications. The
Committee may take such actions pursuant to this Section 3.5 by adopting
rules and regulations of general applicability to all Participants or to
certain categories of Participants, by including, amending or waiving
terms and conditions in an Award and the Award Agreement, or by taking
action with respect to individual Participants.
4
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3.6 The aggregate number of shares of Stock which are subject to an Award
under the Plan shall be Three Million Five Hundred Thousand (3,500,000)
shares. Such shares of Stock shall be made available from authorized and
unissued shares of the Company.
(a) If, for any reason, any shares of Stock or Performance Shares
awarded or subject to purchase under the Plan are not delivered
or purchased, or are reacquired by the Company, for reasons
including, but not limited to, a forfeiture of Restricted Stock
or termination, expiration or cancellation of a Stock Option,
Stock Right or Performance Share, or any other termination of an
Award without payment being made in the form of Stock, whether or
not Restricted Stock, such shares of Stock or Performance Shares
shall not be charged against the aggregate number of shares of
Stock available for Awards under the Plan, and may again be
available for Award under the Plan.
(b) For all purposes under the Plan, each Performance Share awarded
shall be counted as one share of Stock subject to an Award.
(c) To the extent a Stock Right granted in connection with a Stock
Option is exercised without payment being made in the form of
Stock, whether or not Restricted Stock, the shares of Stock which
otherwise would have been issued upon the exercise of such
related Stock Option shall not be charged against the aggregate
number of shares of Stock subject to Awards under the Plan, and
may again be available for Award under the Plan.
(d) The aggregate number of shares of Stock which are awarded
pursuant to Awards made under the Plan to any "covered employee",
as said term is defined in Section 162(m) of the Code, shall not
exceed Five Hundred Thousand (500,000) shares in any three-year
period.
(e) The aggregate number of shares of Stock which are awarded
pursuant to Awards made under the Plan to Non-Employee Directors
as a group shall not exceed Two Hundred Fifty Thousand (250,000)
shares in any three-year period.
3.7 Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Each Award Agreement shall be subject to and incorporate, by
reference or otherwise, the applicable terms and conditions of the Plan,
and any other terms and conditions, not inconsistent with the Plan,
required by the Committee.
3.8 The Company shall not be required to issue or deliver any certificates
for shares of Stock prior to:
(a) The listing of such shares on any stock exchange on which the
Stock may then be listed; and
(b) The completion of any registration or qualification of such
shares of Stock under any federal or state laws, or any ruling or
regulation of any government body which the Company shall, in its
discretion, determine to be necessary or advisable.
3.9 All certificates for shares of Stock delivered under the Plan shall also
be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable federal
or state laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. In making such determination, the Committee may rely upon
an opinion of counsel for the Company.
3.10 Subject to the restrictions on Restricted Stock, as provided in Article
VIII of the Plan and in the Restricted Stock Award Agreement, each
Participant who receives an Award of Restricted Stock shall have all of
the rights of a shareholder with respect to such shares of Stock,
including the right
5
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to vote the shares to the extent, if any, such shares possess
voting rights and receive dividends and other distributions. Except as
provided otherwise in the Plan or in an Award Agreement, no
Participant awarded a Stock Option, Stock Right, Deferred Stock, Stock
Award or Performance Share shall have any rights as a shareholder with
respect to any shares of Stock covered by his or her Stock Option,
Stock Right, Deferred Stock, Stock Award or Performance Share prior to
the date of issuance to him or her of a certificate or certificates
for such shares of Stock.
3.11 If any reorganization, recapitalization, reclassification, stock
split-up, stock dividend, or consolidation of shares of Stock, merger or
consolidation of the Company or sale or other disposition by the Company
of all or a portion of its assets, any other change in the Company's
corporate structure, or any distribution to shareholders other than a
cash dividend results in the outstanding shares of Stock, or any
securities exchanged therefor or received in their place, being
exchanged for a different number or class of shares of Stock or other
securities of the Company, or for shares of Stock or other securities of
any other corporation, or new, different or additional shares or other
securities of the Company or of any other corporation being received by
the holders of outstanding shares of Stock, then equitable adjustments
shall be made by the Committee in:
(a) The limitations of the aggregate number of shares of Stock that
may be awarded as set forth in Section 3.6 of the Plan; provided,
however, that no equitable adjustment shall be made as a result
of any stock split-up, stock dividend or increase in the
authorized number of shares in connection with the Company's
initial public offering;
(b) the number and class of Stock that may be subject to an Award,
and which have not been issued or transferred under an
outstanding Award;
(c) the purchase price to be paid per share of Stock under
outstanding Stock Options and the number of shares of Stock to be
transferred in settlement of outstanding Stock Rights; and
(d) the terms, conditions or restrictions of any Award and Award
Agreement, including the price payable for the acquisition of
Stock; provided, however, that all adjustments made as the result
of the foregoing in respect of each Incentive Stock Option shall
be made so that such Stock Option shall continue to be an
Incentive Stock Option, as defined in Section 422 of the Code.
3.12 In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against reasonable expenses,
including attorney's fees, actually and necessarily incurred in
connection with the defense of any actions, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted thereunder, and against
all amounts paid by them in settlement thereof, provided such settlement
is approved by independent legal counsel selected by the Company, or
paid by them in satisfaction of a judgment or settlement in any such
action, suit or proceeding, except as to matters as to which the
Committee member has been negligent or engaged in misconduct in the
performance of his duties; provided, that within 60 days after
institution of any such action, suit or proceeding, a Committee member
shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
3.13 The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option or other Award under the Plan to represent to
and agree with the Company in writing that he is acquiring the shares of
Stock without a view to distribution thereof. The certificates for such
shares of Stock may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
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3.14 The Committee shall be authorized to make adjustment in
performance-based criteria or in the terms and conditions of other
Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws,
regulations or accounting principles. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan
or any Award Agreement in the manner and to the extent it shall deem
desirable to carry it into effect. In the event the Company shall assume
outstanding employee benefit-awards or the right or obligation to make
future such awards in connection with the acquisition of another
corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall
deem appropriate.
