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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 340-23520
QUINTILES TRANSNATIONAL CORP.
(Exact name of registrant as specified in its charter)
North Carolina 56-1714315
(State of incorporation) (I.R.S. Employer Identification Number)
4709 Creekstone Drive, Suite 200
Durham, North Carolina 27703-8411
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (919) 998-2000
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share (and Rights Attached Thereto)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock at February
29, 2000 held by those persons deemed by the registrant to be non-affiliates was
approximately $3,024,961,411.
As of February 29, 2000 (the latest practicable date), there were
115,308,723 shares of the registrant's Common Stock, $.01 par value per share,
outstanding.
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QUINTILES TRANSNATIONAL CORP.
Form 10-K Annual Report
INDEX
Page
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PART I
Item 1. Business 1
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
Item 6. Selected Consolidated Financial Data 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 36
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 65
PART III
Item 10. Directors and Executive Officers of the Registrant 66
Item 11. Executive Compensation 70
Item 12. Security Ownership of Certain Beneficial Owners and
Management 79
Item 13. Certain Relationships and Related Transactions 81
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 83
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PART I
Information set forth in this Annual Report on Form 10-K contains
various "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward looking statements represent our judgment
concerning the future and are subject to risks and uncertainties that could
cause our actual operating results and financial position to differ materially.
Such forward looking statements can be identified by the use of forward looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"believe," "continue," or "target" or the negative thereof or other variations
thereof or comparable terminology.
We caution you that any such forward looking statements are further
qualified by important factors that could cause our actual operating results to
differ materially from those in the forward looking statements, including
without limitation, our dependence on certain industries and customers, the
risks associated with acquisitions, development and commercialization of
potential new services, competition, the loss or delay of large contracts,
dependence on key personnel, potential effects of government regulation and the
other risk factors described elsewhere in this report.
ITEM 1. BUSINESS
GENERAL
We are a market leader in providing a full range of integrated product
development and commercial development solutions to the pharmaceutical,
biotechnology and medical device industries. We also provide market research
solutions and strategic analyses to support healthcare decisions and healthcare
policy consulting to governments and other organizations worldwide. Supported by
our extensive information technology capabilities, we provide a broad range of
contract services to help our clients reduce the length of time from the
beginning of development to peak sales of a new drug or medical device. Our
product development services include a full range of services focused on helping
our clients through the development and regulatory approval of a new drug or
medical device. Our commercial development services, including sales and
specialized marketing support services, focus on helping our clients achieve
commercial success for a new product or medical device. We also offer healthcare
policy research and management consulting, which emphasize improving the
quality, availability and cost-effectiveness of healthcare, data analysis and
market research services, which form the core of our healthcare informatics
services.
Since our formation in 1982, we have continued to expand the scope of
our services and our geographic presence to support the needs of our customers
on a worldwide basis. We have implemented a number of strategic initiatives to
broaden our array of services and create new opportunities for growth. As part
of this strategy, we have completed approximately 37 acquisitions over the past
five years. Our 1999 acquisitions include:
o KANSAS CITY FACILITY - January 1, 1999. We completed the acquisition of
substantial assets of Hoechst Marion Roussel's Kansas City-based Drug
Innovation and Approval organization and opened a Kansas City contract
research facility.
o OAK GROVE TECHNOLOGIES, INC. - February 17, 1999. We acquired Chicago-based
Oak Grove, a leader in providing current Good Manufacturing Practice, or
cGMP, compliance services to the pharmaceutical, biotechnology and medical
device industries.
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o PHARMACEUTICAL MARKETING SERVICES INC. - March 29, 1999. We acquired PMSI
which, through its Scott-Levin subsidiary in the United States, provides a
range of information and market research services to pharmaceutical and
healthcare companies to enable them to optimize the performance of their
sales and marketing activities.
o ENVOY CORPORATION - March 30, 1999. We acquired ENVOY, a leading provider
of healthcare electronic data interchange, or EDI, and data mining services
based in Nashville, Tennessee.
o MEDLAB PTY LTD AND NEIHAUS AND BOTHA - March 31, 1999. We acquired Medlab
and the assets of the Niehaus and Botha partnership, which together form a
South Africa-based clinical laboratory.
o MINERVA MEDICAL PLC - May 19, 1999. We acquired Minerva Medical, a
Scotland-based clinical research organization.
o SMG MARKETING GROUP INC. - June 3, 1999. We acquired SMG, a Chicago-based
healthcare market information company.
o MEDCOM, INC. - July 2, 1999. We acquired New Jersey-based Medcom, a leading
provider of physician meetings and educational events designed to help
pharmaceutical companies raise awareness of their products among healthcare
professionals.
o MEDITRAIN - July 15, 1999. We acquired the business and assets of
MediTrain, the Netherlands' leading multimedia pharmaceutical sales
representative training company.
o MEDICINES CONTROL CONSULTANTS PTY LTD. - August 27, 1999. We acquired MCC,
a South Africa-based pharmaceutical regulatory consulting group.
On January 24, 2000, we announced a definitive agreement to sell our
EDI unit, ENVOY, to Healtheon/WebMD Corporation. Under the terms of the
agreement with Healtheon/WebMD, we will receive 35 million shares of
Healtheon/WebMD common stock and $400 million in cash from Healtheon/WebMD. We
have agreed to issue Healtheon/WebMD a warrant to purchase up to 10 million
shares of our common stock at $40 per share, exercisable for four years. In
light of the pending sale of ENVOY, we are treating ENVOY's EDI services as a
discontinued operation.
Prior to closing this transaction, ENVOY will transfer its Synergy
Health Care informatics subsidiary to us, so Synergy will not be included in the
sale to Healtheon/WebMD.
In connection with the closing of the acquisition of ENVOY by
Healtheon/WebMD, we plan to enter into an agreement with Healtheon/WebMD to form
a strategic alliance with Healtheon/WebMD to develop and market a Web-based
integrated suite of products and services for the pharmaceutical industry to
improve the speed and efficiency of drug development, physician detailing and
delivery of direct-to-customer healthcare information. Under this agreement,
Healtheon/WebMD will perform development services, and we will provide $100
million in funding for such services.
In addition to these events, we have entered a number of strategic
alliances and made strategic investments that we believe will position us to
explore new opportunities and areas for potential growth.
SERVICES
We provide globally integrated contract research, sales, marketing and
healthcare policy consulting and health information management services to the
global pharmaceutical, biotechnology, medical device and healthcare industries.
We also provide market research and strategic analysis services to support
healthcare decisions. We manage our operations through three reportable
segments, namely the Product Development Group, the Commercial Development
Group, and the QUINTERNET(TM) Informatics Group. Management has distinguished
these segments based ON our normal operations. The Product Development Group is
primarily responsible for all phases of clinical
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research and outcomes research consulting. The Commercial Development Group is
primarily responsible for sales force deployment and strategic marketing
services, as well as healthcare policy research and consulting services. The
QUINTERNET(TM) Informatics Group provides market research and healthcare
information to pharmaceutical and healthcare customers. Note 13 of the notes to
our consolidated financial statements includes financial information regarding
each segment.
We provide our customers with a continuum of services which span across
our three segments. We believe that the broad scope of our services allows us to
help our customers rapidly assess the viability of a growing number of new
drugs, cost-effectively accelerate development of the most promising drugs,
launch new drugs to the market quickly and evaluate their impact on healthcare.
The following discussion describes our service offerings in greater detail.
PRODUCT DEVELOPMENT OFFERINGS
Through our Product Development Group, we provide a full range of drug
development services focused on helping our clients achieve regulatory success,
from strategic planning and preclinical services to regulatory submission and
approval.
EARLY DEVELOPMENT AND LABORATORY SERVICES
PRECLINICAL SERVICES. Our preclinical unit provides customers with a
wide array of preclinical and toxicology services. These services are designed
to produce the data required to identify, quantify and evaluate the risks to
humans resulting from the manufacture or use of pharmaceutical and biotechnology
products, including developmental and reproductive toxicology, genetic
toxicology, neurotoxicology, carcinogenicity testing, pharmacology, analytical
chemistry, pathology, metabolism and pharmacokinetics.
FORMULATION, MANUFACTURING AND PACKAGING SERVICES. We offer services in
the design and development of pharmaceutical dose forms as well as the
manufacture of study drugs and placebos and the appropriate packaging of these
for double blinded studies. These services can expedite the drug development
process because clinical trials are often postponed by delays in the manufacture
of study drug materials.
PHASE I SERVICES. Phase I clinical trials involve testing a new drug on
a limited number of healthy individuals. Our Phase I services include dose
ranging, bioavailability/bioequivalence studies, pharmacokinetic/pharmacodynamic
modeling, first administration to humans, multiple dose tolerance, dose effect
relationship and metabolism studies.
CENTRALIZED CLINICAL TRIAL LABORATORIES. In addition to providing
comprehensive safety and efficacy testing for clinical trials, our centralized
clinical trial laboratories provide site-specific study materials, customized
lab report design and specimen archival and management for study sponsors. Our
centralized laboratories offer a 48-hour turnaround time for laboratory results
and are capable of providing direct electronic integration of laboratory data
into safety and efficacy reports for NDA submissions.
CLINICAL DEVELOPMENT SERVICES
CLINICAL TRIAL SERVICES. We offer comprehensive clinical trial services
which are the basis for obtaining regulatory approval for drugs and medical
devices. We have specialized business units and
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extensive experience in the therapeutic areas of the central nervous system,
cardiovascular, infectious, allergic and respiratory diseases as well as in the
field of oncology. Another business unit specializes in clinical development
services for drugs used in neonatal, pediatric and adolescent care. We also have
significant clinical trials experience in the therapeutic areas of
endocrinological, gastroenterological, genitourinary and musculoskeletal
diseases, as well as in the area of stroke. We are experienced in managing large
trials involving several thousand patients at several hundred sites and in
multinational trials conducted simultaneously in the Americas, Europe, the
Asia-Pacific region and South Africa.
