<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
QUINTILES TRANSNATIONAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[Quintiles Logo]
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703-8411
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
You are cordially invited to attend the Annual Meeting of Shareholders
of Quintiles Transnational Corp. (the "Company") which will be held on
Wednesday, April 30, 1997, at 5:30 p.m., Eastern Daylight Savings Time, at the
Sheraton Imperial Hotel and Convention Center, 4700 Emperor Blvd., Durham, North
Carolina 27703 for the following purposes:
(1) To elect four nominees to serve as Class III directors with
terms continuing until the Annual Meeting of Shareholders in
2000;
(2) To elect two nominees to serve as Class II directors with
terms continuing until the Annual Meeting of Shareholders in
1999;
(3) To elect one nominee to serve as a Class I director with a
term continuing until the Annual Meeting of Shareholder in
1998;
(4) To approve the Company's Employee Stock Purchase Plan;
(5) To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company and its subsidiaries for the fiscal
year ending December 31, 1997; and
(6) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on February 25, 1997
are entitled to notice of and to vote at the Annual Meeting and any and all
adjournments or postponements thereof.
IT IS DESIRABLE THAT YOUR SHARES OF STOCK BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING YOU
MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
Gregory D. Porter
Executive Vice President, Chief
Administrative and Legal Officer
and Secretary
Durham, North Carolina
March 27, 1997
<PAGE> 3
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703-8411
PROXY STATEMENT
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement and the accompanying proxy card are being mailed
to shareholders on or about March 27, 1997, by the Board of Directors of
Quintiles Transnational Corp. (the "Company") in connection with the
solicitation of proxies for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held at the Sheraton Imperial Hotel and Convention
Center, 4700 Emperor Blvd., Durham, North Carolina 27703 on April 30, 1997, at
5:30 p.m., Eastern Daylight Savings Time, and at all adjournments or
postponements thereof. The Company will pay all expenses incurred in connection
with this solicitation, including postage, printing, handling and the actual
expenses incurred by custodians, nominees and fiduciaries in forwarding proxy
material to beneficial owners. In addition to solicitation by mail, certain
officers, directors and regular employees of the Company, who will receive no
additional compensation for their services, may solicit proxies by telephone,
personal communication or other means. The Company has retained Corporate
Investor Communications, Inc. to aid in the search of shareholders and delivery
of proxy materials.
PURPOSES OF MEETING
The principal purposes of the meeting are to: (1) elect four Class III
directors for a term of three years, two Class II directors for a term of two
years and one Class I director for a term of one year; (2) approve the Company's
Employee Stock Purchase Plan; (3) ratify the action of the Board of Directors
pursuant to the recommendation of the Audit Committee in appointing Ernst &
Young LLP as independent auditors for the Company and its subsidiaries for the
1997 fiscal year; and (4) transact such other business as may properly come
before the meeting or any adjournment or postponement thereof. The Board of
Directors knows of no other matters other than those stated above to be brought
before the meeting.
2
<PAGE> 4
VOTING RIGHTS
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. If the proxy card is signed and returned, but voting
directions are not made, the proxy will be voted in favor of the proposals set
forth in the accompanying "Notice of Annual Meeting of Shareholders" and in such
manner as the proxyholders named on the enclosed proxy card in their discretion
determine upon such other business as may properly come before the meeting or
any adjournment or postponement thereof. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted by (1) filing written notice of revocation with the Secretary of the
Company which is actually received prior to the vote of shareholders, (2) filing
a duly executed proxy bearing a later date with the Secretary of the Company
before the vote of shareholders or (3) attending the Annual Meeting and voting
in person.
The Board of Directors has fixed the close of business on February 25,
1997, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and all adjournments or
postponements thereof. As of the close of business on February 25, 1997, the
Company had outstanding 33,368,656 shares of Common Stock. On all matters to
come before the Annual Meeting, each holder of Common Stock will be entitled to
vote at the Annual Meeting and will be entitled to one vote for each share
owned.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of March 12,
1997, regarding shares of Common Stock of the Company owned of record or known
to the Company to be owned beneficially by each director and nominee for
director, each executive officer named in the Summary Compensation Table on page
13 and all directors and executive officers as a group. Except as set forth in
the footnotes, each of the shareholders identified in the table below has sole
voting and investment power over the shares beneficially owned by such person,
except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
Shares Percent
Name Beneficially Owned(1) of Class
---- --------------------- --------
<S> <C> <C>
Dennis B. Gillings, Ph.D. (2) 3,717,815 10.7%
Barrie S. Haigh (3) 4,724,993 13.6%
Santo J. Costa (4) 62,729 *
Rachel R. Selisker (5) 90,480 *
Ludo J. Reynders, Ph.D. (6) 84,908 *
Lawrence S. Lewin (7) 22,459 *
Paul Knott, Ph.D. (8) 81,555 *
Eric J. Souetre, M.D., Ph.D. (9) 328,969 *
Robert C. Bishop, Ph.D. (10) 14,126 *
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C> <C>
Chester W. Douglass, Ph.D. (11) 279,000 *
John G. Fryer, Ph.D. (12) 383,596 1.1%
Arthur M. Pappas (13) 34,300 *
Richard H. Thompson (14) 523,720 1.5%
Vaughn D. Bryson 0 --
William A. Sollecito, Dr. P.H. (15) 305,577 *
All directors and executive officers as 10,753,567 30.7%
a group (17 persons) (16)
</TABLE>
- -------------------------
*Less than one percent
(1) Pursuant to the rules of the Securities and Exchange Commission,
certain shares of the Company's Common Stock which a person has the
right to acquire within 60 days of the date shown above pursuant to the
exercise of stock options are deemed to be outstanding for the purpose
of computing the percentage ownership of such person but are not deemed
outstanding for the purpose of computing the percentage ownership of
any other person. Shares of the Company's Common Stock held by the
Company's ESOP for the accounts of the shareholders listed are
estimated as of March 12, 1997.
(2) Includes 34,508 shares subject to presently exercisable stock options
and 77,387 shares held by the Company's ESOP for Dr. Gillings' account.
Includes 3,302 shares owned by Dr. Gillings' daughter, 120,000 shares
owned by the Gillings Family Limited Partnership, of which Dr. Gillings
and his wife are the general partners, 128,709 shares owned by Dr.
Gillings' wife and 550,000 shares owned by a Grantor Retained Annuity
Trust under which Dr. Gillings is the beneficiary (the "GRAT"). Dr.
Gillings disclaims beneficial ownership of all shares owned by his
wife, all shares in the Gillings Family Limited Partnership and all
shares in the GRAT, except to the extent of his interest therein.
(3) Includes 462,185 shares held by Mr. Haigh's wife, 131,092 shares held
by Barrie Haigh Children's Settlement No. 1 and 181,092 shares held by
Barrie Haigh Children's Settlement No.2.
(4) Includes 61,035 shares subject to presently exercisable stock options
and 1,494 shares held by the Company's ESOP for Mr. Costa's account.
(5) Includes 29,225 shares subject to presently exercisable stock options
and 20,963 shares held by the Company's ESOP for Ms. Selisker's
account.
(6) Includes 53,683 shares subject to presently exercisable stock options
and 1,845 shares held by the Quintiles (UK) Limited Approved Profit
Sharing Scheme for Dr. Reynders' account.
(7) Includes 22,459 shares subject to presently exercisable stock options.
4
<PAGE> 6
(8) Includes 24,549 shares subject to presently exercisable stock options.
(9) Includes 300 shares subject to presently exercisable stock options and
583 shares held by the Company's ESOP for Dr. Souetre's account.
Includes 328,086 shares owned by ACTA, a Luxembourg company owned by
Dr. Souetre. Dr. Souetre's term on the Company's Board of Directors
expires on the date of the 1997 Annual Meeting of Shareholders.
(10) Includes 10,126 shares subject to presently exercisable stock options.
(11) Includes 11,500 shares subject to presently exercisable stock options.
Includes 58,500 shares owned by the Douglass Family Limited Partnership
of which Dr. Douglass is the sole general partner. Dr. Douglass
disclaims beneficial ownership of the shares held by the limited
partnership except to the extent of his pecuniary interest therein.
(12) Includes 11,248 shares subject to presently exercisable stock options.
(13) Includes 13,500 shares subject to presently exercisable stock options.
Includes 400 shares held by Mr. Pappas's son and 400 shares held by Mr.