3.15 The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances, any Award shall be
cancelled or suspended. In particular, but without limitation, all
outstanding Awards to any Participant may be cancelled if (a) the
Participant, without the consent of the Committee, while employed by the
Company or after Termination of Employment, becomes associated with,
employed by, renders services to, or owns any interest in, other than
any insubstantial interest, as determined by the Committee, any business
in which the Company has a substantial interest as determined by the
Committee; or (b) the Participant is terminated for cause as determined
by the Committee.
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive Stock Option
granted hereunder shall be construed in accordance with the provisions
of Section 422 of the Code, and any provision hereof that cannot be so
construed shall be disregarded.
4.2 Incentive Stock Options shall be granted only to Eligible Participants
who are in the active employment of the Company, each of whom may be
granted one or more such Incentive Stock Options for a reason related to
his employment at such time or times determined by the Committee
following the Effective Date until May 12, 2009, subject to the
following conditions:
(a) The Incentive Stock Option price per share of Stock shall be set
in the Award Agreement, but shall not be less than 100% of the
Fair Market Value of the Stock on the Option Grant Date. If the
Optionee owns more than 10% of the outstanding Stock (as
determined pursuant to Section 424(d) of the Code) on the Option
Grant Date, the Incentive Stock Option price per share shall not
be less than 110% of the Fair Market Value of the Stock on the
Option Grant Date.
(b) The Incentive Stock Option and its related Stock Right,
if any, may be exercised in whole or in part from time to time
within ten (10) years from the Option Grant Date (five (5) years
if the Optionee owns more than 10% of the Stock on the Option
Grant Date), or such shorter period as may be specified by the
Committee in the Award; provided, that in any event, the
Incentive Stock Option and any related Stock Right shall lapse
and cease to be exercisable upon, or within such period
following, a Termination of Employment as shall have been
determined by the Committee and as specified in the Incentive
Stock Option Award Agreement or its related Stock Right Award
Agreement; provided, however, that such period following a
Termination of Employment shall not exceed three months unless
employment shall have terminated:
(i) as a result of death or Disability, in which event,
such period shall not exceed one year after the
date of death or Disability; and
(ii) as a result of death, if death shall have occurred
following a Termination of Employment and while the
Incentive Stock Option or Stock Right was still
exercisable, in which event, such period shall not
exceed one year after the date of death; provided,
further, that such period following a Termination
of Employment shall in no event
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extend the original exercise period of the Incentive
Stock Option or any related Stock Right.
(c) To the extent the aggregate Fair Market Value, determined as of
the Option Grant Date, of the shares of Stock with respect to
which Incentive Stock Options (determined without regard to this
subsection) are first exercisable during any calendar year by any
Eligible Participant exceeds $100,000, such options shall be
treated as Nonqualified Stock Options granted under Article V.
(d) The Committee may adopt any other terms and conditions which it
determines should be imposed for the Incentive Stock Option to
qualify under Section 422 of the Code, as well as any other terms
and conditions not inconsistent with this Article IV as
determined by the Committee.
4.3 The Committee may at any time offer to buy out for a payment in cash,
Stock, Deferred Stock or Restricted Stock an Incentive Stock Option
previously granted, based on such terms and conditions as the Committee
shall establish and communicate to the Participant at the time that such
offer is made.
4.4 If the Incentive Stock Option Award Agreement so provides, the Committee
may require that all or part of the shares of Stock to be issued upon
the exercise of an Incentive Stock Option shall take the form of
Deferred or Restricted Stock, which shall be valued on the date of
exercise, as determined by the Committee, on the basis of the Fair
Market Value of such Deferred Stock or Restricted Stock determined
without regard to the deferral limitations and/or forfeiture
restrictions involved.
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified Stock Options
to Eligible Participants to purchase shares of Stock at such time or
times determined by the Committee, following the Effective Date, subject
to the terms and conditions set forth in this Article V.
5.2 The Nonqualified Stock Option price per share of Stock shall be
established in the Award Agreement and may be less than 100% of the Fair
Market Value at the time of the grant, or at such later date as the
Committee shall determine.
5.3 The Nonqualified Stock Option and its related Stock Right, if any, may
be exercised in full or in part from time to time within such period as
may be specified by the Committee or in the Award Agreement; provided,
that, in any event, the Nonqualified Stock Option and any related Stock
Right shall lapse and cease to be exercisable upon, or within such
period following, Termination of Employment as shall have been
determined by the Committee and as specified in the Nonqualified Stock
Option Award Agreement or Stock Right Award Agreement; provided,
however, that such period following Termination of Employment shall not
exceed three months unless employment shall have terminated:
(a) As a result of Retirement or Disability, in which event, such
period shall not exceed one year after the date of Retirement or
Disability, or within such longer period as the Committee may
specify; and
(b) As a result of death, or if death shall have occurred following a
Termination of Employment and while the Nonqualified Stock Option
or Stock Right was still exercisable, in which event, such period
may not exceed one year after the date of death, as provided by
the Committee or in the Award Agreement.
5.4 The Nonqualified Stock Option Award Agreement may include any other
terms and conditions not inconsistent with this Article V or in Article
VII, as determined by the Committee.
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ARTICLE VI - STOCK APPRECIATION RIGHTS
6.1 A Stock Appreciation Right may be granted to an Eligible Participant in
connection with an Incentive Stock Option or a Nonqualified Stock Option
granted under Article IV or Article V of this Plan, respectively, or may
be granted independent of any related Stock Option.
6.2 A related Stock Appreciation Right shall entitle a holder of a Stock
Option, within the period specified for the exercise of the Stock
Option, to surrender the unexercised Stock Option, or a portion thereof,
and to receive in exchange therefor a payment in cash or shares of Stock
having an aggregate value equal to the amount by which the Fair Market
Value of each share of Stock exceeds the Stock Option price per share of
Stock, times the number of shares of Stock under the Stock Option, or
portion thereof, which is surrendered.