We provide our customers with one or more of the following core
clinical trial services:
Study design. We assist our customers in preparing the study
protocol and designing case report forms, or CRFs. The study protocol
defines the medical issues to be examined, the number of patients
required to produce statistically valid results, the period of time
over which they must be tracked, the frequency and dosage of drug
administration, and the study procedures. A study's success often
depends on the protocol's ability to predict the requirements of the
applicable regulatory authorities.
Investigator recruitment. During clinical trials, the drug is
administered to patients by physicians, referred to as investigators,
at hospitals, clinics or other sites. We have access to several
thousand investigators who have conducted our clinical trials
worldwide.
Patient recruitment. We assist our customers in recruiting
patients to participate in clinical trials through investigator
relationships, media advertising and other methods.
Study monitoring. We provide study monitoring services which
include investigational site initiation, patient enrollment assistance,
and data collection and clarification. Site visits help to assure the
quality of the data, which are gathered according to Good Clinical
Practice, or GCP, and to meet the sponsors' and regulatory agencies'
requirements according to the study protocol.
Clinical data management and biostatistical services. We have
extensive experience in the United States and Europe in the creation of
scientific databases for all phases of the drug development process.
These databases include: (1) customized databases to meet
customer-specific formats, (2) integrated databases to support New Drug
Application, or NDA, submissions and (3) databases in accordance with
the United States Food and Drug Administration, or FDA, and European
specifications.
REGULATORY AFFAIRS SERVICES. We provide comprehensive medical and
regulatory services for our pharmaceutical and biotechnology customers. Our
medical services include medical oversight of studies, review and interpretation
of adverse experiences, medical writing of reports and study protocols and
strategic planning of drug development programs. Regulatory services for product
registration include regulatory strategy design, document preparation,
consultation and liaison with various regulatory agencies. Our regulatory
affairs professionals help to define the steps necessary to obtain registration
as quickly as possible. We are able to provide such services in numerous
countries to meet our clients' needs to launch products in multiple countries
simultaneously.
MEDICAL DEVICE SERVICES. Our service offerings for medical devices
include (1) review of global strategies for device development and introduction,
(2) identification of regulatory requirements in targeted markets, (3) clinical
study design and planning, (4) data management, (5) statistical analysis of
report preparations, (6) global clinical trial management and monitoring
capabilities, (7) consulting on
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quality control and quality assurance issues, (8) regulatory filings, (9)
compliance with United States, European and European Union regulations relating
to medical devices, (10) long-range planning for multinational product launches,
(11) compliance with legislative requirements for market access, (12)
post-marketing requirements, (13) management of relationships with national
governments and regulatory authorities and (14) European pricing strategies.
COMMERCIAL DEVELOPMENT OFFERINGS
Our Commercial Development Group provides sales force deployment and
strategic marketing services, as well as healthcare policy research and
consulting services designed to bring an integrated approach to outsourcing
solutions for our customers.
QUINTILES INTEGRATED STRATEGIC SOLUTIONS
These offerings focus on strategies and services that bridge all three
service groups.
LATE PHASE CLINICAL STUDIES. Our late phase clinical services, designed
primarily for Phase IIIb and Phase IV clinical trials, include post-submission
studies in support of marketing claims, post-marketing surveillance and health
management support programs. In designing and implementing these services, we
use clinical and health management programs to promote a favorable environment
for new product introductions in advance of the product launch and to assist in
sales generation post-launch.
STRATEGIC MARKETING AND COMMUNICATIONS SERVICES. We provide strategic
marketing and communications services to international pharmaceutical companies
beginning in the early stages of product development and continuing through
product launch and peak market penetration. These services include
communications strategy and planning, product positioning and branding, opinion
leader development, symposia organization, patient education and sponsored
publications. As early as Phase II trials, we begin providing marketing
information to help shape data and influence opinion leader support for a new
drug. These services represent the core competencies of Medical Actions
Communications Limited, a leading strategic medical communications consultancy
that we acquired in 1997, and Q.E.D. International Inc., a U.S. provider of
integrated product marketing and communications services that we acquired in
October 1998.
DISEASE MANAGEMENT SERVICES. Our disease management services provide
healthcare policy research and pharmacoeconomics analysis focused on applying
healthcare outcomes analysis to the economic valuation of drugs and the
treatment of diseases. We also have expertise in developing patient registries
and designing disease management programs. Together, these services enable
regulators, healthcare providers, pharmaceutical and biotechnology companies and
others to assess the pricing and cost-effectiveness of new medical therapies.
HEALTHCARE POLICY RESEARCH AND CONSULTING. We provide management
consulting focused on improving the quality, availability and cost-effectiveness
of healthcare. We designed our healthcare policy research and healthcare
consulting services to assist customers in evaluating healthcare programs and
policies and developing strategies for doing business in the highly regulated
and rapidly changing healthcare environment. These services include corporate
strategic planning and management, program and policy development, financial and
cost-effectiveness analysis, evaluation design, microsimulation modeling and
data analysis. We perform these services across five general practice areas:
public health and finance policy, healthcare organizations, economic analysis,
managed care and medical technology. We have access to more than 150
healthcare-related databases and have developed the expertise to
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analyze complex data to respond to our clients' needs. These services represent
the core competencies of the Lewin Group, a nationally recognized healthcare
consulting firm that we acquired in 1996.
COMMERCIALIZATION OFFERINGS
CONTRACT SALES. We provide sales and marketing services focused on
accelerating the commercial success of pharmaceutical, biotechnology, veterinary
and other health related products. We offer a flexible range of contract sales
services, which are delivered through dedicated and syndicated sales teams.
Dedicated sales teams are comprised of sales representatives we recruit in
accordance with customer specifications to specific sales and market share
objectives. We can manage these dedicated sales teams, or they can report
directly to the customer, depending on customer preference. In certain
circumstances, we can transfer an entire dedicated sales team to the customer
for an additional placement fee, which is agreed upon at the beginning of the
contract. Syndicated sales teams can promote a number of non-competing drugs for
different customers, and we generally manage these teams directly. Our contract
sales teams form a highly skilled network of professionals that afford customers
substantial flexibility in selecting the extent of product promotion, as well as
their level of involvement in managing the sales effort. We offer rapid
recruitment utilizing an extensive computerized candidate database, dedicated
internal staff and regionally based recruiting. In the United States, we also
offer our ITMS sales force automation system, a proprietary web-enabled
automated system for call reporting, sample accountability, territory planning
and alignment.
TRAINING AND MARKETING. We also offer a variety of training and
marketing services to support our contract sales offerings. Our recently
acquired MediTrain subsidiary in the Netherlands offers traditional outsourced
pharmaceutical sales representative training services in addition to a number of
innovative Internet-based and multimedia training products. Through our
Innovex-Medcom Marketing Group subsidiary, acquired in July 1999, we provide
peer-to-peer educational programs, including physician meetings and other
events, as well as telemarketing and other marketing services.
CUSTOMIZED MARKETING. We provide customized product marketing services
specifically for pharmaceutical companies aimed at influencing the decisions of
patients and physicians and accelerating the acceptance of drugs into treatment
guidelines and formularies. We can assess markets, conduct research, develop
strategies and tactics, assist in discussions with regulatory bodies, identify
distribution channels and coordinate vendors in every region in the country. The
marketing departments of pharmaceutical companies typically purchase such
services. Our team of industry experts, with experience in virtually every
therapeutic area, provides marketing insight into a wide range of geographic
markets while optimizing commercial success.
HEALTH MANAGEMENT. We also provide teams of health professionals,
including nurses, pharmacists, and physicians, dedicated to assisting customers
with disease-management issues. Our health management services offer customized
solutions to bridge the gap between the clinical and commercial phases of
product development, providing expertise across a broad range of pre-launch,
launch, and post-launch opportunities. We believe that our commercial
orientation, clinical and promotional expertise and international experience
enable us to tailor programs to meet the diverse needs of the global
pharmaceutical industry across a wide range of disciplines and local market
conditions.
QUINTERNET(TM) INFORMATICS OFFERINGS
Our Informatics Group provides market research and healthcare
information to pharmaceutical and healthcare customers worldwide. The group
includes Synergy Health Care, which provides real-time
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medical and pharmaceutical market information to improve the quality and
efficiency of pharmaceutical marketing and healthcare delivery, Scott-Levin,
which provides pharmaceutical and healthcare market research and information,
and SMG, which provides our customers access to and analysis of healthcare
information over the Internet. Our Informatics Group is the foundation of our
QUINTERNET(TM) strategy of providing a comprehensive electronic network to
streamliNE communications and enhance information flow throughout the healthcare
industry.
SYNERGY SERVICE OFFERINGS. Through our healthcare information
subsidiary, Synergy, we provide the healthcare industry a continuous stream of
daily pharmaceutical and medical information to improve management of product
portfolios and healthcare decision-making. We use what we believe is the
healthcare industry's largest database combining medical and pharmaceutical
data, refreshed daily, to provide real time information about pharmaceutical
use, medical interventions and outcomes. The data used are aggregated from
medical and pharmacy transactions and do not identify individual patients. We
also provide strategic marketing information and analytic services to the
pharmaceutical industry. Our Synergy services provide customers with insights
into how their products are utilized by patients, physicians and payors, and how
their products can best be positioned. These products and services quantify the
value of pharmaceuticals in terms of cost effectiveness and outcomes, helping
pharmaceutical manufacturers to differentiate their products beyond the
traditional measures of safety and efficacy.