Pappas's daughter for which Mr. Pappas holds power of attorney.
(14) Includes 16,520 shares held in trust for Mr. Thompson and his wife.
Also includes 500,000 shares owned by Thompson Clive Investments plc.
The board of directors of Thompson Clive Investments plc, of which Mr.
Thompson is a director, exercises sole voting and investment power with
respect to the shares owned by Thompson Clive Investments plc. Thompson
Clive & Partners Limited, of which Mr. Thompson is chairman, serves as
the manager of Thompson Clive Investments plc. Mr. Thompson disclaims
beneficial ownership of the shares owned by Thompson Clive Investments
plc, except to the extent of his interest in Thompson Clive Investments
plc.
(15) Includes 10,935 shares subject to presently exercisable stock options
and 296 shares held by the Company's ESOP for Dr. Sollecito's account.
Includes 100,000 shares owned by Dr. Sollecito's wife. Dr. Sollecito
retired as an employee of the Company as of December 31, 1996 and is
included in the table above since he is a named executive officer in
the Summary Compensation Table on page 13 of this Proxy Statement.
(16) Includes 291,697 shares subject to presently exercisable stock options
and 103,298 shares held by the Company's employee stock ownership plans
for the accounts of individual executive officers.
5
<PAGE> 7
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding shares of
Common Stock of the Company known to be beneficially owned by persons with more
than five percent of the outstanding Common Stock (except as set forth in the
table above relating to the Company's directors and executive officers) as of
March 12, 1997.
<TABLE>
<CAPTION>
Name and Address of Shares Percent
Beneficial Owner Beneficially Owned of Class
---------------- ------------------ --------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd. 2,220,900 6.38%
1255 Drummers Lane
Suite 300
Wayne, PA 19087-1590
</TABLE>
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, as
nearly equal in number as possible. Each year the shareholders will elect the
members of one of the three classes to a three year term of office. In
accordance with the Company's Bylaws, during 1996 the Board of Directors elected
Lawrence S. Lewin, Barrie S. Haigh, Paul Knott and Vaughn D. Bryson to fill
vacancies created by an increase in the size of the Board and the resignations
of William A. Sollecito and Sara B. Creagh as of December 31, 1996.
The term of office of the Class III directors expires at the Annual
Meeting, the term of office of the Class II directors expires at the 1999 Annual
Meeting of Shareholders, and the term of office of the Class I directors expires
at the 1998 Annual Meeting of Shareholders, or in any event at such time as
their respective successors are duly elected and qualified or their earlier
resignation, death or removal from office. Pursuant to the Company's Bylaws, the
term of office of directors who were elected by the Board to fill a vacancy
expires at the next meeting of shareholders at which directors are elected.
Consequently, the terms of office of Mr. Lewin, Mr. Haigh, Dr. Knott and Mr.
Bryson expire at the Annual Meeting and they are being nominated for election.
6
<PAGE> 8
The following table lists the directors of the Company and the classes
in which they serve as of the date of this Proxy Statement:
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
(Term Expiring 1998) (Term Expiring 1999) (Term Expiring 1997)
<S> <C> <C>
Robert C. Bishop, Ph.D. John G. Fryer, Ph.D. Dennis B. Gillings, Ph.D.
Santo J. Costa Rachel R. Selisker Chester W. Douglass, Ph.D.
Arthur M. Pappas Lawrence S. Lewin Richard H. Thompson
Ludo J. Reynders, Ph.D. Vaughn D. Bryson Barrie S. Haigh
Paul Knott, Ph.D.
</TABLE>
The Board of Directors has nominated the Class III directors indicated
above for election at the Annual Meeting to serve until the Annual Meeting of
Shareholders in the year 2000 (or until such time as their respective successors
are elected and qualified or their earlier resignation, death or removal from
office). The Board of Directors has also nominated Paul Knott to serve as a
Class I director and Lawrence S. Lewin and Vaughn D. Bryson to serve as Class II
directors. If elected, Dr. Knott will serve until the Annual Meeting of
Shareholders in 1998, and Messrs. Lewin and Bryson will serve until the Annual
Meeting of Shareholders in 1999, or until such time as their successors are
elected and qualified or their earlier resignation, death or removal from
office.
The Board of Directors has no reason to believe that the persons named
above as nominees for directors will be unable or will decline to serve if
elected. In the event of death or disqualification of any nominee or the refusal
or inability of any nominee to serve as a director, the proxy may be voted with
discretionary authority for a substitute or substitutes as shall be designated
by the Board of Directors.
Pursuant to North Carolina law, the four candidates who receive the
highest number of votes as Class III directors will be elected as Class III
directors of the Company, the candidate receiving the highest number of votes as
a Class I director will be elected as a Class I director of the Company and the
two candidates receiving the highest number of votes as Class II directors will
be elected as Class II directors of the Company. Abstentions and shares held in
street name that are not voted in the election of directors will not be included
in determining which nominees received the highest number of votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES.
7
<PAGE> 9
Set forth below are the names and other information pertaining to the
Board's nominees and other directors whose terms of office will continue after
the Annual Meeting:
<TABLE>
<CAPTION>
FIRST YEAR
ELECTED
NAME POSITION WITH COMPANY AGE DIRECTOR
---- --------------------- --- --------
<S> <C> <C> <C>
CLASS I
Robert C. Bishop, Ph.D.(1)(3)(5) Director 54 1994
Santo J. Costa (7) President, Chief Operating Officer and Director 51 1994
Arthur M. Pappas (1)(2)(5) Director 49 1994
Ludo J. Reynders, Ph.D. (4) Chief Executive Officer, CRO Division, and Director 43 1995
Paul Knott, Ph.D.(6) Senior Vice President, International Strategic 43 1997
Development, and Director
CLASS II
John G. Fryer, Ph.D. (3)(4) Director 59 1988
Rachel R. Selisker (7) Chief Financial Officer, Executive Vice President 41 1995
Finance, Treasurer and Director
Lawrence S. Lewin (6)(7) Chief Executive Officer, Lewin-Benefit Division, and 58 1996
Director
Vaughn D. Bryson (2)(6) Director 58 1997
CLASS III
Dennis B. Gillings, Ph.D. (1) Chairman of the Board of Directors and Chief 52 1982
Executive Officer
Chester W. Douglass, Ph.D. (1)(3)(4) Director 56 1983
Richard H. Thompson (1)(2) Director 60 1991
Barrie S. Haigh (5) Vice Chairman of the Board of Directors and Chief 58 1997
Customer Officer
</TABLE>
- ---------------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Quality Committee
(5) Member of Nominations Committee
(6) Member of Policy Committee
(7) Member of Human Resources Committee
8
<PAGE> 10
ROBERT C. BISHOP, PH.D. has served as a director since April 1994.
Since May 1992, Dr. Bishop has served as President, Chief Executive Officer and
director of AutoImmune, Inc., a biotechnology company. From February 1991 to
April 1992, Dr. Bishop served as President of Allergan Therapeutics Group, a
division of Allergan, Inc., an eye and skin care company. From August 1989 to
February 1991, Dr. Bishop served as President of Allergan Pharmaceuticals, a
division of Allergan, Inc. Dr. Bishop received an M.B.A. from the University of
Miami and a Ph.D. in Biochemistry from the University of Southern California.
SANTO J. COSTA became President and Chief Operating Officer of the
Company on April 1, 1994 and has been a director since April 1994. From July 1,
1993 to March 31, 1994, Mr. Costa directed the affairs of his own consulting
firm, Santo J. Costa & Associates, which focused on pharmaceutical and
biotechnology companies. Prior to June 30, 1993, Mr. Costa served seven years at
Glaxo, Inc., a pharmaceutical company, as Senior Vice President Administration
and General Counsel and a member of the Board of Directors. Mr. Costa serves as
a director of NPS Pharmaceuticals Inc. Mr. Costa received his law degree from
St. John's University.
ARTHUR M. PAPPAS has served as a director since September 1994. Mr.
Pappas is Chairman and Chief Executive Officer of A.M. Pappas & Associates, LLC,
an international management and consulting services company and investor in the
high technology and life science industries. Mr. Pappas previously served as a
director on the Board of Glaxo Holdings plc with executive and Board
responsibilities for operations in Asia Pacific, Latin America and Canada. Mr.