6.3 Each related Stock Appreciation Right granted hereunder shall be subject
to the same terms and conditions as the related Stock Option, including
limitations on transferability, and shall be exercisable only to the
extent such Stock Option is exercisable when the related Stock Option
terminates or lapses. The grant of Stock Appreciation Rights related to
Incentive Stock Options must be concurrent with the grant of the
Incentive Stock Options. With respect to Nonqualified Stock Options, the
grant either may be concurrent with the grant of the Nonqualified Stock
Options, or in connection with Nonqualified Stock Options previously
granted under Article V, which are unexercised and have not terminated
or lapsed.
6.4 The Committee shall have sole discretion to determine in each case
whether the payment with respect to the exercise of a Stock Appreciation
Right will be in the form of all cash or all Stock, or any combination
thereof. If payment is to be made in Stock, the number of shares of
Stock shall be determined based on the Fair Market Value of the Stock on
the date of exercise. If the Committee elects to make full payment in
Stock, no fractional shares of Stock shall be issued and cash payment
shall be made in lieu of fractional shares.
6.5 The Committee shall have sole discretion as to the timing of any payment
made in cash or Stock, or a combination thereof, upon exercise of Stock
Appreciation Rights. Payment may be made in a lump sum, in annual
installments or may be otherwise deferred; and the Committee shall have
sole discretion to determine whether any deferred payments may bear
amounts equivalent to interest or cash dividends.
6.6 Upon exercise of a Stock Appreciation Right, the number of shares of
Stock subject to exercise under any related Stock Option shall
automatically be reduced by the number of shares of Stock represented by
the Stock Option or portion thereof which is surrendered.
6.7 Notwithstanding any other provision of the Plan, the exercise of a Stock
Appreciation Right is required to satisfy the applicable requirements
under Rule 16b-3 of the Act.
6.8 The Committee, in its sole discretion, may also provide that, in the
event of a change in Control and/or a Potential Change in Control, as
defined in Article XIII, the amount to be paid upon the exercise of a
Stock Appreciation Right or Limited Stock Appreciation Right shall be
based on the Change in Control Price, as defined in Section 13.9,
subject to such terms and conditions as the Committee may specify.
6.9 In its sole discretion, the Committee may grant Limited Stock
Appreciation Rights under this Article VI. Limited Stock Appreciation
Rights become exercisable only in the event of a Change in Control
and/or a Potential Change in Control, subject to such terms and
conditions as the Committee, in its sole discretion, may specify. Such
Limited Stock Appreciation Rights shall be settled solely in cash. A
Limited Stock Appreciation Right shall entitle the holder of the related
Stock Option to surrender such Stock Option, or any portion thereof, to
the extent unexercised in respect of the number of shares of Stock as to
which such Limited Stock Appreciation Right is
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exercised, and to receive a cash payment equal to the difference between
(a) the Stock Appreciation Right Fair Market Value, at the date of
surrender, of a share of Stock for which the surrendered Stock Option or
portion thereof is then exercisable, and (b) the price at which a
Participant could exercise a related Stock Option to purchase the share
of Stock. Such Stock Option shall, to the extent so surrendered,
thereupon cease to be exercisable. A Limited Stock Appreciation Right
shall be subject to such further terms and conditions as the Committee
shall, in its sole discretion, deem appropriate, including any
restrictions necessary to comply with Section 16(b) of the Act.
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS
7.1 Each Stock Option and Stock Right shall be granted subject to such terms
and conditions, if any, not inconsistent with this Plan, as shall be
determined by the Committee, including any provisions as to continued
employment as consideration for the grant or exercise of such Stock
Option or Stock Right and any provisions which may be advisable to
comply with applicable laws, regulations or rulings of any governmental
authority.
7.2 A Stock Option or Stock Right shall not be transferable by the
Participant other than by will or by the laws of descent and
distribution, or, to the extent otherwise allowed by Rule 16b-3 under
the Act, or other applicable law, pursuant to a qualified domestic
relations order as defined by the Code or the Employee Retirement Income
Security Act, or the rules thereunder, and shall be exercisable during
the lifetime of the Participant only by him or by his guardian or legal
representative.
7.3 Shares of Stock purchased upon exercise of a Stock Option shall be
paid for in such amounts, at such times and upon such terms as shall be
determined by the Committee, subject to limitations set forth in the
Stock Option Award Agreement. Without limiting the foregoing, the
Committee may establish payment terms for the exercise of Stock Options
which permit the Participant to deliver shares of Stock, or other
evidence of ownership of Stock satisfactory to the Company, with a Fair
Market Value equal to the Stock Option price as payment.
7.4 No cash dividends shall be paid on shares of Stock subject to
unexercised Stock Options. The Committee may provide, however, that a
Participant to whom a Stock Option has been granted which is exercisable
in whole or in part at a future time for shares of Stock shall be
entitled to receive an amount per share equal in value to the cash
dividends, if any, paid per share on issued and outstanding Stock, as of
the dividend record dates occurring during the period between the date
of the grant and the time each such share Option or the related Stock
Right. Such amounts (herein called "dividend equivalents") may, in the
discretion of the Committee, be:
(a) Paid in cash or Stock either from time to time prior to, or at
the time of the delivery of, such Stock, or upon expiration of
the Stock Option if it shall not have been fully exercised; or
(b) Converted into contingently credited shares of Stock, with
respect to which dividend equivalents may accrue, in such manner,
at such value, and deliverable at such time or times, as may be
determined by the Committee.
Such Stock, whether delivered or contingently credited, shall be charged
against the limitations set forth in Section 3.6.
7.5 The Committee, in its sole discretion, may authorize payment of interest
equivalents on dividend equivalents which are payable in cash at a
future time.
7.6 In the event of Disability or death, the Committee, with the consent of
the Participant or his legal representative, may authorize payment, in
cash or in Stock, or partly in cash and partly in Stock, as the
Committee may direct, of an amount equal to the difference at the time
between the Fair
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Market Value of the Stock subject to a Stock Option and the option price
in consideration of the surrender of the Stock Option.