Custom studies. We use the data in our Synergy database to
provide custom studies and syndicated reports for clients. Leveraging
what we believe are the unique aspects of our data, such as patient
demographics and medical information, Synergy custom studies can help
to answer clients' most critical business questions. Clients often use
Synergy's custom studies to gain a better understanding of how drugs
are utilized by patients and physicians.
e-Health products. We are developing the QUINTERNET_ Series, a
group of 17 internet-based decision support products that allow
customers quick access to information and in-depth analyses on drug use
and disease treatment patterns. Powered by an online analytical
processing engine, the QUINTERNET_ Series helps customers to answer
their most critical business questions in real time by using an
interactive query tool that searches a series of large data sets to
access information and deliver results. The first product, Rx Market
Monitor (TM), was launched in a Beta version February 1, 2000 and is
currently being used by four pharmaceutical clients. Full commercial
launch for this product is scheduled for the second quarter of 2000.
Each QUINTERNET_ Series product is targeted at a specific customer
segment, such as pharmaceutical manufacturers, payors, providers or
patients. Data underlying the QUINTERNET_ Series products are different
from traditional, prescription-only data sets with respect to speed and
level of patient information available
PLANNED COLLABORATION WITH HEALTHEON/WEBMD. After the completion of the
proposed sale of ENVOY, we will retain exclusive rights to de-identified ENVOY
transaction data and certain other de-identified Healtheon/WebMD healthcare
data, subject to limited exceptions. We have agreed to share a royalty derived
from sales of products using the licensed data with Healtheon/WebMD. We intend
to use the data obtained under these arrangements to create and sell to our
healthcare customers analytical informatics products based upon such data. In
connection with our planned strategic alliance with Healtheon/WebMD to develop
and market a web-based integrated suite of products and services for the
pharmaceutical industry, we have agreed to provide Healtheon/WebMD with funding
to develop these products and services. We intend to target three areas of
Internet products: drug development, physician detailing and direct-to-consumer
information delivery. We will share revenues from these jointly
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developed web-based products and services with Healtheon/WebMD, and
Healtheon/WebMD will be the exclusive provider of these services.
SCOTT-LEVIN SERVICES. Through our PMSI/Scott-Levin subsidiary, we
provide a range of pharmaceutical and healthcare information and market research
services. These services are comprised of (1) proprietary databases and
syndicated market research audits, (2) managed health care services, (3) state
government affairs services, (4) issues-oriented strategic studies and surveys
and (5) consulting services and software solutions.
Proprietary healthcare databases and syndicated market
research audits. Through self-administered surveys, we maintain
comprehensive proprietary databases that contain (1) information
collected from physicians on their diagnoses and prescribing
activities, (2) information regarding the incidence of, and response
to, direct selling and other promotion activities, (3) information
regarding healthcare legislation and key influencers in the United
States and (4) managed care information, detailing cost containment
measures imposed by United States managed care organizations, or MCOs,
that influence or restrict physicians' prescribing activities. Our
Scott-Levin databases do not hold any identifiable individual patient
data. Pursuant to a contract with National Data Corporation, or NDC, we
obtain prescription information which NDC collects from approximately
34,000 pharmacies located across the United States. We create projected
state and national data on product level prescription movement from
which we generate the Source Prescription Audit, among other things.
Our syndicated market research audits are generated from
databases containing information collected by questionnaire, diary or
personal interview, dispensed prescriptions and secondary research. The
results of the audits are delivered in hard copy or through PC-based
data delivery systems. These audits include (1) the Source Prescription
Audit, including data supplied by NDC, which analyzes pharmaceutical
prescription activity, (2) the Physician Drug and Diagnosis Audit,
which analyzes the pharmaceuticals prescribed by physicians relative to
associated diagnosis, (3) the Personal Selling Audit or PSA, which
analyzes the effectiveness of the client company's sales activities to
office-based physicians compared with those of its competitors, (4) the
Hospital Personal Selling Audit, which complements the PSA by
monitoring and analyzing sales activity to hospital based physicians,
(5) the Physician Meeting and Event Audit and Rx Link, which assesses
the impact of this promotional activity on subsequent attendee
prescribing, (6) the HIV Therapy Audit, which provides a projectable
database tracking physicians who treat HIV positive patients, (7) the
Direct-to-Consumer Advertising Audit, designed to evaluate and measure
the impact of direct-to-consumer advertising on physicians and
consumers, (8) the Professional Journal Audit, which provides a recap
of advertising in medical and professional publications and (9) the
NP/PA Promotional Audit, which measures personal selling activity to
Nurse Practitioners and Physician Assistants.
Managed health care services. We provide a range of services
designed to enable pharmaceutical companies to assess the impact of
their promotions to the managed care and long-term care markets. These
data also include managed care formulary status as well as prescription
share analysis. Other services include three-tier co-pay analysis and
tracking of pharmaceutical industry managed healthcare sales forces.
State government affairs. We offer a comprehensive state level
healthcare legislation and regulation database, known as StateLine.
This service tracks health care and health care related issues of
interest in all 50 states, the District of Columbia and Puerto Rico. In
addition,
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we supply profiles of the key government officials who are involved in
shaping state healthcare legislation and regulations.
Strategic studies and consulting. Services provided in this
area include Pharmaceutical Sales Force Structures and Strategies and
Pharmaceutical Company Image, two industry-standard reports on sales
force activity and overall pharmaceutical company image. In addition,
this service area offers other research services our clients use (1) to
study specific issues and trends in the marketplace and the broader
health care industry, (2) to evaluate the effectiveness of marketing
programs, (3) to analyze in depth particular components of a product
marketing program at any stage of its implementation and (4) for
guidance on optimizing company strategy, sales and marketing activities
and product commercialization.
SMG SERVICES. Through our SMG Marketing Group subsidiary, acquired in
1999, we maintain proprietary regional databases covering most United States
healthcare facilities. Our SMG databases contain information on more than
200,000 healthcare facilities nationwide, including health management
organizations, preferred provider organizations, pharmacy benefit managers,
integrated health networks, group purchasing organizations, employer coalitions,
mail service pharmacies and HMO-affiliated physicians. We also provide advanced
software applications to help customers access healthcare information over the
Internet to help solve healthcare marketing business problems. For example, in
1999 we launched WebMCOInSite(TM), an Internet-based managed care data and
account management product designed to offer pharmaceutical national account
managers and sales representatives a competitive edge in managing their managed
care accounts. This product integrates data profiles of companies operating in
the managed care environment into analytical reports and interactive
applications to enable pharmaceutical marketers to achieve maximum efficiency
and sales potential in each of their managed accounts.
CUSTOMERS AND MARKETING
We coordinate our business development efforts across our service
offerings through integrated business development functions, which direct the
activities of business development personnel in each of our United States
locations, as well as other key locations throughout Europe, Asia-Pacific,
Canada and Latin America.
We are a market leader in providing full service contract research,
sales, marketing and healthcare policy consulting and health information
management services to the global medical device and healthcare industries. Due
to our agreement to sell ENVOY, ENVOY is being accounted for as a discontinued
operation; therefore, the results of ENVOY are not included in our net revenue
and are reported separately. We also provide insightful market intelligence and
strategic analysis to support healthcare decisions. For the year ended December
31, 1999, approximately 54.2% of our net revenue from external customers was
attributed to operations in the United States and 45.8% to operations outside
the United States. Please refer to the notes to our consolidated financial
statements included in Item 8 of this Form 10-K for further details regarding
our foreign and domestic operations. Approximately 38.83%, 39.12%, and 39.60% of
our net revenue was attributed to our clinical development services in 1999,
1998 and 1997, respectively; approximately 37.53%, 41.20% and 44.88% of our net
revenue was attributed to our commercialization services in 1999, 1998 and 1997,
respectively; and approximately 13.58%, 11.27% and 11.22% of our net revenue was
attributed to our early development and laboratory services in 1999, 1998 and
1997 respectively. Neither our integrated strategic services nor our informatics
services accounted for more than 10% of our net revenue in any of these years.
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In the past, we have derived, and may in the future derive, a
significant portion of our net revenue from a relatively limited number of major
projects or customers. As pharmaceutical companies continue to outsource large
projects and studies to fewer full-service providers, the concentration of
business could increase. We may experience concentration in 2000 and in future
years. Although no customer accounted for more than 10% of our consolidated net
revenue in 1998 or 1997, Hoechst Marion Roussel accounted for approximately 11%
of our consolidated net revenue in 1999.
COMPETITION
The market for our product development services is highly competitive,
and we compete against traditional contract research organizations, or CROs, and
the in-house research and development departments of pharmaceutical companies,
as well as universities and teaching hospitals. Among the traditional CROs,
there are several hundred small, limited-service providers, several medium-sized
firms, and only a few full-service companies with global capabilities.
Consolidation among CROs likely will result in greater competition among the
larger contract research providers for customers and acquisition candidates. Our
primary contract research competitors include Covance Inc., PAREXEL
International Corp. and Pharmaceutical Product Development, Inc. In commercial
development services, we compete against the in-house sales and marketing
departments of pharmaceutical companies and other contract sales organizations
in each country in which we operate. We also compete against national consulting
firms offering healthcare consulting and medical communications services,
including boutique firms specializing in the healthcare industry and the
healthcare departments of large firms. Our commercial development competitors
include Ventiv Health and Professional Detailing, Inc. Competitors for our
informatics services include IMS Health Incorporated and NDC. We believe that we
compete favorably in these areas.