Pappas also serves as a director of GeneMedicine, Inc., Embrex, Inc. and
KeraVision, Inc. Mr. Pappas' 26 years of experience in the healthcare industry
also includes positions with Merrell Dow Pharmaceuticals and Abbott Laboratories
International, Inc. Mr. Pappas received an M.B.A. in Finance from Xavier
University.
LUDO J. REYNDERS, PH.D. serves as Chief Executive Officer of the
Company's CRO Division. He has managed European clinical operations since
joining the Company in 1988. Dr. Reynders has served as a director of the
Company since January 1995. Prior to joining the Company, Dr. Reynders managed
the biostatistics and data management department of the Bristol-Myers Co.
Pharmaceutical Research and Development Division, located in Brussels, Belgium.
Dr. Reynders received an M.S. and Ph.D. in Applied Sciences from the University
of Louvain, Louvain, Belgium.
PAUL KNOTT, PH.D. became a director of the Company in January 1997 and
serves as Senior Vice President International Strategic Development. Dr. Knott
served as Group Finance Director of Innovex from November 1992 to November 1996.
Prior to joining Innovex Limited ("Innovex") in November 1992, Dr. Knott
directed the affairs of his own consulting firm. From March 1990 to January
1992, Dr. Knott served as Group Finance Director of Stormgard Plc, an office
supplies group of companies quoted on the London Stock Exchange. Prior to that
time, Dr. Knott spent 11 years with KPMG, where he achieved a senior management
position in a corporate finance department in London. He is a fellow of the
Institute of Chartered Accountants in England and Wales. Dr. Knott received a
Ph.D. in Geomorphology from the University of London.
9
<PAGE> 11
JOHN G. FRYER, PH.D. has served as a director of the Company since
1988. Dr. Fryer is a research professor in the Department of Biostatistics at
the University of North Carolina at Chapel Hill and has over 25 years of
academic experience in biostatistics. Dr. Fryer received a Ph.D. in Statistics
from the University of London.
RACHEL R. SELISKER, a certified public accountant, serves as Chief
Financial Officer and Executive Vice President Finance for the Company and has
been the Company's principal financial officer since 1987. Ms. Selisker has
served as a director of the Company since November 1995. From 1981 to 1987, Ms.
Selisker was with the accounting firm of Oppenheim, Appel, Dixon & Co. in
Raleigh, North Carolina.
LAWRENCE S. LEWIN serves as the Chief Executive Officer of the
Company's Lewin-Benefit Division and has served as the Chief Executive Officer
of The Lewin Group, Inc., a subsidiary of the Company, since May 1996. Mr. Lewin
has been a director of the Company since June 1996. Between November 1992 and
May 1996, Mr. Lewin served as the Chairman and Chief Executive Officer of
Lewin-VHI, Inc., a healthcare consulting firm specializing in performing
economic analyses, product profiles, and strategic development for healthcare
reform and medical reimbursement and the establishment of medical guidelines.
Mr. Lewin serves as a director of Apache Medical Systems, Inc. and as a member
of the advisory boards of the Hambrecht & Quist Healthcare Investors Fund and
the Hambrecht & Quist Life Sciences Fund. Mr. Lewin received an M.B.A. from
Harvard Business School.
VAUGHN D. BRYSON was elected to serve as a director beginning March 1,
1997. Mr. Bryson served as Vice Chairman of Vector Securities International,
Inc. from April 1994 to December 1996. Presently, Mr. Bryson serves as a
consultant to Vector Securities International, Inc. Previously, Mr. Bryson spent
a 32-year career at Eli Lilly & Co., where he served until his retirement as
President and Chief Executive Officer, beginning in 1991, and as a director,
beginning in 1984. Mr. Bryson is a director of ARIAD Pharmaceuticals, Inc.,
Endovascular Technologies, Inc., Fusion Medical Technologies, Inc., Napro
Biotherapeutics, Inc. and Perclose, Inc. Mr. Bryson holds an M.B.A. from
Stanford University.
DENNIS B. GILLINGS, PH.D. founded the Company in 1982 and has served as
Chief Executive Officer and Chairman of the Board of Directors since its
inception. From 1972 to 1988, Dr. Gillings served as a professor in the
Department of Biostatistics at the University of North Carolina at Chapel Hill.
During his tenure as a professor, he was active in statistical consulting for
the pharmaceutical industry. Dr. Gillings currently serves on the Board of
Directors of the University of North Carolina School of Public Health
Foundation. Dr. Gillings has been published widely in scientific and medical
journals. Dr. Gillings received a Diploma in Mathematical Statistics from the
University of Cambridge and a Ph.D. in Mathematics from the University of
Exeter.
CHESTER W. DOUGLASS, PH.D. has served as a director of the Company
since 1983. Dr. Douglass is Professor and Chairman of the Department of Oral
Health Policy and Epidemiology, Harvard University School of Dental Medicine and
has served 30 years in various academic appointments at Temple University, the
University of North Carolina at Chapel Hill and Harvard
10
<PAGE> 12
University. Dr. Douglass received a D.M.D. from Temple University School of
Dentistry, an M.P.H. from the University of Michigan School of Public Health and
a Ph.D. from the University of Michigan Rackham School of Graduate Studies.
RICHARD H. THOMPSON has served as a director of the Company since 1991.
Mr. Thompson is Executive Chairman and co-founder of the Thompson Clive Group,
an international venture capital firm based in London, England, where he has
served since 1977. Mr. Thompson is on the board of directors of Thompson Clive
Investments plc, an authorized investment trust quoted on the London Stock
Exchange, and is on the board of directors of a number of private companies. Mr.
Thompson received an M.A. in Engineering from the University of Cambridge.
BARRIE S. HAIGH became Vice Chairman of the Board of Directors and
Director of Corporate Development on January 1, 1997. Mr. Haigh founded Innovex
Limited ("Innovex") in 1979 and served as its Chairman until November 1996 when
Innovex merged with the Company. From 1979 until August 1994, Mr. Haigh served
as Chief Executive Officer and Chairman of the Board of Innovex. Previously, Mr.
Haigh held management positions with Syntex, Merck Sharp and Dohme. Mr. Haigh is
a member of the Board of Management of the Association of the British
Pharmaceutical Industry and a fellow of the Royal Pharmaceutical Society of
Great Britain for distinction in the profession of Pharmacy. Mr. Haigh received
a degree in pharmacy from Bradford University.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors met twelve times during 1996. The Board has an
Executive Committee, Audit Committee, Compensation Committee, Quality Committee,
Nominations Committee, Policy Committee and Human Resources Committee. The
Executive Committee has the authority to exercise all powers of the Board of
Directors during intervals between meetings of the Board. During fiscal 1996,
the Executive Committee did not meet. The Audit Committee reviews the results
and scope of the audit and other services provided by the Company's independent
auditors. The Audit Committee also recommends to the Board the appointment of
independent auditors. The Audit Committee met four times during the last fiscal
year. The Compensation Committee is responsible for the approval of compensation
arrangements for officers of the Company and the review of the Company's
compensation plans and policies. The Compensation Committee met eight times
during fiscal 1996. The Quality Committee oversees the reporting of serious
adverse events for the Company's studies and establishes policies regarding
scientific integrity and quality assurance. During fiscal 1996, the Quality
Committee met four times. The Nominations Committee nominates individuals to
serve on the Board of Directors for shareholder approval. The Policy Committee
is responsible for reviewing conflicts of interest arising from the provision of
services to a wide variety of clients and overseeing the conflicts resolution
process. The Human Resources Committee oversees strategic global human resources
issues. The Nominations, Policy and Human Resources Committees were created in
late 1996 and held no meetings in 1996.
The Bylaws provide procedures for the nomination of directors. The
Bylaws provide that nominations for the election of directors may only be made
by the Board of Directors or a
11
<PAGE> 13
designated committee thereof, or by any shareholder entitled to vote generally
in elections of directors if the shareholder follows certain procedures. Any
shareholder of record entitled to vote generally in the elections of directors
may nominate one or more persons for election as directors at a meeting of
shareholders only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or
certified mail, postage prepaid, to the Secretary of the Company (i) with
respect to an election to be held at an annual meeting of shareholders, not more
than ninety (90) days nor less than fifty (50) days in advance of such meeting;
and (ii) with respect to an election to be held at a special meeting of
shareholders called for the purpose of the election of directors, not later than
the close of business on the tenth business day following the date on which
notice of such meeting is first given to shareholders. Each such notice of a
shareholder's intent to nominate a director must set forth certain information
as specified in the Company's Bylaws.