7.7 If a Participant is required to pay to the Company an amount with
respect to income and employment tax withholding obligations in
connection with exercise of a Nonqualified Stock option, and/or with
respect to certain dispositions of Stock acquired upon the exercise of
an Incentive Stock Option, the Committee, in its discretion and subject
to such rules as is may adopt, may permit the Participant to satisfy the
obligation, in whole or in part, by making an irrevocable election that
a portion of the total Fair Market Value of the shares of Stock subject
to the Nonqualified Stock Option and/or with respect to certain
dispositions of Stock acquired upon the exercise of an Incentive Stock
Option, be paid in the form of cash in lieu of the issuance of Stock and
that such cash payment be applied to the satisfaction of the withholding
obligations. The amount to be withheld shall not exceed the statutory
minimum federal and state income and employment tax liability arising
from the Stock Option exercise transaction. Notwithstanding any other
provision of the Plan, any election under this Section 7.7 is required
to satisfy the applicable requirements under Rule 16b-3 of the Act.
7.8 The Committee may permit the voluntary surrender of all or a portion of
any Stock Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Stock Option for the same or a
different number of shares of Stock as the Stock Option surrendered, or
may require such surrender as a condition precedent to a grant of a new
Stock Option to such Participant. Subject to the provisions of the Plan,
such new Stock Option shall be exercisable at the same price, during
such period and on such other terms and conditions as are specified by
the Committee at the time the new Stock Option is granted. Upon
surrender, the Stock Options surrendered shall be cancelled and the
shares of Stock previously subject to them shall be available for the
grant of other Stock Options.
ARTICLE VIII - RESTRICTED STOCK
8.1 Restricted Stock Awards may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Restricted Stock may be made either alone, in addition to or in tandem
with other Awards granted under the Plan and/or cash payments made
outside of the Plan.
8.2 With respect to Awards of Restricted Stock, the Committee shall:
(a) Determine the purchase price, if any, to be paid for such
Restricted Stock, which may be equal to or less than par value
and may be zero, subject to such minimum consideration as may be
required by applicable law;
(b) Determine the length of the Restriction Period;
(c) Determine any restrictions applicable to the Restricted Stock
such as service or performance, other than those set forth in
this Article VIII;
(d) Determine if the restrictions shall lapse as to all shares of
Restricted Stock at the end of the Restriction Period or as to a
portion of the shares of Restricted Stock in installments during
the Restriction Period; and
(e) Determine if dividends and other distributions on the Restricted
Stock are to be paid currently to the Participant or paid to the
Company for the account of the Participant.
8.3 Awards of Restricted Stock must be accepted within a period of 60 days,
or such shorter period as the Committee may specify, by executing a
Restricted Stock Award Agreement and paying whatever price, if any, is
required. The prospective recipient of a Restricted Stock Award shall
not have any rights with respect to such Awards, unless such recipient
has executed a Restricted
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Stock Award Agreement and has delivered a fully executed copy thereof to
the Committee, and has otherwise complied with the applicable terms and
conditions of such Award.
8.4 Except when the Committee determines otherwise, or as otherwise provided
in the Restricted Stock Award Agreement, upon a Termination of
Employment of a Participant before the expiration of the Restriction
Period, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and shall be reacquired by the
Company.
8.5 Except as otherwise provided in this Article VIII, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
8.6 To the extent not otherwise provided in a Restricted Stock Award
Agreement, in cases of death, Disability or Retirement or in cases of
special circumstances, the Committee, if it finds that a waiver would be
appropriate, may elect to waive any or all remaining restrictions with
respect to such Participant's Restricted Stock.
8.7 In the event of hardship or other special circumstances of a Participant
whose Termination of Employment with the Company is involuntary, the
Committee may waive in whole or in part any or all remaining
restrictions with respect to any or all of the Participant's Restricted
Stock, based on such factors and criteria as the Committee may deem
appropriate.
8.8 The certificates representing shares of Restricted Stock may either:
(a) Be held in custody by the Company until the Restriction Period
expires or until restrictions thereon otherwise lapse, and the
Participant shall deliver to the Company a stock power endorsed
in blank relating to the Restricted Stock; and/or
(b) Be issued to the Participant and registered in the name of the
Participant, and shall bear an appropriate restrictive legend and
shall be subject to appropriate stop-transfer orders.
8.9 Except as provided in this Article VIII, a Participant receiving a
Restricted Stock Award shall have, with respect to the shares of
Restricted Stock covered by any Award, all of the rights of a
shareholder of the Company, including the right to vote the shares to
the extent, if any, such shares possess voting rights and the right to
receive any dividends; provided, however, the Committee may require that
any dividends on such shares of Restricted Stock shall be automatically
deferred and reinvested in additional Restricted Stock subject to the
same restrictions as the underlying Award, or may require that dividends
and other distributions on Restricted Stock shall be paid to the Company
for the account of the Participant. The Committee shall determine
whether interest shall be paid on such amounts, the rate of any such
interest, and the other terms applicable to such amounts.
8.10 If and when the Restriction Period expires without a prior forfeiture of
the Restricted Stock subject to such Restriction Period, unrestricted
certificates for such shares shall be delivered to the Participant.
8.11 In order to better ensure that Award payment actually reflect the
performance of the Company and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Restricted Stock Award,
subject to such performance, future service, deferral and other terms
and conditions as may be specified by the Committee.
ARTICLE IX - DEFERRED STOCK
9.1 Shares of Deferred Stock together with cash dividend equivalents, if so
determined by the Committee, may be issued either alone or in addition
to other Awards granted under the Plan in
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the discretion of the Committee. The Committee shall determine the
individuals to whom, and the time or times at which, such Awards will be
made, the number of shares to be awarded, the price, if any, to be paid
by the recipient of a Deferred Stock Award, the time or times within
which such Awards may be subject to forfeiture, and all other conditions
of the Awards. The Committee may condition Awards of Deferred Stock upon
the attainment of specified performance goals or such other factors or
criteria as the Committee may determine.