Competitive factors for product development services include (1)
previous experience, (2) medical and scientific experience in specific
therapeutic areas, (3) the quality of contract research, (4) speed to
completion, (5) the ability to organize and manage large-scale trials on a
global basis, (6) the ability to manage large and complex medical databases, (7)
the ability to provide statistical and regulatory services, (8) the ability to
recruit investigators, (9) the ability to integrate information technology with
systems to improve the efficiency of contract research, (10) an international
presence with strategically located facilities and (11) financial viability and
price. The primary competitive factors affecting commercial development services
are the proven ability to quickly assemble, train and manage large qualified
sales forces to handle broad scale launches of new drugs and price. Competitive
factors affecting healthcare consulting and medical communications services
include experience, reputation and price. Although our informatics services have
been systematically established over seventeen years, our market position may be
affected in the future by competitors' efforts to create or acquire enhanced
databases or to develop and market new information products and services. In
addition, our market position could be adversely affected if our competitors
secure exclusive rights to data that we require for our informatics services. In
addition, we believe that the synergies arising from integrating product
development services with commercial development services, supported by global
operations and information technology and supplemented by our informatics
capabilities differentiate us from our competitors.
EMPLOYEES
As of February 29, 2000, we had approximately 20,453 employees,
comprised of approximately 10,601 in the Americas, 8,792 in Europe and Africa
and 1,060 in the Asia-Pacific region. As of February 29, 2000, our Product
Development Group
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had 8,975 employees, our Commercial Development Group had 9,779 employees, and
our QUINTERNET(TM) Informatics Group had 389 employees. In addition, 17
employees worked on our Internet capabilities, 181 were in our centralized
operations/corporate office and 1,112 worked for our ENVOY subsidiary.
BACKLOG
We report backlog based on anticipated net revenue from uncompleted
projects which have been authorized by the customer, through a written contract
or otherwise. Once work begins on a project, net revenue is recognized over the
duration of the project. Using this method of reporting backlog, at December 31,
1999, backlog was approximately $2.2 billion, as compared to approximately $1.9
billion at December 31, 1998.
We believe that backlog may not be a consistent indicator of future
results because it can be affected by a number of factors, including the
variable size and duration of projects, many of which are performed over several
years. Additionally, projects may be terminated by the customer or delayed by
regulatory authorities. Moreover, the scope of work can change during the course
of a project.
POTENTIAL LIABILITY
In conjunction with our product development services, we contract with
physicians to serve as investigators in conducting clinical trials to test new
drugs on human volunteers. Such testing creates risk of liability for personal
injury to or death of volunteers, particularly to volunteers with
life-threatening illnesses, resulting from adverse reactions to the drugs
administered. Although we do not believe we are legally accountable for the
medical care rendered by third party investigators, it is possible that we could
be held liable for the claims and expenses arising from any professional
malpractice of the investigators with whom we contract or in the event of
personal injury to or death of persons participating in clinical trials. In
addition, as a result of our Phase I clinical trial facilities, we could be
liable for the general risks associated with a Phase I facility including, but
not limited to, adverse events resulting from the administration of drugs to
clinical trial participants or the professional malpractice of Phase I medical
care providers. We also could be held liable for errors or omissions in
connection with the services we perform through each of our service groups. For
example, we could be held liable for errors or omissions or breach of contract
if one of our labs inaccurately reports or fails to report lab results or if our
informatics products violate rights of third parties. We believe that some of
our risks are reduced by one or more of the following: (1) contractual
indemnification provisions with customers and investigators, (2) insurance
maintained by customers and investigators and by us and (3) various regulatory
requirements, including the use of institutional review boards and the
procurement of each volunteer's informed consent to participate in the study.
The contractual indemnifications generally do not fully protect us against
certain of our own actions such as negligence. Contractual arrangements are
subject to negotiation with customers and the terms and scope of such
indemnification vary from customer to customer and from trial to trial.
Additionally, financial performance of these indemnities is not secured.
Therefore, we bear the risk that the indemnifying party may not have the
financial ability to fulfill its indemnification obligations. We maintain
professional liability insurance that covers worldwide territories in which we
currently do business and includes drug safety issues as well as data processing
errors and omissions. We could be materially and adversely affected if we were
required to pay damages or bear the costs of defending any claim outside the
scope of or in excess of a contractual indemnification provision or beyond the
level of insurance coverage or in the event that an indemnifying party does not
fulfill its indemnification obligations.
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GOVERNMENT REGULATION
Our periclinical, laboratory and clinical trial supply services are
subject to various regulatory requirements designed to ensure the quality and
integrity of the data or products of these services. The industry standard for
conducting periclinical laboratory testing is embodied in the good laboratory
practice, or GLP, regulations. The requirements for facilities engaging in
clinical trial supplies preparation, labeling and distribution are set forth in
the current good manufacturing practices, or cGMP, regulations. GLP and cGMP
regulations have been mandated by the FDA and the Department of Health in the
U.K., and adopted by similar regulatory authorities in other countries. GLP and
cGMP stipulate requirements for facilities, equipment, supplies and personnel
engaged in the conduct of studies to which these regulations apply. The
regulations require adherence to written, standardized procedures during the
conduct of studies and the recording, reporting and retention of study data and
records. To help assure compliance, we have established Quality Assurance
programs at our periclinical, laboratory and clinical trial supply facilities
which monitor ongoing compliance with GLP and cGMP regulations by auditing study
data and conducting regular inspections of testing procedures. Our clinical
laboratory services are subject to the requirements of the Clinical Laboratory
Improvement Amendments of 1988.
Good clinical practices, or GCP, regulations and guidelines contain the
industry standard for the conduct of clinical research and development studies.
The FDA and many other regulatory authorities require that study results and
data submitted to such authorities be based on studies conducted in accordance
with GCP provisions. These provisions include: (1) complying with specific
regulations governing the selection of qualified investigators, (2) obtaining
specific written commitments from the investigators, (3) ensuring the protection
of human subjects by verifying that Institutional Review Board independent
ethics committee approval and patient informed consent are obtained, (4)
instructing investigators to maintain records and reports, (5) verifying drug or
device accountability, (6) reporting of adverse events, (7) adequate monitoring
of the study for compliance with GCP requirements and (8) permitting appropriate
governmental authorities access to data for their review. Records for clinical
studies must be maintained for specified periods for inspection by the FDA
during audits. Non-compliance with GCP requirements can result in the
disqualification of data collected during the clinical trial.
FDA regulations on electronic records and signatures set forth
requirements for data in electronic format supporting any submissions to the
FDA.
We write our standard operating procedures related to clinical studies
in accordance with regulations and guidelines appropriate to the region where
they will be used, thus helping to ensure compliance with GCP. Within Europe, we
perform our work subject to the European Community Note for Guidance "Good
Clinical Practice for Trials on Medicinal Products in the European Community."
Studies beginning after January 17, 1997 to be submitted to the European
Medicines Evaluation Agency must meet the requirements of the International
Congress of Harmonization - GCP. In addition, FDA regulations and guidelines
serve as a basis for our North American standard operating procedures. Our
offices in the Asia-Pacific region have developed standard operating procedures
in accordance with their local requirements and in harmony with our North
American and European operations.
Our commercial development services are subject to detailed and
comprehensive regulation in each geographic market in which we operate. Such
regulation relates, among other things, to the distribution of drug samples, the
qualifications of sales representatives and the use of healthcare professionals
in sales functions. In the United States our commercial development services are
subject to the Prescription Drug Marketing Act with regard to the distribution
of drug samples. In the U.K., they are subject to the Association of the British
Pharmaceutical Industry Code of Practice for the
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Pharmaceutical Industry, which prescribes, among other things, an examination
that must be passed by sales representatives within two years of their taking up
employment, and which prevents the employment of healthcare professionals as
sales representatives. We follow similar guidelines which are in effect in the
other countries where we offer commercial development services.
Our United States laboratories are subject to licensing and regulation
under federal, state and local laws relating to hazard communication and
employee right-to-know regulations, the handling and disposal of medical
specimens and hazardous waste and radioactive materials, as well as the safety
and health of laboratory employees. All of our laboratories are subject to
applicable federal and state laws and regulations relating to the storage and
disposal of all laboratory specimens including the regulations of the
Environmental Protection Agency, the Nuclear Regulatory Commission, the
Department of Transportation, the National Fire Protection Agency and the
Resource Conservation and Recovery Act. The use of controlled substances in
testing for drugs of abuse is regulated by the United States Drug Enforcement
Administration, or DEA. All of our laboratories using controlled substances for
testing purposes are licensed by the DEA. The regulations of the United States
Department of Transportation, the Public Health Service and the Postal Service
apply to the surface and air transportation of laboratory specimens. Our
laboratories also are subject to International Air Transport Association
regulations, which govern international shipments of laboratory specimens.
Furthermore, when the materials are sent to a foreign country, the
transportation of such materials becomes subject to the laws, rules and
regulations of such foreign country.
In addition to its comprehensive regulation of safety in the workplace,
the United States Occupational Safety and Health Administration has established
extensive requirements relating to workplace safety for healthcare employers
whose workers may be exposed to blood-borne pathogens such as HIV and the
hepatitis B virus. These regulations, among other things, require work practice
controls, protective clothing and equipment, training, medical follow-up,
vaccinations and other measures designed to minimize exposure to chemicals, and
transmission of blood-borne and airborne pathogens. Furthermore, certain
employees receive initial and periodic training to ensure compliance with
applicable hazardous materials regulations and health and safety guidelines.