Each director attended 75% or more of the aggregate of the Board
meetings (held during the period for which the director was in office) and
Committee meetings of the Board of which the director was a member.
DIRECTOR COMPENSATION
Each non-officer director receives annually a grant of stock options
valued at $100,000 with the number of options determined in accordance with the
Black-Scholes method, provided that a reduction of 16.6% of the shares subject
to the option shall be made for a failure to attend a regular quarterly Board
meeting and a reduction of 4.2% of the shares subject to the option shall be
made for a failure to attend scheduled Board meetings by teleconference. In
addition, each non-officer director receives $3,000 quarterly, plus an annual
retainer of $2,000 which shall be reduced by $250 for a failure to attend each
scheduled Board meeting by teleconference held during the year. The Company
reimburses each director for out-of-pocket expenses incurred in connection with
the rendering of services as a director. Certain other financial relationships
with directors are described in "Certain Transactions".
12
<PAGE> 14
EXECUTIVE COMPENSATION
The following tables show annual and long-term compensation paid or
accrued by the Company for services rendered for the fiscal years indicated by
the Company's Chief Executive Officer and the next four most highly compensated
executive officers (the "named executive officers") whose total salary and bonus
exceeded $100,000 individually during the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------------------------- ------------------------------
No. of
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis B. Gillings............... 1996 $442,022 $ -- $ (1) 11,670(2) $ 86,842(3)
Chairman of the Board 1995 432,124 9,200(4) 5,230(5) 14,352(6) 92,549(7)
and Chief Executive 1994 415,000 121,300 89,066(8) 16,000 67,103(9)
Officer
Barrie S. Haigh.................. 1996(10) $390,450 $ 69,000 (1) -- $ 14,871(11)
Vice Chairman of the
Board of Directors and
Chief Customer Officer
Santo J. Costa................... 1996 356,250 -- (1) 8,873(12) 682,944(13)
President and Chief 1995 300,000 5,800(4) (1) 10,310(14) 1,872(15)
Operating Officer 1994(16) 231,498 69,000 (1) 59,600 --
Lawrence S. Lewin................ 1996(17) $179,224 108,300 (1) 57,167 8,799(18)
Chief Executive Officer,
Lewin-Benefit Division
William A. Sollecito............. 1996 249,996 -- (1) 6,130(19) 80,634(20)
President, 1995 230,002 -- (4) (1) 6,406(21) 2,795(22)
Quintiles Americas 1994 210,000 46,200 (1) 4,800 --
</TABLE>
- -------------------
(1) Perquisites and other personal benefits received did not exceed the
lesser of $50,000 or 10% of salary and bonus compensation for the named
executive officer.
(2) Includes 2,920 shares subject to options granted pursuant to the 1996
bonus.
(3) Includes contributions to the Company's 401(k) Plan on behalf of Dr.
Gillings in the amount of $2,210, the present value of the benefit to
Dr. Gillings of the premiums paid by the Company under a split-dollar
life insurance arrangement in the amount of $79,644 (see "Employment
Agreements" below for a description of this arrangement), and other
life insurance premiums paid by the Company in the amount of $4,988.
13
<PAGE> 15
(4) In 1995, the Company awarded a bonus to executive officers of stock
options and cash. The amount set forth above represents the cash
element of the bonus. See "Long Term Compensation - No. of Securities
Underlying Options" in the above "Summary Compensation Table" for the
stock option portion of the 1995 bonus.
(5) Amount represents the value of taxes paid by the Company on behalf of
Dr. Gillings. Perquisites and other personal benefits received did not
exceed the lesser of $50,000 or 10% of salary and bonus compensation.
(6) Includes 8,352 shares subject to options granted pursuant to the 1995
bonus.
(7) Includes $86,869 which represents the cash value of a whole life
insurance policy transferred to Dr. Gillings in accordance with the
terms of his employment agreement. Dr. Gillings will be responsible for
future premium payments under this policy. Includes $4,781 which
represents the value of life insurance premiums paid during 1995. Also
includes $899 contributed by the Company to the Company's 401(k) Plan
on behalf of Dr. Gillings.
(8) Includes $80,996 of United Kingdom taxes paid by the Company on behalf
of Dr. Gillings.
(9) Amount represents the cash value of a whole life insurance policy
transferred to Dr. Gillings in accordance with the terms of his
employment agreement. Dr. Gillings will be responsible for future
payment of premiums under this policy.
(10) Mr. Haigh is the former Executive Chairman of Innovex. Innovex became
a wholly-owned subsidiary of the Company in November 1996 as a result
of a business combination. With respect to Mr. Haigh, this table
includes ordinary compensation paid by Innovex during 1996, but
excludes certain non-recurring compensation paid by Innovex in
connection with its reorganization in April 1996.
(11) Includes $14,871 for life insurance premiums paid during 1996.
(12) Includes 1,998 shares subject to options granted pursuant to the 1996
bonus.
(13) Includes $679,488 which represents the appreciation of incentive stock
options exercised and shares sold. Also includes $3,456 which
represents the value of life insurance premiums paid during 1996.
(14) Includes 5,310 shares subject to options granted pursuant to the 1995
bonus.
(15) Amount represents the value of life insurance premiums paid during
1995.
(16) Mr. Costa became an executive officer of the Company as of April 1,
1994.
(17) Mr. Lewin became an executive officer of the Company in 1996.
(18) Includes $4,299 for life insurance premiums paid during 1996 and
$4,500 contributed by the Company to the Company's 401(k) Plan on
behalf of Mr. Lewin.
(19) Includes 1,130 shares subject to options granted pursuant to the 1996
bonus.
(20) Includes $76,837 which represents the appreciation of non-qualified
stock options exercised and shares sold during 1996. Also includes
$1,435 for life insurance premiums paid during 1996 and $2,362
contributed by the Company to the Company's 401(k) Plan on behalf of
Dr. Sollecito.
(21) Includes 3,706 shares subject to options granted pursuant to the 1995
bonus.
(22) Includes $1,310 for life insurance premiums paid during 1995 and
$1,485 contributed by the Company to the Company's 401(k) Plan on
behalf of Dr. Sollecito.
OPTION GRANTS IN LAST FISCAL YEAR
The following table reflects the stock options granted during the past
fiscal year to the named executive officers pursuant to the Company's Equity
Compensation Plan. No stock appreciation rights were granted to the named
executive officers during 1996. Mr. Haigh is omitted from the following table
since he was not granted options under the Company's Equity Compensation Plan in
1996.
14
<PAGE> 16
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for Option
Individual Grants Term(1)
------------------------------------------------ -------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted Fiscal Year(2) Per Share($) Date 5%($) 10%($)
---- ------- -------------- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Dennis B. Gillings 8,750(3) 0.42% 66.25 12/31/06 364,562 923,873
2,920(4) 0.14% 66.25 12/31/06 121,660 308,309
Santo J. Costa 4,045(5) 0.20% 66.25 12/31/06 168,532 427,093
1,375(3) 0.07% 66.25 12/31/06 57,288 145,180
1,998(4) 0.10% 66.25 12/31/06 83,245 210,960
1,455(3) 0.07% 66.25 12/31/06 60,622 153,627
Lawrence S. Lewin 32,250(6) 1.56% 77.00 5/13/01 686,076 1,516,049
3,894(9) 0.19% 77.00 5/13/06 188,567 477,865
6,106(8) 0.29% 77.00 5/13/06 295,682 749,317
12,000(7) 0.58% 65.38 9/9/06 493,368 1,250,291
1,167(3) 0.06% 66.25 12/31/06 48,622 123,218
874(5) 0.04% 66.25 12/31/06 36,415 92,282
876(3) 0.04% 66.25 12/31/06 36,498 92,493
William Sollecito 2,000(3) 0.10% 66.25 12/31/06 83,329 211,171
3,000(5) 0.14% 66.25 12/31/06 124,993 316,756
1,130(4) 0.05% 66.25 12/31/06 47,081 119,312
</TABLE>
- ---------------
(1) Potential realizable value of each grant is calculated assuming that
market price of the underlying security appreciates at annualized rates
of 5% and 10%, respectively, over the 10 year term of the grant. The
assumed annual rates of appreciation of 5% and 10% would result in the
price of the Common Stock increasing to $98.27 and $124.01 per share
for the options expiring May 13, 2001, respectively, $125.42 and
$199.72 per share for the options expiring May 13, 2006, respectively,
$106.49 and $169.57 per share for the options expiring September 9,
2006, respectively, and $107.91 and $171.84 per share for options
expiring December 31, 2006, respectively.