9.2 Deferred Stock Awards shall be subject to the following terms and
conditions:
(a) Subject to the provisions of this Plan and the applicable Award
Agreement, Deferred Stock Awards may not be sold, transferred,
pledged, assigned or otherwise encumbered during the period
specified by the Committee for purposes of such Award (the
"Deferral Period"). At the expiration of the Deferral Period, or
the Elective Deferral Period defined in Section 9.3, share
certificates shall be delivered to the Participant, or his legal
representative, in a number equal to the number of shares of
Stock covered by the Deferred Stock Award.
Based on service, performance and/or such other factors or
criteria as the Committee may determine, the Committee, however,
at or after grant, may accelerate the vesting of all or any part
of any Deferred Stock Award and/or waive the deferral limitations
for all or any part of such Award.
(b) Unless otherwise determined by the Committee, amounts equal to
any dividends that would have been payable during the Deferral
Period with respect to the number of shares of Stock covered by a
Deferred Stock Award if such shares of Stock had been outstanding
shall be automatically deferred and deemed to be reinvested in
additional Deferred Stock, subject to the same deferral
limitations as the underlying Award.
(c) Except to the extent otherwise provided in this Plan or in the
applicable Award Agreement, upon Termination of Employment during
the Deferral Period for a given Award, the Deferred Stock covered
by such Award shall be forfeited by the Participant; provided,
however, the Committee may provide for accelerated vesting in the
event of Termination of Employment due to death, Disability or
Retirement, or in the event of hardship or other special
circumstances as the Committee deems appropriate.
(d) The Committee may require that a designated percentage of the
total Fair Market Value of the shares of Deferred Stock held by
one or more Participants be paid in the form of cash in lieu of
the issuance of Stock and that such cash payment be applied to
the satisfaction of the federal and state income and employment
tax withholding obligations that arise at the time the Deferred
Stock becomes free of all restrictions. The designated percentage
shall be equal to the minimum income and employment tax
withholding rate in effect at the time under applicable federal
and state laws.
(e) The Committee may provide one or more Participants subject to the
mandatory cash payment with an election to receive an additional
percentage of the total value of the Deferred Stock in the form
of a cash payment in lieu of the issuance of Deferred Stock. The
additional percentage shall not exceed the difference between 50%
and the designated percentage cash payment.
(f) The Committee may impose such further terms and conditions on
partial cash payments with respect to Deferred Stock as it deems
appropriate, including any restrictions necessary to comply with
Section 16(b) of the Act.
9.3 A Participant may elect to further defer receipt of Deferred Stock for a
specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the
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Committee, such election must generally be made at least 12 months prior
to completion of the Deferral Period for the Deferred Stock Award in
question, or for the applicable installment of such an Award.
9.4 Each Award shall be confirmed by, and subject to the terms of, a
Deferred Stock Award Agreement.
9.5 In order to better ensure that the Award actually reflects the
performance of the Company and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Deferred Stock Award,
subject to such performance, future service, deferral and other terms
and conditions as may be specified by the Committee.
ARTICLE X - STOCK AWARDS
10.1 A Stock Award shall be granted only in payment of compensation that has
been earned or as compensation to be earned, including without
limitation, compensation awarded concurrently with or prior to the grant
of the Stock Award.
10.2 For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Stock subject to such Stock Award shall be valued
at not less than 100% of the Fair Market Value of such shares of Stock
on the date such Stock Award is granted, regardless of whether or when
such shares of Stock are issued or transferred to the Participant and
whether or not such shares of Stock are subject to restrictions which
affect their value.
10.3 Shares of Stock subject to a Stock Award may be issued or transferred to
the Participant at the time the Stock Award is granted, or at any time
subsequent thereto, or in installments from time to time, as the
Committee shall determine. If any such issuance or transfer shall not be
made to the Participant at the time the Stock Award is granted, the
Committee may provide for payment to such Participant, either in cash or
shares of Stock, from time to time or at the time or times such shares
of Stock shall be issued or transferred to such Participant, of amounts
not exceeding the dividends which would have been payable to such
Participant in respect of such shares of Stock, as adjusted under
Section 3.11, as if such shares of Stock had been issued or transferred
to such Participant at the time such Stock Award was granted. Any
issuance payable in shares of Stock under the terms of a Stock Award, at
the discretion of the Committee, may be paid in cash on each date on
which delivery of shares of Stock would otherwise have been made, in an
amount equal to the Fair Market Value on such date of the shares of
Stock which would otherwise have been delivered.
10.4 A Stock Award shall be subject to such terms and conditions, including
without limitation, restrictions on the sale or other disposition of the
Stock Award or of the shares of Stock issued or transferred pursuant to
such Stock Award, as the Committee shall determine; provided, however,
that upon the issuance or transfer of shares pursuant to a Stock Award,
the Participant, with respect to such shares of Stock, shall be and
become a shareholder of the Company fully entitled to receive dividends,
to vote to the extent, if any, such shares possess voting rights and to
exercise all other rights of a shareholder except to the extent
otherwise provided in the Stock Award. Each Stock Award shall be
evidenced by a written Award Agreement in such form as the Committee
shall determine.
ARTICLE XI - PERFORMANCE SHARES
11.1 Awards of Performance Shares may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Performance Shares may be made either alone, in addition to or in tandem
with other Awards granted under the Plan and/or cash payments made
outside of the Plan.
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11.2 With respect to Awards of Performance Shares, which may be issued for no
consideration or such minimum consideration as is required by applicable
law, the Committee shall:
(a) Determine and designate from time to time those Participants
to whom Awards of Performance Shares are to be made;
(b) Determine the performance period (the "Performance Period")
and/or performance objectives (the "Performance Objectives")
applicable to such Awards;
(c) Determine the form of settlement of a Performance Share; and
(d) Generally determine the terms and conditions of each such
Award. At any date, each Performance Share shall have a value
equal to the Fair Market Value, determined as set forth in
Section 2.15.