Although we believe that we are currently in compliance in all material respects
with such federal, state and local laws, failure to comply could subject us to
denial of the right to conduct business, fines, criminal penalties and other
enforcement actions.
Our disease management and healthcare information management services
relate to the diagnosis and treatment of disease and are, therefore, subject to
substantial governmental regulation. In addition, the confidentiality of
patient-specific information and the circumstances under which such
patient-specific records may be released for inclusion in our databases or used
in other aspects of our business are heavily regulated. Legislation has been
proposed at both the state and federal levels that may (1) require us to
implement security measures that may require substantial expenditures or (2)
limit our ability to offer some of our products and services.
Specifically, various initiatives being considered at the federal level
could impact the manner in which we conduct our informatics business. The Health
Insurance Portability and Accountability Act of 1996, or HIPAA, requires the use
of standard transactions, standard identifiers, security and other
administrative simplification provisions and instructs the Secretary of Health
and Human Services, or HHS, to promulgate regulations regarding these standards.
Proposed regulations in each area have been published but final rules have not
been completed because of delays by HHS. Consequently, compliance dates are
unknown. The Act also requires the Secretary of HHS to develop recommendations
regarding the privacy of individually identifiable health information. On
September 11, 1997, the Secretary
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presented her recommendations, which, among other things, advised that patient
information should not be disclosed except when authorized by the patient. This
Act further established an August 1999 deadline for Congress to enact privacy
legislation and directed the Secretary to issue regulations setting privacy
standards to protect health information that is transmitted electronically in
the event that Congress missed its deadline. Congress did not meet the August
1999 deadline.
On November 3, 1999, the Secretary of HHS issued a Notice of Proposed
Rulemaking for "Standards for Privacy of Individually Identifiable Health
Information" to implement the privacy requirements of HIPAA. These proposed
regulations would (1) impose standards for entities transmitting protected data
in electronic form with respect to the rights of individuals who are the subject
of protected health information and (2) establish procedures for (a) the
exercise of those individuals' rights and (b) the uses and disclosure of
protected health information. The comment period for these proposed rules ended
February 17, 2000. We understand generally that final regulations will be issued
no earlier than 60 days after the end of the comment period, however, HHS has
indicated that a significant delay is likely which will add additional months to
the expected date of the final rules.
The impact of such legislation and regulations relating to health
information cannot be predicted. Such legislation or regulations could
materially affect our business. Compliance with the final regulations must be no
later than 24 months after their effective date, and we are preparing to comply
with this timetable.
In addition, broad-based health information privacy legislation
restricting third party processors from using, transmitting or disclosing
certain patient data without specific patient consent has been introduced in the
United States Congress. If such legislation were adopted, it could prevent third
party processors from using, transmitting or disclosing certain treatment and
clinical data. It is difficult to predict the impact of the legislation and
regulations described above, but such legislation and regulations could
materially adversely affect our business.
The Market Research Code of Conduct, a pharmaceutical
industry-promulgated code of conduct to which we adhere to in connection with
our informatics business, provides that the identity of the individual
researched may never be disclosed to the company sponsoring such research
without such individual's consent. We supply only aggregated statistics to the
sponsoring company when information is generated from market research databases.
As recommended by the board of directors of the Pharmaceutical Manufacturer's
Association, our informatics databases do not contain patient names and certain
other personal identifiers, thus preserving confidentiality.
We are directly subject to certain restrictions on the collection and
use of data. In the United States, certain states have enacted legislation
prohibiting the use of personally identifiable prescription drug information
without consent. Because our informatics business generally does not receive
information regarding the identity of patients, we believe that such state
legislation will have no material adverse effect on our business. There can be
no assurance that future legislation or regulations will not directly or
indirectly restrict the dissemination of information regarding physicians or
prescriptions. Such legislation, if enacted, could have a material adverse
effect on our informatics operations.
DISCONTINUED OPERATION -- ENVOY EDI SERVICES
Through our ENVOY subsidiary's EDI operations, which we have agreed to
sell to Healtheon/WebMD, we provide various EDI and transaction processing
services to participants in the healthcare market.
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REAL-TIME TRANSACTION PROCESSING. ENVOY provides real-time transaction
processing for pharmacy claim adjudication and medical transactions for health
care providers and payors.
A standard pharmacy transaction is the inquiry by the pharmacy, through
a point-of-service terminal or personal computer terminal, to determine whether
the patient is covered by a benefit program. After eligibility is confirmed, the
claim is settled, and the payor transmits to the pharmacy the amount and timing
of the pending payment.
ENVOY's real-time managed care transactions between providers and
payors include (1) verification of the patient's enrollment in a program, (2)
verification that the provider is eligible to treat the patient, (3)
verification that the patient is eligible for a particular treatment, (4) filing
of encounter data, (5) referral to a specialist and (6) other ancillary
transactions. These transactions are enabled by ENVOY's network connections to
various databases.
In addition, if the patient wishes to pay the deductible or co-payment
amounts by credit card, ENVOY's services provide the ability to obtain payment
authorization and verification at the provider's offices.
BATCH TRANSACTION PROCESSING. ENVOY is one of the nation's largest
processors of commercial third-party payor claims with electronic connections to
a significant number of health care providers and payors across the United
States. Batch transactions are predominantly used to process reimbursement
claims in traditional fee-for-service commercial or government payor systems and
to process encounter data in capitated environments. These transactions are
neither time-sensitive nor easily processed on a real-time basis and, as a
result are processed on a collective and delayed basis, usually daily. To submit
claims, health care providers collect data throughout the day and then
electronically forward these claims in bulk to a clearinghouse. ENVOY's
clearinghouse electronically collects and verifies receipt of the claims and
performs reformatting required to conform to a particular payor's
specifications, aggregates daily transactions by payor and transmits claims to
payors based upon each payor's chosen communication protocols.
EDI PRODUCTS AND INTERFACES. ENVOY has a range of hardware and software
products and interfaces to facilitate the adoption of EDI by its customers.
ENVOY supports industry standards of the American National Standards Institute,
X12N Subcommittee and Healthcare Financing Administration National Standards.
Enline(R). ENVOY's Enline family of proprietary software
products perform all of the transactionS of a stand alone
point-of-service terminal and have enhanced functionality to facilitate
both batch and real-time processing. The point-of-service terminal
product, called Enline Genesis, is designed to handle real-time
transactions and to rapidly and cost effectively connect a significant
number of providers into the transaction network. The point-of-service
terminals can be accessed remotely to modify application software and
communications parameters, allowing ENVOY the flexibility to implement
changes in services relatively easily. Point-of-service terminals often
are purchased from ENVOY by payors, who are sponsoring a
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managed care network, and offered by the payors to providers free of
charge. In addition, providers may purchase terminals from ENVOY for a
fee.
ENVOY has also developed certain Enline PC-based products with
enhanced functionality features and open Application Program
Interfaces, or APIs. The APIs are established at the operating system
level and are designed to enable ENVOY's software to run on a wide
variety of operating systems including DOS, UNIX and Windows. The
Enline PC-based products can either function as a stand alone data
entry system or work in conjunction with physician practice management
software. The stand alone version, Enline Companion, is offered
directly to providers. ENline Synergy is designed for integration into
a practice management software product. In conjunction with the
practice management vendor, ENVOY integrates Enline Synergy into the
practice management system for distribution by the practice management
vendor to the provider. Enline Synergy also controls the editing and
distribution of the information from the practice management system to
ENVOY's network.
Batch Claims Processing. ENVOY also has a number of
specialized proprietary software products for processing batch health
care transactions. The older versions of these products, POSI-DOS and
ACU-CLAIM, are DOS-based products designed to allow health care
providers to process batch transactions directly with commercial
payers. ENVOY's next generation batch claims product, called
Xpedite(TM), incorporates the features and functionality of POSI-DOS
and ACU-CLAIM into a Windows-based, 32 bit encryption environment which
is designed to simplify and expand the editing and reporting
functionality for providers.
Automatic eligibility verification. The technology interfaces
with hospital and large practice management information systems to
automatically verify patient eligibility at the time of admission or
scheduling. Eligibility requests are obtained from ENVOY's real-time
transaction processing network. In addition to eligibility
verification, ENVOY's eligibility verification system provides
statistical reporting on patient demographics for hospitals and/or
physician practices.
Automatic transaction posting. This technology is used for
automatic posting of transactions into a hospital or practice
management information system. This technology, which has been
integrated to work in tandem with the automatic eligibility
verification technology, uses transactions obtained from ENVOY's
real-time and batch processing centers to perform automated remittance
posting, accelerated secondary billing and member update of eligibility
information.
PATIENT STATEMENTS. Through ENVOY's ExpressBill subsidiary, ENVOY is
able to offer automated patient billing services to the hospital and other
healthcare provider markets. ENVOY's patient statement services include
electronic data transmission and formatting, statement printing and mailing
services for healthcare providers and practice management system vendors.
ENVOY CUSTOMERS AND MARKETING. ENVOY provides EDI services to health
care providers, such as pharmacies, physicians, hospitals, dentists, labs and
billing services, and third-party payors, such as commercial indemnity insurers,
managed care organizations and state and federal government agencies.
ENVOY COMPETITION. Potential competition in the healthcare EDI and
transaction processing market arises not only from companies as specialized as
ENVOY, including former regional partners of
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ENVOY that have direct provider relationships, but also from companies involved
in other, more highly developed sectors of the electronic transaction processing
market. Such companies could enter into, or focus more attention on, the
healthcare transaction processing market as it develops. In addition, ENVOY
faces competition by selected providers bypassing its electronic network and
going directly to the payor. There can be no assurance that ENVOY can continue
to compete successfully with its existing and potential competitors in the
healthcare EDI and transaction processing market. Factors influencing
competition in the healthcare market include (1) compatibility with the
provider's software and inclusion in practice management software products, (2)
in the case of the pharmacy market, relationships with major retail pharmacy
chains and (3) relationships with third-party payors and managed care
organizations. ENVOY believes that the breadth, price and quality of its
services are the most significant factors in developing and maintaining
relationships with pharmaceutical chains, third-party payors and managed care
organizations.