(2) Options to purchase an aggregate of 2,057,714 shares were granted to
employees during 1996.
(3) Non-qualified options granted December 31, 1996, expiring December 31,
2006, or if sooner, three months after termination of employment,
unless employment is terminated because of death, retirement or
disability, in which case the options may be exercised until the first
anniversary following termination. Shares subject to the options
granted
15
<PAGE> 17
vest over the next four years, with 25% of such shares vesting on
December 31 of each year, beginning December 31, 1997.
(4) Non-qualified options granted December 31, 1996, expiring December 31,
2006, or if sooner, three months after termination of employment,
unless employment is terminated because of death, retirement or
disability, in which case the options may be exercised until the first
anniversary following termination. Shares subject to the options
granted vest on March 1, 1997.
(5) Incentive stock options granted December 31, 1996, expiring December
31, 2006, or if sooner, three months after termination of employment.
Shares subject to the options granted vest over the next four years,
with 25% of such shares vesting on December 31 of each year, beginning
December 31, 1997.
(6) Non-qualified options granted May 13, 1996, expiring May 13, 2001, or
if sooner, three months after termination of employment, unless
employment is terminated because of death, disability or involuntary
termination, in which case the options will become exercisable
immediately upon termination. Shares subject to the options granted
vest over the next three years, with 25% of such shares vesting on May
13, 1996, and the remaining 75% vesting monthly until fully vested on
May 13, 1999.
(7) Non-qualified options granted September 9, 1996, expiring September 9,
2006, or if sooner, three months after termination of employment,
unless employment is terminated because of death, retirement or
disability, in which case the options may be exercised until the first
anniversary following termination. Shares subject to the options
granted vest over the next three years, with 25% of such shares vesting
on September 9, 1996, 1997, 1998 and the remainder vesting May 13,
1999.
(8) Non-qualified options granted May 13, 1996, expiring May 13, 2006, or
if sooner, three months after termination of employment, unless
employment is terminated because of death, retirement or disability, in
which case the options may be exercised until the first anniversary
following termination. Shares subject to the options granted vest
over the next three years, with 33% of such shares vesting on
May 31 of each year, beginning May 31, 1997.
(9) Incentive stock options granted May 13, 1996, expiring May 13, 2006, or
if sooner, three months after termination of employment. Shares subject
to the options granted vest over the next three years, with 33% of
such shares vesting on May 31 of each year, beginning May 31, 1997.
16
<PAGE> 18
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table provides information about the stock options held
by the named executive officers on December 31, 1996. Mr. Haigh is omitted from
the following table since he neither held nor exercised stock options granted by
the Company.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES ACQUIRED VALUE UNDERLYING UNEXERCISED MONEY OPTIONS
NAME ON EXERCISE (#) REALIZED OPTIONS AT FY-END AT FY-END
---- --------------- -------- ----------------- ---------
EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE
----------- ------------- --------------- -------------
($)(1)
------
<S> <C> <C> <C> <C> <C> <C>
Dennis B. Gillings 0 0 33,048 20,974 1,632,448 345,205
Santo J. Costa 10,640 679,488 52,536 15,607 2,771,312 241,939
William A. Sollecito 1,325 76,837 22,011 0 722,336 0
Lawrence S. Lewin 0 0 17,711 39,456 2,625 7,875
</TABLE>
- ----------
(1) The value of the options is based upon the difference between the
exercise price and the closing price per share on December 31, 1996,
$66.25.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors reviews and
oversees the general compensation plans and policies of the Company and approves
the individual compensation arrangements for the Company's executive officers.
COMPENSATION PHILOSOPHY
The Company is committed to implementing a scheme of executive
compensation which will contribute to the achievement of the Company's business
objectives. Based on a study of the Company's executive compensation policies
and procedures by a nationally recognized consulting firm, the Company has an
executive compensation program which it believes:
* Fulfills the Company's business and operating needs, comports
with its general human resource strategies and enhances
shareholder value.
* Enables the Company to attract and retain the executive talent
essential to the Company's achievement of its business
objectives.
* Rewards executives for accomplishment of pre-defined business
goals and objectives.
17
<PAGE> 19
* Provides rewards consistent with gains in shareholder wealth
so that executives will be financially advantaged when
shareholders are similarly financially advantaged.
* Reflects the evolving organizational structure of the Company,
directly motivates executives to accomplish results within
their range of influence and fosters team spirit among
executives working towards a common goal.
In implementing its compensation philosophy, the Company intends to
provide compensation opportunities which are perceived to be generally
comparable to those provided by similar companies in the contract research
organization ("CRO"), biotechnology and pharmaceutical industries. This "peer
group" is not the same group used for the industry comparison in the performance
graph found in the "Comparison of Cumulative Return" section of this Proxy
Statement; but rather, it reflects the industry groups with which the Company
competes for personnel.
ELEMENTS OF COMPENSATION
The Company's compensation program has three key components: base
salary, annual incentive and long-term incentive compensation. These components
combine fixed and variable elements to create a total compensation package which
provides some income predictability while linking a significant portion of
compensation to corporate, business unit and individual performance.
BASE SALARY
Salary represents the fixed component of the Company's executive
compensation program. Base salaries are set within ranges which are targeted
around the competitive norm for similar companies in the CRO, biotechnology and
pharmaceutical industries. Individual salaries may be above or below the
competitive norm, depending on the executive's tenure in his or her position and
performance. The Compensation Committee considers the following factors in
approving adjustments to salary levels for the executive officers: (i) the
relationship between current salary and appropriate internal and external salary
comparisons, (ii) the average size of salary increases being granted by
competitors, (iii) whether the responsibilities of the position have changed
during the preceding year and (iv) the individual's performance as reflected in
the overall manner in which his or her assigned role is carried out.
ANNUAL BONUS PLAN
The Annual Bonus Plan serves two functions in implementing the
Company's executive compensation philosophy. First, annual incentives permit the
Company to directly compensate officers for performance as measured by objective
standards. Second, annual incentives also serve to focus executives on those
activities which are most directly under their control and for which they should
be held accountable.
18
<PAGE> 20
Each year, the Company establishes target bonus opportunities
(expressed as a percentage of salary) which participants can expect to earn if
all performance goals are fully achieved during the next fiscal year. Bonus
awards are proportionately increased or decreased from the target to reflect
performance levels which exceed or fall below expectations.
At the beginning of each year, specific performance goals are set for
the Company, each business unit and individual participant. For 1996, the
Company determined that the best criteria for measurement of Company and
business unit performance were operating surplus and net revenue, weighted at
60% and 40%, respectively. Individual performance goals are assigned annually
relating to quality, productivity, expense control, innovation, personal
management, etc. Individual performance is also assessed by subjective
evaluation.
Bonus awards are linked to specific performance goals established by
the Company. The executive compensation plan gives the Company's Compensation
Committee the authority to award bonuses or reduce or entirely eliminate the
award of bonuses. Bonus awards may be made in cash, stock, stock options or a
combination of each. Generally, the Compensation Committee awards cash bonuses
to executive officers only to the extent operating surplus for the Company as a
whole is in excess of target levels. In 1996, executive officer bonuses
primarily were awarded in the form of non-qualified stock options, as described
below, with the exception of certain executive officers of the Company who
became executive officers of the Company as a result of certain acquisitions
the Company made in 1996. Such officers' bonuses were paid in cash consistent
with their prior employer's policies.
On December 31, 1996, the Company issued a total of 69,030
non-qualified stock options to the Company's executive officers at an exercise
price of $66.25 per share which equaled the closing price of the Company's
Common Stock on December 31, 1996. Of the total of 69,030 shares issuable
pursuant to these options, Dr. Gillings received options for 2,920 shares, Mr.
Costa received options for 1,998 shares, Mr. Porter received options for 798
shares, Dr. Reynders received options for 1,348 shares, and Ms. Selisker
received options for 870 shares.
In order to determine the number of options to be granted, the
executive compensation plan bonus guidelines were used. The amount of the cash
bonus derived from applying the criteria was then converted into stock options
using the Black/Scholes method of option valuation. Using the Black/Scholes
method, each option was valued at approximately $40. The stock options vested
50% immediately and 50% on February 28, 1997.