11.3 Performance Periods may overlap, and Participants may participate
simultaneously with respect to Performance Shares for which different
Performance Periods are prescribed.
11.4 The Committee shall determine the Performance Objectives of Awards of
Performance Shares. Performance Objectives may vary from Participant to
Participant and between Awards and shall be based upon such performance
criteria or combination of factors as the Committee may deem
appropriate, including for example, but not limited to, minimum earnings
per share or return on equity. If during the course of a Performance
Period there shall occur significant events which the Committee expects
to have a substantial effect on the applicable Performance Objectives
during such period, the Committee may revise such Performance
Objectives.
11.5 The Committee shall determine for each Participant the number of
Performance Shares which shall be paid to the Participant if the
applicable Performance Objectives are exceeded or met in whole or in
part.
11.6 If a Participant terminates services with the Company during a
Performance Period because of death, Disability, Retirement or under
other circumstances in which the Committee in its discretion finds that
a waiver would be appropriate, that Participant, as determined by the
Committee, may be entitled to a payment of Performance Shares at the end
of the Performance Period based upon the extent to which the Performance
Objectives were satisfied at the end of such period and pro rated for
the portion of the Performance Period during which the Participant was
employed by the Company; provided, however, the Committee may provide
for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems
appropriate or desirable. If a Participant terminates service with the
Company during a Performance Period for any other reason, then such
Participant shall not be entitled to any payment with respect to that
Performance Period unless the Committee shall otherwise determine.
11.7 Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash as the Committee
shall determine, with payment to be made as soon as practicable after
the end of the relevant Performance Period.
11.8 The Committee shall have the authority to approve requests by
Participants to defer payment of Performance Shares on terms and
conditions approved by the Committee and set forth in a written Award
Agreement between the Participant and the Company entered into in
advance of the time of receipt or constructive receipt of payment by the
Participant.
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ARTICLE XII - OTHER STOCK-BASED AWARDS
12.1 Other awards that are valued in whole or in part by reference to, or are
otherwise based on, Stock ("Other Stock-Based Awards"), including
without limitation, convertible preferred stock, convertible debentures,
exchangeable securities, phantom stock and Stock Awards or options
valued by reference to book value or performance, may be granted either
alone or in addition to or in tandem with Stock Options, Stock Rights,
Restricted Stock, Deferred Stock or Stock Awards granted under the Plan
and/or cash awards made outside of the Plan. Subject to the provisions
of the Plan, the Committee shall have authority to determine the
Eligible Participants to whom and the time or times at which such Awards
shall be made, the number of shares of Stock subject to such Awards, and
all other conditions of the Awards. The Committee also may provide for
the grant of shares of Stock upon the completion of a specified
Performance Period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
12.2 Other Stock-Based Awards made pursuant to this Article XII shall be
subject to the following terms and conditions:
(a) Subject to the provisions of this Plan and the Award
Agreement, shares of Stock subject to Awards made under this
Article XII may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are
issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) Subject to the provisions of this Plan and the Award
Agreement and unless otherwise determined by the Committee at the
time of the Award, the recipient of an Award under this Article
XII shall be entitled to receive, currently or on a deferred
basis, interest or dividends or interest or dividend equivalents
with respect to the number of shares covered by the Award, as
determined at the time of the Award by the Committee, in its sole
discretion, and the Committee may provide that such amounts, if
any, shall be deemed to have been reinvested in additional Stock
or otherwise reinvested.
(c) Any Award under this Article XII and any Stock covered by any
such Award shall vest or be forfeited to the extent so provided
in the Award Agreement, as determined by the Committee, in its
sole discretion.
(d) Upon the Participant's Retirement, Disability or death, or in
cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the remaining
limitations imposed hereunder, if any, with respect to any or all
of an Award under this Article XII.
(e) Each Award under this Article XII shall be confirmed by, and
subject to the terms of an Award under this Article XII.
(f) Stock, including securities convertible into Stock, issued on
a bonus basis under this Article XII may be issued for no cash
consideration.
12.3 Other Stock-Based Awards may include a phantom stock Award, which is
subject to the following terms and conditions:
(a) The Committee shall select the Eligible Participants who may
receive phantom stock Awards. The Eligible Participant shall be
awarded a phantom stock unit, which shall be the equivalent to a
share of Stock.
(b) Under an Award of phantom stock, payment shall be made on the
dates or dates as specified by the Committee or as stated in the
Award Agreement and phantom stock Awards may be settled in cash,
Stock, or some combination thereof.
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(c) The Committee shall determine such other terms and conditions of
each Award as it deems necessary in its sole discretion.
ARTICLE XIII - ACCELERATION EVENTS
13.1 For the purposes of the Plan, an Acceleration Event shall occur in the
event of a "Potential Change in Control", or "Change in Control" or a
"Board-Approved Change in Control", as those terms are defined below.
13.2 A "Change in Control" shall be deemed to have occurred if:
(a) Any "Person" as defined in Section 3(a)(9) of the Act,
including a "group" (as that term is used in Sections 13(d)(3)
and 14(d)(2) of the Act), but excluding the Company and any
employee benefit plan sponsored or maintained by the Company,
including any trustee of such plan acting as trustee, who:
(i) makes a tender or exchange offer for any shares of the
Company's Stock (as defined below) pursuant to which any
shares of the Company's Stock are purchased (an "Offer");
or
(ii) together with its "affiliates" and "associates" (as
those terms are defined in Rule 12b-2 under the Act)
becomes the "Beneficial Owner" (within the meaning of Rule
13d-3 under the Act) of at least 20% of the Company's
Stock (an "Acquisition");
(b) The Shareholders of the Company approve a definitive
agreement or plan to merge or consolidate the Company with or
into another corporation, to sell or otherwise dispose of all or
substantially all of its assets, or to liquidate the Company
(individually, a "Transaction"); or
(c) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who constitute the Board
(the "Incumbent Directors") at the beginning of such period cease
for any reason other than death to constitute at least a majority
thereof; provided, however, that a director who was not a
director at the beginning of such 24-month period shall be deemed
to have satisfied such 24-month requirement, and be an Incumbent
Director, if such director was elected by, or on the
recommendation of or with the approval of, at least two-thirds of
the directors who then qualify as Incumbent Directors either
actually, because they were directors at the beginning of such
24-month period, or by prior operation of this Section 13.2(c).