ENVOY GOVERNMENTAL REGULATION. Governmental regulatory policies affect
the charges for and the terms of ENVOY's access to private line and public
communications networks for its EDI business. ENVOY must obtain certification on
the applicable communications network for design innovations for
point-of-service, or POS, devices and proprietary software. Any delays in
obtaining necessary certifications with respect to future products and services
could delay their introduction. In addition, the Federal Communications
Commission requires ENVOY's EDI products and services to comply with certain
rules and regulations governing performance. ENVOY believes that its existing
products and services comply with all current rules and regulations. ENVOY can
give no assurance, however, that such rules and regulations regarding access to
communications networks will not change in the future. Changes in such rules,
regulations or policies or the adoption of legislation that makes it more costly
to communicate on networks could adversely affect the demand or the cost of
supply services in the healthcare EDI transaction processing business. ENVOY is
also subject to regulations governing privacy and the collection and use of
data, as described above.
ITEM 2. PROPERTIES
As of February 29, 2000 we had approximately 135 offices located in 30
countries. Our executive headquarters is located adjacent to Research Triangle
Park, North Carolina. We maintain substantial offices serving our Product
Development Group in Durham, North Carolina; Kansas City, Missouri; Smyrna,
Georgia; Bracknell, England; Irene, South Africa; Tokyo, Japan; and Singapore.
We also maintain substantial offices serving our Commercial Development Group in
Parsippany, New Jersey; Falls Church, Virginia; New York, New York and Marlow,
England. Substantial offices serving our Informatics Group are located in
Newtown, Pennsylvania and Chicago, Illinois. ENVOY's principal office facilities
are in Nashville, Tennessee. We own facilities that serve our Product
Development Group in Ledbury, England; Lenexa, Kansas; Riccarton, Scotland;
Bathgate, Scotland; Glasgow, Scotland; and Freiburg, Germany. Additionally, we
own a corporate office in London, England. All of our other offices are leased.
We believe that our facilities are adequate for our operations and that suitable
additional space will be available when needed.
ITEM 3. LEGAL PROCEEDINGS
On February 12, 1999, Kenneth Hodges filed a civil lawsuit in the State
Court of Fulton County Georgia naming as defendants Richard L. Borison, Bruce I.
Diamond, BASF Corporation, Pfizer, Inc., Merck & Company, Inc., Wyeth-Ayerst
Laboratories Company, Zeneca, Inc., Janssen Pharmaceutica Inc., Smithkline
Beecham Corporation, Hoechst Marion Roussel, Inc., Glaxo Wellcome, Inc., Abbott
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Laboratories, Bristol-Myers Squibb Company, Warner-Lambert Company, Monsanto
Company, Novartis Pharmaceuticals Corporation and Quintiles Laboratories
Limited, one of our subsidiaries. The complaint alleges that certain drug trials
conducted by Drs. Borison and Diamond in which Hodges alleges he participated
between 1988 and 1996 were not properly conducted or supervised, that Hodges had
violent adverse reactions to many of the drugs and that his schizophrenia was
aggravated by the drug trials. Consequently, Hodges alleges that he was subject
to severe mortification, injured feelings, shame, public humiliations,
victimization, emotional turmoil and distress. The complaint alleges claims for
battery, fraudulent inducement to participate in the drug experiments, medical
malpractice, negligence in conducting the experiments, and intentional
infliction of emotional distress. Hodges seeks to recover his actual damages in
unspecified amounts, medical expenses, litigation costs, and punitive damages.
Alleged damages are in excess of $100 million.
The complaint does not contain any specific allegations against
Quintiles Laboratories Limited nor any specific factual connection between us
and Hodges' claims. We have denied the allegations and are vigorously defending
this action. Quintiles Laboratories Limited filed a motion to dismiss for
failure to file an expert affidavit, a motion to strike the expert affidavit
subsequently filed and a motion to dismiss based upon the statute of limitations
and the failure to plead fraud with particularity. Quintiles Laboratories
Limited has also filed a motion for summary judgment based on the contention
that it is not a proper party to the action. None of these motions has been
ruled upon. We believe that the claims alleged against us in this action are
vague and meritless and that the recovery sought is baseless.
On September 30, 1999 a class action lawsuit was filed in the United
States District Court for the Middle District of North Carolina against us and
two of our executive officers and directors on behalf of all persons who
purchased or otherwise acquired shares of our common stock between July 16, 1999
and September 15, 1999. The complaint alleges violations of federal securities
laws, including violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule10b-5 thereunder. In particular, among other claims, the complaint
alleges that the defendants made certain statements about our anticipated growth
that were misleading because they failed to disclose that the pharmaceutical
industry allegedly had reversed its trend of outsourcing clinical trials and
that we had been notified that clinical trials for a class of cardiovascular
drugs would be discontinued. The complaint seeks unspecified damages, plus costs
and expenses, including attorneys' fees and experts' fees. We believe that the
claims are without merit and intend to defend the suit vigorously.
Since September 30, 1999, three additional class action complaints have
been filed against us in the same court. These three new actions assert
essentially the same claims and seek the same relief as the original complaint.
One of the new complaints, filed October 26, 1999, seeks to expand the class to
include a purported sub-class of persons who purchased Quintiles call options,
or sold Quintiles put options, during the class period. A group of investors in
three of the actions against us has filed a motion asking that all of the
actions be consolidated and that they be appointed as lead plaintiffs. The court
has not yet ruled on this motion. We anticipate, however, that all of the
existing lawsuits, and any additional suits that may be filed, ultimately will
be consolidated into a single action. We continue to believe that all of the
claims are without merit and intend to defend the lawsuits vigorously.
Class action complaints were filed on each of August 20, 1998, August
21, 1998 and September 15, 1998, in the United States District Court, Middle
District of Tennessee, Nashville Division, against ENVOY and certain of its
executive officers. On December 28, 1998, the plaintiffs filed, pursuant to the
Court's instructions, a Consolidated Class Action Complaint, consolidating the
three cases into a single action. The complaint alleges, among other things,
that from February 12, 1997 to August 18, 1998, the defendants issued materially
false and misleading statements about ENVOY, its business, operations and
financial position and failed to disclose material facts necessary to make
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defendants' statements not false and misleading in violation of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder, and also asserts additional claims under Tennessee
common law for fraud and negligent misrepresentation. The complaint alleges that
ENVOY failed to disclose that its financial statements were not prepared in
accordance with generally accepted accounting principles due to the improper
write-off of certain acquired in-process technology, resulting in ENVOY's stock
trading at allegedly artificially inflated prices during the relevant period.
The plaintiffs voluntarily dismissed their state law claims. On September 15,
1999, the Federal Court for the Middle District of Tennessee granted ENVOY's
motion to dismiss the Consolidated Complaint. The Court dismissed the
Consolidated Complaint without prejudice. On November 23, 1999 the plaintiffs
filed what they deemed to be an Amended Consolidated Complaint asserting the
same causes of action. Defendants moved to strike the purported Amended
Consolidated Complaint on the ground that the September 1999 dismissal order did
not grant plaintiffs leave to file an amended complaint (but does allow them to
file a new lawsuit). On January 6, 2000 the plaintiffs then moved to
administratively re-open the case, which motion the court granted on January 24,
2000, and then transferred the case to another district judge. Defendants'
motion to strike the purported Amended Consolidated Complaint is still pending
before the new district judge. The plaintiffs in this action seek unspecified
compensatory damages, attorney's fees and other relief. We believe that these
claims are without merit and intend to defend the allegations vigorously.
Neither the likelihood of an unfavorable outcome nor the amount of the ultimate
liability, if any, with respect to these claims can be determined at this time.
We are also a party in certain other pending litigation arising in the
normal course of our business. While the final outcome of such litigation cannot
be predicted with certainty, it is the opinion of management that the outcome of
these matters would not materially affect our consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICES
Our common stock is traded on The Nasdaq Stock Market under the symbol
"QTRN." The following table shows, for the periods indicated, the high and low
sale prices per share on The Nasdaq Stock Market, based on published financial
sources.
CALENDAR PERIOD HIGH LOW
--------------- ---- ---
Quarter ended March 31, 1998.............. $52.428 $34.000
Quarter ended June 30, 1998............... 53.500 42.250
Quarter ended September 30, 1998.......... 52.000 33.375
Quarter ended December 31, 1998........... 56.875 41.000
Quarter ended March 31, 1999.............. $53.375 $34.625
Quarter ended June 30, 1999............... 45.500 34.750
Quarter ended September 30, 1999.......... 41.938 16.875
Quarter ended December 31, 1999........... 25.031 16.000
As of February 29, 2000, there were approximately 35,850 beneficial
owners of our common stock, including 1,204 holders of record.
DIVIDEND POLICIES
We have never declared or paid any cash dividends on our common stock.
We do not anticipate paying any cash dividends in the foreseeable future, and we
intend to retain future earnings for the development and expansion of our
business.
RECENT SALES OF UNREGISTERED SECURITIES
During the three months ended December 31, 1999, options to purchase
7,000 shares of our common stock were exercised at an average exercise price of
$2.3232 per share in reliance on Rule 701 under the Act. We granted these
options before we became subject to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, pursuant to our Nonqualified
Employee Incentive Stock Option Plan.