Bonus award targets established for 1996 for the executive officers
named in the Summary Compensation Table, other than Dr. Gillings, averaged 25.4%
of the named executive officers' aggregate base salaries. Based upon the
achievement of the named executive officers' individual and corporate
performance goals, the value of actual bonus awards averaged 20.0% of their 1996
aggregate base salaries.
19
<PAGE> 21
LONG-TERM INCENTIVES
The long-term incentive component of the Company's compensation scheme
is designed to motivate and reward executives for maximizing shareholder value
and encourage the long-term employment of key employees. Long-term incentives
primarily are provided pursuant to the Company's Equity Compensation Plan, which
is administered by the Compensation Committee. Additional long-term incentive
compensation is provided through the Company's Employee Stock Ownership Plan.
EQUITY COMPENSATION PLAN
When awarding long-term incentives pursuant to the Equity Compensation
Plan, the Compensation Committee has established target award guidelines for
each level of executive. These targets are designed to comport with compensation
practices among mid-sized U.S. companies in general industry. Actual awards may
vary from the target levels to account for unusual performance or potential or
to meet special hiring or retention needs.
In December 1996, the Compensation Committee approved grants of stock
options to Dennis B. Gillings, Ph.D., Santo J. Costa, Rachel R. Selisker,
Gregory D. Porter, Ludo L. Reynders, Ph.D. and Lawrence S. Lewin primarily as
part of the Company's annual grant of stock options. The size of each award was
determined in accordance with the target award guidelines discussed above. These
options vest on the anniversaries of the grant date over a four year period (25%
of the grant each year). Since these options carry exercise prices equal to the
fair market value of the Company's stock on the date of grant, the stock options
have value only if the stock price appreciates from the value on the date the
options were granted. This feature is intended to focus executives on the
enhancement of shareholder value over the long-term and to encourage equity
ownership in the Company.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
The Company has an ESOP for qualified employees of the Company
(generally those employees who have 1,000 hours of service and six months of
continuous employment). The ESOP is funded by contributions made by the Company
of cash, Common Stock or other property, which will be used primarily to repay
indebtedness on the ESOP loan. The ESOP has previously borrowed $2 million from
an unrelated third-party lender to purchase shares of Common Stock, using the
ESOP Common Stock as security for the loan. Shares purchased with such loan
proceeds are held in a suspense account for allocation among participants as the
loan is repaid. Shares are allocated to the accounts of qualified employees,
including executive officers, at the end of each year, in the proportion that
each qualifying participant's eligible compensation bears to the total of all
such participants' eligible compensation for the year. The ESOP utilizes vesting
periods and diversification features that encourage employees to retain
ownership of the Company's Common Stock and continue in the employ of the
Company. Each executive officer who participated in the ESOP during 1996
received an allocation to his or her account. Dr. Reynders will receive an
allocation pursuant to his participation in a similar plan which the
20
<PAGE> 22
Company has adopted for Quintiles (UK) Limited and certain other participating
European subsidiaries.
CHIEF EXECUTIVE OFFICER ("CEO") COMPENSATION
The Compensation Committee has adopted the policies described above
with respect to Dr. Gillings, whose base salary rate at December 31, 1996 was
$447,400 and whose bonus for 1996 (awarded in stock options) covered 2,920
shares of the Company's Common Stock. The amount of the bonus was based on the
extent to which the Company achieved its operating surplus targets and net
revenue targets, as well as Dr. Gillings' attainment of his individual goals.
The value of the bonus represents 26.1% of Dr. Gillings' base salary. In
addition, as more fully described below under the caption "Employment
Agreements," Dr. Gillings received split dollar life insurance benefits during
1996. The total of base salary, bonus opportunity and life insurance benefits
was established by the Compensation Committee at the 75th percentile of
comparable pay for Chief Executive Officers in the CRO, biotechnology and
pharmaceutical industries. In setting this amount, the Compensation Committee
took into consideration Dr. Gillings' industry experience and length of
service, his vision, which has been instrumental to the growth and success of
the Company, and his leadership ability, which resulted in the Company's
successful public offerings and its acquisition program. Dr. Gillings also
received options to purchase 8,750 shares of Common Stock pursuant to the
Equity Compensation Plan, consistent with the target award guidelines adopted
by the Compensation Committee, as discussed above. In addition, Dr. Gillings
received an allocation to his ESOP account in accordance with the terms of the
ESOP.
POLICY WITH RESPECT TO $1 MILLION DEDUCTION LIMIT
The Company has not awarded any compensation that is non-deductible
under Section 162(m) of the Internal Revenue Code. That section imposes a $1
million limit on the U.S. corporate income tax deduction a publicly held company
may claim for compensation paid to the named executive officers unless certain
requirements are satisfied. In the event that the Compensation Committee
considers approving compensation in the future which would exceed the $1 million
deductibility threshold, the Compensation Committee will consider what actions,
if any, should be taken to make such compensation deductible.
21
<PAGE> 23
CONCLUSION
The Compensation Committee believes that these executive compensation
policies and programs effectively promote the Company's interests and enhance
shareholder value.
COMPENSATION COMMITTEE
ROBERT C. BISHOP, CHAIRMAN
CHESTER W. DOUGLASS
JOHN G. FRYER
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total shareholder return on
the Company's Common Stock since April 20, 1994, the effective date of the
Company's initial public offering, through December 31, 1996, with the
cumulative total return for the same period on the Nasdaq Stock Market (U.S.)
Index and the Nasdaq Health Services Index. The graph assumes that at the
beginning of the period indicated, $100 was invested in the Company's Common
Stock and the stock of the companies comprising the Nasdaq Stock Market (U.S.)
Index and the Nasdaq Health Services Index and that all dividends were
reinvested.
SHAREHOLDER RETURN ON COMMON STOCK
[GRAPH HERE]
22
<PAGE> 24
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG QUINTILES TRANSNATIONAL CORP.
AND THE NASDAQ U.S. STOCK AND NASDAQ HEALTH SERVICE INDICES
<TABLE>
<CAPTION>
4/20/94 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C>
Quintiles Transnational Corp. 100 150 421 679
Nasdaq U.S. Stock Index 100 107 152 187
Nasdaq Health Service Index 100 108 138 138
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Dr. Gillings,
Mr. Haigh, Mr. Costa, Mr. Lewin and Dr. Sollecito. The named executive officers
are also eligible to participate in any bonus, stock option, pension, insurance,
medical, dental, 401(k), disability and other plans generally made available to
the Company's executives.
The employment agreement for Dr. Gillings extends for three years from
February 22, 1994 and automatically renews for additional and successive one
year terms unless either party provides 90 days' notice of their intent to
terminate prior to the expiration of the then current term. The agreement
terminates upon Dr. Gillings' death, upon notice by the Company if Dr. Gillings
becomes permanently disabled, upon notice by the Company for cause, upon notice
by Dr. Gillings in the event of a change in control, as defined in his
employment agreement (provided Dr. Gillings terminates his employment within one
year following such change in control), upon notice by Dr. Gillings in the event
of the Company's material breach or improper termination of the employment
agreement and upon notice by Dr. Gillings if Dr. Gillings is not elected
Chairman of the Board and Chief Executive Officer of the Company. The agreement
provides for severance payments and continuation of benefits in the event Dr.
Gillings' termination is for permanent disability, change in control, breach or
improper termination by the Company, or for a change in position. In such
events, the Company must pay Dr. Gillings or his estate or beneficiaries his
full base salary then in effect and other benefits under the agreement for the
lesser of three years or the term of the non-compete covenant provided in the
agreement. The Company is not obligated to make any payments or provide benefits
to Dr. Gillings if the termination is for cause. The agreement includes a three
year (or such lesser period as the Board determines, but in no event less than
one year) non-compete provision pursuant to which Dr. Gillings cannot compete
with the Company in any geographic area in which the Company does business and
cannot solicit or interfere with the Company's relationship with any person or
entity doing business with the Company, or offer employment to any person
employed by the Company in the one year period prior to Dr. Gillings'
termination of employment. The agreement prohibits disclosure of any
confidential information acquired during the period of employment with the
Company.