13.3 A "Board-Approved Change in Control" shall be deemed to have occurred if
the Offer, Acquisition or Transaction, as the case may be, is approved
by a majority of the Directors serving as members of the Board at the
time of the Potential Change in Control or Change in Control.
13.4 A "Potential Change in Control" means the happening of any one of the
following:
(a) The approval by shareholders of an agreement by the Company,
the consummation of which would result in a Change in Control of
the Company, as defined in Section 13.2; or
(b) The acquisition of Beneficial Ownership, directly or
indirectly, by any entity, person or group, other than the
Company or any Company employee benefit plan, including any
trustee of such plan acting as such trustee, of securities of the
Company representing five percent or more of the combined voting
power of the Company's outstanding securities and the adoption by
the Board of a resolution to the effect that a Potential Change
in Control of the Company has occurred for the purposes of this
Plan.
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13.5 Upon the occurrence of an Acceleration Event, subject to the approval of
the Committee if the Acceleration Event results from a Board-Approved
Change in Control, all then outstanding Performance shares with respect
to which the applicable Performance Period has not been completed shall
be paid as soon as practicable as follows:
(a) All Performance Objectives applicable to the Award of
Performance Shares shall be deemed to have been satisfied to the
extent necessary to result in payment of 100% of the Performance
Shares covered by the Award; and
(b) The applicable Performance Period shall be deemed to have
ended on the date of the Acceleration Event;
(c) The payment to the Participant shall be the amount determined
either by the Committee, in its sole discretion, or in the manner
stated in the Award Agreement. This amount shall then be
multiplied by a fraction, the numerator of which is the number of
full calendar months of the applicable Performance Period that
have elapsed prior to the date of the Acceleration Event, and the
denominator of which is the total number of months in the
original Performance Period; and
(d) Upon the making of any such payment, the Award Agreement as
to which it relates shall be deemed canceled and of not further
force and effect.
13.6 Upon the occurrence of an Acceleration Event, subject to the approval of
the Committee if the Acceleration Event results from a Board-Approved
Change in Control, the Committee in its discretion may declare any or
all then outstanding Stock Options, and any or all related Stock Rights
outstanding for at least six months, not previously exercisable and
vested as immediately exercisable and fully vested, in whole or in part.
13.7 Upon the occurrence of an Acceleration Event, subject to the approval of
the Committee if the Acceleration Event results from a Board-Approved
Change in Control, the Committee in its discretion, may declare the
restrictions applicable to Awards of Restricted Stock, Deferred Stock or
Other Stock-Based Awards to have lapsed, in which case the Company shall
remove all restrictive legends and stop-transfer orders applicable to
the certificates for such shares of Stock, and deliver such certificates
to the Participants in whose names they are registered.
13.8 The value of all outstanding Stock Options, Stock Rights, Restricted
Stock, Deferred Stock, Performance Shares, Stock Awards and Other
Stock-Based Awards, in each case to the extent vested, shall, unless
otherwise determined by the Committee in its sole discretion at or after
grant but prior to any Change in Control, be cashed out on the basis of
the "Change in Control Price" (as defined in Section 13.9) as of the
date such Change in Control or such Potential Change in Control is
determined to have occurred or such other date as the Committee may
determine prior to the Change in Control.
13.9 For purposes of Section 13.8, "Change in Control Price" means the
highest price per share of Stock paid in any transaction reported on the
exchange on which the Stock is then traded, or paid or offered in any
bona fide transaction related to a Potential or actual Change in Control
of the Company at any time during the 60-day period immediately
preceding the occurrence of the Change in Control, or, where applicable,
the occurrence of the Potential Change in Control event, in each case as
determined by the Committee except that, in the case of Incentive Stock
Options and Stock Appreciation Rights, or Limited Stock Appreciation
Rights relating to such Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the optionee
exercises such Incentive Stock Options, Stock Appreciation Rights, or
Limited Stock Appreciation Rights.
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ARTICLE XIV - AMENDMENT AND TERMINATION
14.1 The Board, upon recommendation of the Committee, or otherwise, at any
time and from time to time, may amend or terminate the Plan. To the
extent required by Rule 16b-3 under the Act, no amendment, without
approval by the Company's shareholders, shall:
(a) alter the group of persons eligible to participate in the
Plan;
(b) except as provided in Section 3.6, increase the maximum
number of shares of Stock or Stock Options or Stock Rights which
are available for Awards under the Plan;
(c) extend the period during which Incentive Stock Option Awards
may be granted beyond May 12, 2009;
(d) limit or restrict the powers of the Committee with respect to
the administration of this Plan;
(e) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit or the
value of shares of Stock for which an Eligible Participant may be
granted an Incentive Stock option;
(f) materially increase the benefits accruing to Participants
under this Plan;
(g) materially modify the requirements as to eligibility for
participation in this Plan; or
(h) change any of the provisions of this Article XIV.
14.2 No amendment to or discontinuance of this Plan or any provision thereof
by the Board or the shareholders of the Company shall, without the
written consent of the Participant, adversely affect, as shall be
determined by the Committee, any Award theretofore granted to such
Participant under this Plan; provided, however, the Committee retains
the right and power to:
(a) annul any Award if the Participant is terminated for cause as
determined by the Committee;
(b) provide for the forfeiture of shares of Stock or other gain
under an Award as determined by the Committee for competing
against the Company; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock Option.