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<PAGE> 23
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected Consolidated Statement of Operations Data set forth below for each
of the years in the three-year period ended December 31, 1999 and the
Consolidated Balance Sheet Data set forth below as of December 31, 1999 and 1998
are derived from our audited consolidated financial statements and notes thereto
as included elsewhere herein. The selected Consolidated Statement of Operations
Data set forth below for the years ended December 1996 and 1995, and the
Consolidated Balance Sheet Data set forth below as of December 31, 1997, 1996
and 1995 are derived from our consolidated financial statements. The results of
our ENVOY Corporation subsidiary have been reported separately as a discontinued
operation in the consolidated financial statements as we have entered into an
agreement for the proposed sale of this subsidiary. Our consolidated financial
statements have been restated to reflect material acquisitions in transactions
accounted for as poolings of interests. However, the consolidated financial
statements have not been restated to reflect certain other acquisitions
accounted for as pooling of interests where we determined that the consolidated
financial data would not have been materially different if the pooled companies
had been included. For such immaterial pooling of interests transactions, which
include three transactions in 1998, one transaction in 1997 and two transactions
in 1996, our financial statements for the year of each transaction have been
restated to include the pooled companies from January 1 of that year, but the
financial statements for years prior to the year of each transaction have not
been restated because the effect of such restatement would be immaterial. The
selected consolidated financial data presented below should be read in
conjunction with our audited consolidated financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 (1,3) 1995 (1)
---------- ---------- --------- ---------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue $1,607,087 $1,221,776 $ 885,557 $ 627,251 $ 387,787
Income from operations 136,355 129,389 91,814 46,495 25,111
Income from continuing operations before
income taxes 115,910 125,567 89,439 26,864 23,368
Income from continuing operations 73,168 85,643 58,063 11,625 14,088
Income (loss) from discontinued operation,
net of income taxes 36,123 2,926 (9,197) (37,217) (2,122)
Net income (loss) available for
common shareholders $ 109,291 $ 88,569 $ 48,866 $ (27,377) $ 11,247
========== ========== ========= ========== =========
Basic net income (loss) per share:
Income from continuing operations $ 0.64 $ 0.82 $ 0.58 $ 0.13 $ 0.17
Income (loss) from discontinued operation 0.32 0.03 (0.09) (0.41) (0.03)
---------- ---------- --------- ---------- ---------
Basic net income (loss) per share $ 0.96 $ 0.85 $ 0.49 $ (0.30) $ 0.13
========== ========== ========= ========== =========
Diluted net income (loss) per share:
Income from continuing operations $ 0.63 $ 0.77 $ 0.54 $ 0.13 $ 0.16
Income (loss) from discontinued operation 0.31 0.03 (0.09) (0.41) (0.02)
---------- ---------- --------- ---------- ---------
Diluted net income (loss) per share $ 0.94 $ 0.80 $ 0.46 $ (0.30) $ 0.13
========== ========== ========= ========== =========
Weighted average shares outstanding: (2)
Basic 113,525 104,799 99,908 91,693 83,465
Diluted 115,687 110,879 107,141 91,693 85,826
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 (1) 1995 (1)
---------- ---------- --------- ---------- ---------
(In thousands, except employees)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 191,653 $ 128,621 $ 84,597 $ 76,129 $ 85,585
Working capital, excluding discontinued
operation(4) 69,235 197,005 166,866 103,736 73,563
Total assets 1,656,622 1,170,108 958,268 691,035 377,423
Long-term debt including current portion 184,784 191,601 186,972 188,027 56,763
Shareholders' equity $ 991,759 $ 646,132 $ 517,283 $ 278,574 $ 183,132
Employees 20,496 16,732 12,717 8,998 5,553
</TABLE>
1 Prior to our November 29, 1996 share exchange with Innovex Limited,
Innovex had a fiscal year end of March 31 and we had (and continue to
have) a fiscal year end of December 31. As a result, the pooled data
presented above for 1995 include Innovex's March 31 fiscal year data in
combination with our December 31 fiscal year data. In connection with
the share exchange, Innovex changed its fiscal year end to December 31.
Accordingly, the pooled data presented above for 1996 include both
Innovex's and our data on a December 31 year end basis. Because of the
difference between Innovex's fiscal year end in 1995 compared with
1996, Innovex's quarter ended March 31,1996 data are included in our
pooled data for both 1995 and 1996.
2 Restated to reflect the two-for-one stock split of our common stock
effected in the form of a 100% stock dividend in December 1997.
3 Excluding non-recurring costs (net of tax) of $36.5 million and
amortization of certain acquired intangible assets of $16.4 million,
the 1996 basic and diluted net income per share (unaudited) were $0.28
and $0.25, respectively.
4 Working capital of discontinued operation was $36.0 million in 1999,
$42.4 million in 1998, $18.0 million in 1997, $47.5 million in 1996 and
$10.7 million in 1995.
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<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Quintiles Transnational Corp. improves healthcare by bringing new medicines to
patients faster and providing knowledge-rich medical and drug data to advance
the quality and cost effectiveness of healthcare. We are a global market leader
in helping pharmaceutical, biotechnology and medical device companies market and
sell their products. We also provide insightful market research solutions and
strategic analyses to support healthcare decisions. Based on industry analyst
reports, we are the largest company in the pharmaceutical outsourcing services
industry as ranked by 1999 net revenue; the net revenue of the second largest
company was over $775 million less than our 1999 net revenue.
During 1999, we completed the following strategic acquisitions.
On January 1, 1999, we acquired substantial assets of Hoechst Marion Roussel's
Kansas City-based Drug Innovation and Approval facility for approximately $93
million in cash, most of which is expected to be paid in the first half of 2000
when the acquisition of the physical facility is completed. As part of this
transaction, we were awarded a $436 million contract for continued support and
completion of ongoing HMR development projects over a five-year period. In
addition, HMR will offer us the opportunity to provide all United States
clinical research services up to an additional $144 million over the same
period.
On February 17, 1999, we acquired Oak Grove Technologies, Inc., a leader in
providing current Good Manufacturing Practice compliance services to the
pharmaceutical, biotechnology and medical device industries. We acquired Oak
Grove in exchange for 87,948 shares of our common stock. The acquisition of Oak
Grove was accounted for as a purchase.
On March 29, 1999, we acquired Pharmaceutical Marketing Services, Inc. and its
core company, Scott-Levin, a leader in pharmaceutical market information and
research services located in the U.S. We acquired PMSI in exchange for
approximately 4,993,787 shares of our common stock. Outstanding PMSI options
became options to acquire approximately 440,426 shares of our common stock. In
addition, we agreed to pay contingent value payments to former PMSI shareholders
who deferred receipt of one-half of the shares of our common stock they were
entitled to receive in the transaction until June 14, 1999. The right to receive
contingent value payments terminated in accordance with the merger agreement.
Accordingly, no contingent value payments were made or are payable to any former
PMSI shareholder. The acquisition of PMSI was accounted for as a purchase.
On March 31, 1999, we acquired MedLab Pty Ltd. and the assets of the Niehaus &
Botha partnership collectively referred to as "N&B", a South African-based
clinical laboratory. We acquired N&B in exchange for 271,146 shares of our
common stock. The acquisition of N&B was accounted for as a pooling of
interests, and as such, all historical financial data have been restated to
include N&B.
On May 19, 1999, we acquired Minerva Medical plc, a Scotland-based clinical
research organization. We acquired Minerva in exchange for 1,143,625 shares of
our common stock. The acquisition of Minerva was accounted for as a pooling of
interests, and as such, all historical financial data have been restated to
include Minerva.
On June 3, 1999, we acquired SMG Marketing Group Inc., a Chicago-based
healthcare market information company. We acquired SMG in exchange for 1,170,291
shares of our common stock. The acquisition of SMG was accounted for as a
pooling of interests, and as such, all historical financial data have been
restated to include SMG.
On July 2, 1999, we acquired Medcom, Inc., a New Jersey-based provider of
physician meetings and educational events to help pharmaceutical companies raise
awareness of their products among healthcare professionals, for approximately
$2.5 million in cash and additional consideration if Medcom's results of
operations exceeded certain targeted levels during 1999. Based on Medcom's 1999
results of operations, we will pay approximately $9.0 million in additional
consideration to the former Medcom shareholders. This additional consideration
will be paid in cash during the first half of 2000 and has been recorded as an
accrued expense at December 31, 1999. The acquisition of Medcom was accounted
for as a purchase.
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<PAGE> 25
On July 15, 1999, we acquired MediTrain, a Netherlands-based multimedia
pharmaceutical sales representative training company, in exchange for 19,772
shares of our common stock. The acquisition of MediTrain was accounted for as a
purchase.
On August 27, 1999, we acquired Medicines Control Consultants Pty Ltd., a South
African-based pharmaceutical regulatory consulting group, for approximately $1
million in cash. The acquisition of MCC was accounted for as a purchase.
Discontinued Operation - ENVOY
On March 30, 1999, we acquired ENVOY Corporation, a Tennessee-based provider of
healthcare electronic data interchange and data mining services. We acquired
ENVOY in exchange for approximately 28,465,160 shares of our common stock.
Outstanding ENVOY options became options to acquire approximately 3,914,583
shares of our common stock. The acquisition of ENVOY was accounted for as a
pooling of interests, and as such, all historical financial data have been
restated to include ENVOY.