The Company entered into split-dollar life insurance agreements as of
May 16, 1996 with certain trusts (each a "Trust") created by Dr. Gillings,
pursuant to which the Company and the Trusts will share in the premium costs of
certain variable and whole life insurance policies (each a "Policy") that pay
an aggregate death benefit to the Trusts upon the death of Dr. Gillings or his
23
<PAGE> 25
wife, Joan Gillings, whichever occurs later. The Trusts pay premiums on the
Policies as if each Policy were a one year term life policy, and the Company
pays the remaining premiums. The Company may cause this arrangement to be
terminated at any time upon 30 days' notice. Upon termination of the
arrangement, surrender of a Policy, or payment of the death benefit under a
Policy, the Company is entitled to repayment of an amount equal to the
cumulative premiums previously paid by the Company thereunder, with all
remaining amounts going to the Trust. Upon any surrender of a Policy, the
liability of the related Trust to the Company is limited to the cash value of
the Policy. See footnote (3) to the "Summary Compensation Table" above for
additional information on premium payments made by the Company under the
Policy.
The employment agreement for Mr. Haigh is for a three year period from
November 29, 1996 and automatically renews for additional and successive one
year terms unless either party provides 90 days' notice of their intent to
terminate prior to the expiration of the then current term. The agreement is
terminable upon notice by the Company for cause. The Company is not obligated to
provide compensation or benefits upon Mr. Haigh's termination except as required
by law or by any employee benefit plan in which Hr. Haigh participates or as the
Company may elect in its sole discretion. Pursuant to the agreement and a
separate non-compete deed, Mr. Haigh, for a period of two years following his
termination or five years from November 29, 1996, whichever period is greater,
cannot compete with the Company in the United Kingdom, the Federal Republic of
Germany and the United States of America and cannot solicit or interfere with
the Company's relationship with any person or entity doing business with the
Company, or offer employment to any person employed by the Company in the one
year period prior to Mr. Haigh's termination of employment. The agreement and
the deed prohibit disclosure of any confidential information acquired during the
period of employment with the Company.
On April 1, 1994, Mr. Costa became the President and Chief Operating
Officer of the Company. His employment agreement, as amended on November 4,
1994, extends for a three year term, beginning February 22, 1994, and
automatically renews for additional and successive one year terms unless either
party provides 90 days' notice of their intent to terminate prior to the
expiration of the then current term. The agreement terminates upon the death of
Mr. Costa, upon notice by the Company if Mr. Costa becomes permanently disabled,
upon notice by the Company for cause, upon notice by Mr. Costa in the event of a
change in control, as defined in his employment agreement (provided Mr. Costa
terminates his employment six months after but within one year following such
change in control), upon notice by Mr. Costa in the event of the Company's
material breach, upon notice by Mr. Costa if Mr. Costa is not appointed
President and Chief Operating Officer of the Company and upon the expiration of
an uninterrupted period of at least six months if Mr. Costa is required to
perform his duties at a location outside of the Research Triangle Park, North
Carolina region or his duties are substantially diminished. The agreement
provides for severance payments and continuation of benefits in the event Mr.
Costa's termination is for permanent disability, change in control, breach,
change in position or relocation. In such events, the Company must pay Mr. Costa
or his estate or beneficiaries his full base salary then in effect for two years
and other benefits under the agreement. The Company is not obligated to make any
payments or provide benefits to Mr. Costa if the termination is for
cause. The agreement includes a one year non-compete provision following
termination of employment and prohibits disclosure of confidential information.
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The employment agreement between Mr. Lewin and The Lewin Group, Inc.
(the "Lewin Group") (a wholly-owned subsidiary of the Company) extends for three
years from April 18, 1996 and automatically renews for additional and successive
one year terms unless either party provides 90 days' notice of their intent to
terminate prior to the expiration of the then current term. The agreement
terminates upon Mr. Lewin's death, in the event of Mr. Lewin's total disability,
upon notice by the Lewin Group for cause, or at the option of Mr. Lewin, upon
the sale by the Company of all or substantially all of the assets of the Lewin
Group to any entity other than an affiliate of the Company. If the Lewin Group
terminates Mr. Lewin's employment for any reason other than those listed above,
or Mr. Lewin terminates his own employment due to a breach of the employment
agreement by the Lewin Group, Mr. Lewin is entitled to his salary for the
remaining term of the employment agreement, plus, upon release of the Lewin
Group from obligations under the employment agreement, the greater of one year's
salary or the standard severance pay in effect, if any, at the time of
termination. If the Lewin Group decides not to renew the term of the employment
agreement, Mr. Lewin is entitled to the greater of one year's salary or the
standard severance pay in effect, if any, at the time of nonrenewal. The
agreement includes a non-compete provision for a term, ending at the later of
five years from April 18, 1996 or one year after termination of employment,
pursuant to which Mr. Lewin cannot, without prior written consent of the Lewin
Group, compete with the Lewin Group or its affiliates, including the Company
(the "Lewin Affiliates") in any geographic area in which the Lewin Group or the
Lewin Affiliates does business (subject to certain specified exceptions) and
cannot solicit or interfere with the Lewin Group's or the Lewin Affiliates'
relationship with any person or group doing business with the Lewin Group or the
Lewin Affiliates or offer employment to any person employed by the Lewin Group
or the Lewin Affiliates in the one year period prior to Mr. Lewin's termination
of employment. The agreement prohibits disclosure of any confidential
information acquired during the period of employment with the Lewin Group or the
Lewin Affiliates. The agreement also provides that upon the request of the Lewin
Group, Mr. Lewin will serve as a consultant to the Lewin Group or the Lewin
Affiliates, for a one year term after the termination of the employment
relationship.
Dr. Sollecito's employment agreement terminated on December 31, 1996
upon his retirement from the Company. Dr. Sollecito's employment agreement
included a confidentiality provision and a one year non-compete provision. Dr.
Sollecito was not entitled to any severance pay upon his retirement.
CERTAIN TRANSACTIONS
Prior to March 15, 1995, Mr. Pappas and the Company were parties to a
consulting agreement dated July 11, 1994. Effective March 15, 1995, A.M. Pappas
& Associates, LLC ("AMP&A") entered into the 1995 Consulting Agreement with the
Company. The 1995 Consulting Agreement superseded the July 11, 1994 consulting
agreement. In compliance with the terms of the 1995 Consulting Agreement, the
Company granted Mr. Pappas stock options on March 15, 1995 covering 20,000
shares of the Company's Common Stock at an exercise price of $17.50 per share
which vested 50% on March 15, 1996, 75% on March 15, 1997 and will vest 100% on
March 15, 1998. Fifty percent of the fees invoiced
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during any twelve month period are deemed satisfied by the stock options granted
on March 15, 1995 as described above up to a maximum of $100,000 per twelve
month period. The minimum aggregate consulting fee (exclusive of expenses) is
$200,000 per twelve month period. AMP&A has agreed not to invoice the Company
for fees in excess of $220,000 per twelve month period without the Company's
prior consent. The Company has agreed to reimburse AMP&A for all reasonable
out-of-pocket and administrative expenses incurred in performing under the 1995
Consulting Agreement. In 1996, pursuant to the 1995 Consulting Agreement, the
Company incurred consultancy fees of $93,472 payable in cash, plus expenses of
$36,735.
On May 9, 1995, a French subsidiary of the Company acquired all of the
outstanding shares of Benefit International S.A. and its subsidiaries in
exchange for approximately $16 million consisting of 565,994 shares of the
Company's Common Stock and approximately $4.3 million in cash. Dr. Souetre
received stock options covering 65,000 shares of the Company's Common Stock and
ACTA, a French company owned by Dr. Souetre, received 450,044 shares of the
Company's Common Stock in the transaction.
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PROPOSAL 2: APPROVAL OF THE COMPANY'S
EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Board of Directors of the Company adopted the Employee Stock
Purchase Plan (the "Plan") effective as of October 1, 1996, subject to the
approval of the shareholders of the Company. The Plan provides eligible
employees of the Company and its subsidiaries with an opportunity to purchase
shares of the Company's Common Stock through regular payroll deductions. The
Company has reserved 100,000 shares of the Company's Common Stock for issuance
under the Plan.
ELIGIBILITY AND PARTICIPATION; ADMINISTRATION
Each current full-time, part-time or temporary employee who has
completed six consecutive months of employment with the Company or any eligible
subsidiary of the Company is eligible to participate in the Plan. However, no
employee shall be granted an option to purchase shares of Common Stock under the
Plan (a) if, immediately after the grant, the employee would own stock and/or
hold outstanding options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company, or (b)
which permits the employee's rights to purchase stock under all stock purchase
plans of the Company to accrue at a rate which exceeds $25,000 of fair market
value of the stock (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time. Initially, only
employees of the Company's United States subsidiaries will be eligible to
participate in the Plan. As of December 31, 1996, there were approximately 3,300
such employees.