14.3 If an Acceleration Event has occurred, no amendment or termination shall
impair the rights of any person with respect to an outstanding Award as
provided in Article XIII.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 Nothing in the Plan or any Award granted hereunder shall confer upon any
Participant any right to continue in the employ of the Company, or to
serve as a director thereof, or interfere in any way with the right of
the Company to terminate his or her employment at any time. Unless
specifically provided otherwise, no Award granted under the Plan shall
be deemed salary or compensation for the purpose of computing benefits
under any employee benefit plan or other arrangement of the Company for
the benefit of its employees unless the Company shall determine
otherwise. No Participant shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires
a right to receive payments from the Company under the Plan, such right
shall, except as otherwise provided by the Committee, be no greater than
the right of an unsecured general creditor of the Company. All payments
to be made hereunder shall be paid from the general funds of the
Company, and no special or separate fund shall be established and
19
<PAGE>
no segregation of assets shall be made to assure payment of such
amounts, except as provided in Article VIII with respect to Restricted
Stock and except as otherwise provided by the Committee.
15.2 The Company may make such provisions and take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the
Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock option or the exercise thereof,
any Stock Right or the exercise thereof, or in connection with any other
type of equity-based compensation provided hereunder or the exercise
thereof, including, but not limited to, the withholding of payment of
all or any portion of such Award or another Award under this Plan until
the Participant reimburses the Company for the amount the Company is
required to withhold with respect to such taxes, or canceling any
portion of such Award or another Award under this Plan in an amount
sufficient to reimburse itself for the amount it is required to so
withhold, or selling any property contingency credited by the Company
for the purpose of paying such Award or another Award under this Plan,
in order to withhold or reimburse itself for the amount it is required
to so withhold.
15.3 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by
any United States government or regulatory agency as may be required.
Any provision herein relating to compliance with Rule 16b-3 under the
Act shall not be applicable with respect to participation in the Plan by
Participants who are not subject to Section 16(b) of the Act.
15.4 The terms of the Plan shall be binding upon the Company, and its
successors and assigns.
15.5 Neither a Stock Option, Stock Right, nor any other type of equity-based
compensation provided for hereunder, shall be transferable except as
provided for herein. In addition to any other restrictions upon
transferability herein, Incentive Stock Options shall be subject to such
further restrictions as required by federal or state securities and tax
laws or provided by the Committee or in an Award Agreement. If any
Participant makes such a transfer in violation hereof, any obligation of
the Company shall forthwith terminate.
15.6 This Plan and all actions taken hereunder shall be governed by the laws
of the State of North Carolina, except to the extent preempted by the
Employee Retirement Income Security Act of 1974, as amended.
15.7 The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor
of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver shares of Stock or payments in lieu of or with
respect to Awards hereunder; provided, however, that, unless the
Committee otherwise determines with the consent of the affected
Participant, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
15.8 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such Participant
under Section 83(b) of the Code, or any similar provision thereof.
15.9 If any provision of this Plan or an Award Agreement is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award Agreement under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws or if it cannot be construed or
deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award Agreement, it
shall be stricken and the remainder of the Plan or the Award Agreement
shall remain in full force and effect.
20
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By:
--------------------------------------
[CORPORATE SEAL]
- -----------------------------------
Secretary
21
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
3151 SOUTH SEVENTEENTH STREET
WILMINGTON, NORTH CAROLINA 28412
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 1999
The undersigned hereby appoints Fredric N. Eshelman and Rudy C. Howard, and
each of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
Common Stock of Pharmaceutical Product Development, Inc., a North Carolina
corporation (the "Company"), held of record by the undersigned on March 15,
1999, at the Annual Meeting of Shareholders to be held at the offices of the
Company located at 4025 Paramount Parkway, Morrisville, North Carolina at 10:00
a.m. on May 12, 1999, or at any adjournment(s) thereof. The following proposals
to be brought before the meeting are more specifically described in the
accompanying Proxy Statement.
<TABLE>
(1) Election of Directors:
<S> <C> <C>
FOR ALL NOMINEES LISTED BELOW WITHOUT AUTHORITY TO VOTE FOR ALL
(except as marked to the contrary below) NOMINEES LISTED BELOW
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.
Stuart Bondurant Abraham E. Cohen Thomas D'Alonzo
Fredric N. Eshelman Frederick Frank Donald C.Harrison
Ernest Mario John A. McNeill, Jr. Paul J. Rizzo
(2) Amendment to the 1995 Equity Compensation Plan to Increase the Number of Shares Reserved for Awards
FOR AGAINST ABSTAIN
(3) Amendment to the 1995 Equity Compensation Plan to Limit Awards to Certain Executive Officers
FOR AGAINST ABSTAIN
(4) Amendment to the 1995 Equity Compensation Plan to Limit Awards to Non-Employee Directors
FOR AGAINST ABSTAIN
(5) In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting.
GRANT AUTHORITY WITHHOLD AUTHORITY
</TABLE>
(CONTINUED ON OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR MANAGEMENT'S NOMINEES FOR DIRECTOR LISTED ABOVE, FOR THE AMENDMENT
TO THE 1995 EQUITY COMPENSATION PLAN TO INCREASE THE NUMBER OF SHARES RESERVED
FOR AWARDS, FOR THE AMENDMENT TO THE 1995 EQUITY COMPENSATION PLAN TO LIMIT
AWARDS TO CERTAIN EXECUTIVE OFFICERS, FOR THE AMENDMENT TO THE 1995 EQUITY
COMPENSATION PLAN TO LIMIT AWARDS TO NON-EMPLOYEE DIRECTORS, AND IN THE
DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER MATTERS PROPERLY BROUGHT
BEFORE THE SHAREHOLDERS AT THE MEETING.
----------------------------
Signature
-----------------------------
Signature, if held jointly
Please date and sign exactly
as name appears on your stock
certificate. Joint owners
should each sign personally.
Trustees, custodians,
executors and others signing
in a representative capacity
should indicate the capacity
in which they sign.
Date: , 1999
----------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING. IF YOU ATTEND
THE MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