An eligible employee may become a participant in the Plan by submitting
an authorization for payroll deductions prior to the commencement of any
quarterly offering under the Plan. Each participant may elect payroll deductions
of 0% or any whole percentage from 1% to 15% of such participant's compensation
(exclusive of bonus payments, expense allowances and compensation paid in a form
other than cash). Payroll deductions elected by a participant will be credited
to an account established for the participant under the Plan. A participant may
not make any separate cash payment to his or her account. All payroll deductions
received or held by the Company under the Plan may be used by the Company for
any corporate purpose and will be subject to the claims of the Company's
creditors. The Plan will be implemented through four quarterly offerings each
calendar year. On the first day of each offering, each participant will be
deemed to have granted an option to purchase a number of shares of Common Stock
equal to the accumulated payroll deductions that will be made during the
offering divided by the applicable option price per share of Common Stock. The
option price will be 85% of the lower of the closing price per share of Common
Stock on the first or last day of the offering. On the last day of the offering,
each participant will be deemed to have exercised his or her option for the
number of full shares of Common Stock which his or her accumulated payroll
deductions will purchase at the applicable option price. Fractional shares will
not be issued under the Plan.
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Any accumulated payroll deductions which would have been used to purchase
fractional shares will be held for the purchase of Common Stock in the next
offering without interest. A participant may change his or her future payroll
deductions or stop participating in the Plan at any time. Purchase rights are
not transferable except by will or by the laws of descent and distribution.
Purchase rights are subject to appropriate and proportionate adjustments in the
event of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split, reverse stock split or similar transaction
affecting the Company's Common Stock. The Plan will be administered by the
Compensation Committee.
AMENDMENT AND TERMINATION
The Plan may be amended or terminated by the Board of Directors of the
Company at any time; provided, however, that the Board of Directors may not
amend the plan to change (i) the aggregate number of shares of Common Stock
which may be issued under the Plan or (ii) the class of employees eligible to
participate in the Plan (other than to designate additional subsidiaries as
eligible to participate) without the approval of the shareholders, and may not
terminate the Plan in a manner that would adversely affect a participant's
rights thereunder without such participant's consent.
CERTAIN FEDERAL TAX CONSEQUENCES
The Plan is intended to comply with the requirements governing employee
stock purchase plans set forth in the Internal Revenue Code of 1986, as amended
(the "Code"). Certain favorable tax consequences are afforded purchasers of
stock pursuant to an employee stock purchase plan meeting those requirements.
If a participant acquires stock under such a plan and holds it for a period of
more than two years from the date the option is granted and more than one year
from the date the option is exercised, the participant will not realize any
ordinary income on exercises but will realize ordinary income upon the
disposition of such stock to the extent of the excess of the fair market value
of such stock at the time the option was granted over its option price (which
in the Plan would be the amount of the 15% reduction in price), and the
participant would report any additional gain as capital gain. If such stock is
disposed of when its fair market value is less than its fair market value at
the time the option was granted, the amount of ordinary income is limited to
the excess of the fair market value at the time of disposition over the option
price. Neither the grant of an option under an employee stock purchase plan
meeting the requirements in the Code nor the exercise of such an option has tax
consequences to the Company. If a participant disposes of stock acquired
pursuant to such an option within two years from the date the option is granted
or one year from the date the option is exercised, the participant must report
as ordinary income the difference between the option price and the fair market
value of the stock at the time the option is exercised, and the Company may
take an income tax deduction in that amount.
Assuming the presence of a quorum, approval of the Plan requires the
affirmative vote, either in person or by proxy, of at least a majority of all
shares of the Company's Common Stock voted at the Annual Meeting. The presence
at the Annual Meeting, either in person or by proxy, of the holders of a
majority of the votes entitled to be cast at such meeting will constitute a
quorum for the transaction of business. Abstentions will be treated as shares
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<PAGE> 30
that are present and entitled to vote for purposes of determining the presence
of a quorum. However, under North Carolina corporate law, abstentions are
treated as non-votes in determining whether shareholders have approved a
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors has appointed Ernst & Young LLP as independent auditors for the fiscal
year 1997. Ernst & Young LLP has served as independent auditors for the Company
since 1990. Although shareholder approval is not required, the Company desires
to obtain from the shareholders an indication of their approval or disapproval
of the Board's action in appointing Ernst & Young LLP as the independent
auditors of the Company and its subsidiaries. If the shareholders do not ratify
this appointment, such appointment will be reconsidered by the Audit Committee
and the Board of Directors. The proxy will be voted as specified, and if no
specification is made, the proxy will be cast "For" this proposal.
A representative of Ernst & Young LLP will be present at the Annual
Meeting and will be afforded an opportunity to make a statement and to respond
to questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP FOR FISCAL YEAR 1997.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based on a review of the report forms that were filed, the Company believes that
during 1996 all filing requirements applicable to its executive officers and
directors were complied with except that Dr. Souetre reported late to the
Securities and Exchange Commission the sale of 20,000 shares of Common Stock in
May 1996. Dr. Souetre reported this transaction in July 1996 on an amendment to
the Form 4 previously filed for May 1996.
MISCELLANEOUS
Shareholders may obtain a copy of the Company's 1996 Annual Report on
Form 10-K without charge upon written request to Greg Connors, Vice President,
Corporate Development, Quintiles Transnational Corp., 4709 Creekstone Drive,
Suite 300, Durham, North Carolina 27703-8411.
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<PAGE> 31
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposals which shareholders intend to present for a vote of
shareholders at the 1998 Annual Meeting of Shareholders and which such
shareholders desire to have included in the Company's Proxy Statement and form
of proxy relating to that meeting must be sent to the Company's principal
executive offices, marked to the attention of the Secretary of the Company, and
received by the Company at such offices on or before November 16, 1997. The
determination by the Company of whether it will oppose inclusion of any proposal
in its Proxy Statement and form of proxy will be made on a case by case basis in
accordance with its judgment and the rules and regulations promulgated by the
Securities and Exchange Commission. Proposals received after November 16, 1997
will not be considered for inclusion in the Company's proxy materials for its
1998 Annual Meeting.
By Order of the Board of Directors
Gregory D. Porter
Executive Vice President, Chief Legal and
Administrative Officer and Secretary
Durham, North Carolina
March 27, 1997
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<PAGE> 32
APPENDIX A
QUINTILES TRANSNATIONAL CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Dennis B. Gillings, Ph.D. and Santo J. Costa
and each of them as attorney and proxy of the undersigned, each with the full
power of substitution, to represent the undersigned and to vote all of the
shares of stock in Quintiles Transnational Corp. which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at the
Sheraton Imperial Hotel and Convention Center, 4700 Emperor Blvd., Durham, North
Carolina 27703 on Wednesday, April 30, 1997 at 5:30 p.m., Eastern Daylight
Savings Time, and any adjournments thereof (1) as hereinafter specified upon the
proposals listed below and as more particularly described in the Company's Proxy
Statement, receipt of which is hereby acknowledged; and (2) in their discretion
upon such other matters as may properly come before the meeting and any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS LISTED BELOW.
1. Election of Class III Directors
[ ] FOR all nominees listed below [ ] WITHHOLD
AUTHORITY to vote
(except as marked to the contrary). for all
nominees listed below.
Dennis B. Gillings, Ph.D., Chester W. Douglass, Ph.D., Richard H. Thompson
and Barrie S. Haigh
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
-----------------------------------------------------------------------------
2. Election of Class II Directors
[ ] FOR all nominees listed below [ ] WITHHOLD
AUTHORITY to vote
(except as marked to the contrary). for all
nominees listed below.
Lawrence S. Lewin and Vaughn D. Bryson
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
-----------------------------------------------------------------------------
3. Election of Class I Director
[ ] FOR the nominee listed below
[ ] WITHHOLD AUTHORITY to vote for
the nominee listed below.
Paul Knott, Ph.D.
(Continued and to be signed on the reverse)
(Continued from other side)
4. Approve the Company's Employee Stock Purchase Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratify appointment of Ernst & Young LLP as independent auditors for the
Company and its subsidiaries for the fiscal year ending December 31, 1997
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN.
Date , 1997
--------------------------
(Be sure to date Proxy)
-------------------------------------
Signature and title, if applicable
-------------------------------------
Signature if held jointly
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN THE
PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