On January 24, 2000, we announced a definitive agreement to sell ENVOY to
Healtheon/WebMD Corp. Prior to the sale, ENVOY will transfer its informatics
subsidiary, Synergy Health Care, Inc., to us. Net revenues of Synergy for 1999
and 1998 were approximately $3.0 million per year. We will receive $400 million
in cash and 35 million shares of Healtheon/WebMD common stock in exchange for
our entire interest in ENVOY and a warrant to acquire 10 million shares of our
common stock at $40 per share, exercisable for four years. Closing is expected
to occur during the second quarter of 2000.
After the proposed sale of ENVOY, we will retain exclusive rights to
de-identified ENVOY transaction data and to certain other de-identified data
available from Healtheon/WebMD, subject to limited exceptions. We have agreed to
share with Healtheon/WebMD a royalty derived from sales of products using the
licensed data. Upon the closing of the sale of ENVOY, we plan to form a
strategic alliance with Healtheon/WebMD to develop a web-based suite of
integrated products and services for the pharmaceutical industry. We will
provide $100 million in funding for development.
ENVOY is being accounted for as a discontinued operation. Accordingly, the
operating results and balance sheet items of ENVOY have been reflected
separately from continuing operations.
Contract Revenue
We consider net revenue, which excludes reimbursed costs, our primary measure of
revenue growth. Substantially all net revenue for the product development and
commercialization service groups is earned by performing services under
contracts with various pharmaceutical, biotechnology, medical device and
healthcare companies. Many of our contracts are fixed price, with some variable
components, and range in duration from a few months to several years. We are
also party to fee-for-service and unit-of-service contracts. We recognize net
revenue based upon (1) labor costs expended as a percentage of total labor costs
expected to be expended (percentage of completion) for fixed price contracts,
(2) contractual per diem or hourly rate basis as work is performed for
fee-for-service contracts or (3) completion of units of service for
unit-of-service contracts.
Our commercialization service group has entered into agreements with certain
customers, whereby we provide a dedicated sales force and fund certain sales and
marketing expenses, and we receive payments based on the achievement of certain
sales levels of the promoted product. During the sales force recruitment and
training phase, we defer certain costs and will amortize those costs over the
lesser of the contractual termination period (generally one year) or the
proportion to revenue recognized.
Our contracts generally provide for price negotiation upon scope of work
changes. We recognize revenue related to these scope changes when the underlying
services are performed and realization of revenue is reasonably assured. Most
contracts are terminable upon 15 - 90 days' notice by the customer. In the event
of termination, contracts typically require payment for services rendered
through the date of termination, as well as subsequent services rendered to
close out the contract. Any anticipated losses resulting from contract
performance are charged to earnings in the period identified.
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<PAGE> 26
Each contract specifies billing and payment procedures. Generally, the
procedures require a portion of the contract fee to be paid at the time the
project is initiated with subsequent contract billings and payments due
periodically over the length of the project's term in accordance with
contractual provisions. Revenue recognized in excess of billings is classified
as unbilled services, while billings in excess of revenue recognized are
classified as unearned income.
We report backlog based on anticipated net revenue from uncompleted projects
which have been authorized by the customer through a written contract or
otherwise. Using this method of reporting backlog, at December 31, 1999, 1998
and 1997, our backlog was approximately $2.2 billion, $1.9 billion and $1.1
billion, respectively. We believe that backlog may not be a consistent indicator
of future results because backlog can be affected by a number of factors,
including the variable size and duration of projects, many of which are
performed over several years, loss or significant delay of contracts or a change
in the scope of a project during the course of a contract.
Results of Continuing Operations
Year Ended December 31, 1999 Compared with
Year Ended December 31, 1998
Net revenue for the year ended December 31, 1999 was $1.6 billion, an increase
of $385.3 million or 31.5% over net revenue for the year ended December 31, 1998
of $1.2 billion. Growth occurred across each of our geographic regions and each
of our major service groups. Factors contributing to the growth included an
increase of contract service offerings, the provision of increased services
rendered under existing contracts, the initiation of services under contracts
awarded subsequent to January 1, 1999 and our 1999 acquisitions accounted for
under purchase accounting which contributed approximately $36.0 million of net
revenue for the year ended December 31, 1999. Net revenue for the product
development group increased 33.9% to $948.9 million for the year ended December
31, 1999 as compared to $708.5 million for the year ended December 31, 1998.
This growth was slower than anticipated as a result of several factors,
including early termination and delays of clinical trials and utilization rates
that were lower than historical levels. Net revenue for the commercialization
group increased 23.9% to $614.7 million for the year ended December 31, 1999 as
compared to $496.2 million for the year ended December 31, 1998. The net revenue
for the year ended December 31, 1999 for the commercialization group included
approximately $6.3 million of net revenue contributed by a 1999 acquisition
accounted for as a purchase. Net revenue for the QUINTERNET(TM) informatics
group increased 154.7% to $43.5 million for the year ended December 31, 1999 as
compared to $17.1 million for the year ended December 31, 1998. The net revenue
for the year ended December 31, 1999 for the QUINTERNET(TM) informatics group
included approximately $24.6 million of net revenue contributed by a 1999
acquisition accounted for as a purchase.
Direct costs, which include compensation and related fringe benefits for
billable employees, and other expenses directly related to contracts, were
$883.3 million or 55.0% of 1999 net revenue versus $640.8 million or 52.4% of
1998 net revenue. The increase in direct costs as a percentage of net revenue
was primarily attributable to a decrease in the utilization rates during the
year ended December 31, 1999, as discussed above.
General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $505.2 million or
31.4% of 1999 net revenue versus $394.4 million or 32.3% of 1998 net revenue.
Also included in general and administrative expenses were incremental costs
related to our Year 2000 Program of $8.8 million for the year ended December 31,
1999 as compared to $2.6 million for the year ended December 31, 1998. The
remaining $104.6 million increase in general and administrative expenses was
primarily due to an increase in personnel, facilities and locations and outside
services resulting from our growth.
Depreciation and amortization expense was $82.3 million or 5.1% of 1999 net
revenue versus $57.2 million or 4.7% of 1998 net revenue. Amortization expense
increased $4.7 million due to the goodwill amortization resulting from our 1999
acquisitions accounted for under purchase accounting. The remaining $20.4
million increase is primarily due to the increase in our capitalized asset base.
24
<PAGE> 27
Income from operations was $136.4 million or 8.5% of 1999 net revenue versus
$129.4 million or 10.6% of 1998 net revenue. Income from operations for the
product development group increased to $83.8 million or 8.8% of 1999 net revenue
from $77.6 million or 11.0% of 1998 net revenue. The decrease as a percentage of
net revenue results from the early termination and delays of clinical programs
and lower utilization rates as discussed above and an increase of approximately
$5.6 million in incremental costs incurred related to our Year 2000 Program.
Income from operations for the commercialization group increased to $57.7
million or 9.4% of 1999 net revenue from $47.3 million or 9.5% of 1998 net
revenue. Income from operations for the QUINTERNET(TM) informatics group
decreased to a loss of $5.2 million or (11.9%) of 1999 net revenue from income
of $4.5 million or 26.2% of 1998 net revenue. This decrease results primarily
from an increase in amortization expense due to a 1999 acquisition accounted for
as a purchase and the allocation of corporate overhead costs attributable to
increased costs incurred to develop the informatics market in 1999.
Other expense, which consists primarily of transaction costs and interest,
increased to $20.4 million in 1999 from $3.8 million in 1998. Transaction costs
included in other expense were $26.3 million in 1999 versus $3.5 million in
1998. Excluding these transaction costs, other income was $5.9 million for the
year ended December 31, 1999 versus other expense of $347,000 for the year ended
December 31, 1998. The $5.5 million fluctuation was due to an increase of $3.3
million of net interest income, an increase of $645,000 of gains on foreign
currency and a $2.1 million realized gain on the sale of an investment in
marketable equity securities.
The effective income tax rate for 1999 was 36.9% versus a 31.8% rate in 1998.
Excluding transaction costs, which are not generally deductible for income tax
purposes, the effective income tax rate for 1999 would have been 30.1% versus a
30.9% rate for 1998. Since we conduct operations on a global basis, our
effective income tax rate may vary. See "--Income Taxes."
Year Ended December 31, 1998 Compared with
Year Ended December 31, 1997
Net revenue for the year ended December 31, 1998 was $1.2 billion, an increase
of $336.2 million or 38.0% over net revenue for the year ended December 31, 1997
of $885.6 million. Growth occurred across each of our geographic regions and
each of our major service groups. Factors contributing to the growth included an
increase of contract service offerings, the provision of increased services
rendered under existing contracts and the initiation of services under contracts
awarded subsequent to January 1, 1998. Net revenue for the product development
group increased 36.8% to $708.5 million for the year ended December 31, 1998 as
compared to $518.0 million for the year ended December 31, 1997. Net revenue for
the commercialization group increased 39.4% to $496.2 million for the year ended
December 31, 1998 as compared to $356.1 million for the year ended December 31,
1997. Net revenue for the QUINTERNET(TM) informatics group increased 48.6% to
$17.1 million for the year ended December 31, 1998 as compared to $11.5 million
for the year ended December 31, 1997.
Direct costs, which include compensation and related fringe benefits for
billable employees, and other expenses directly related to contracts, were
$640.8 million or 52.4% of 1998 net revenue versus $468.3 million or 52.9% of
1997 net revenue.
General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $394.4 million or
32.3% of 1998 net revenue versus $286.8 million or 32.4% of 1997 net revenue.
The $107.7 million increase in general and administrative expenses was primarily
due to an increase in personnel, facilities and locations and outside services
resulting from our growth.
Depreciation and amortization expense was $57.2 million or 4.7% of 1998 net
revenue versus $38.7 million or 4.4% of 1997 net revenue. The $18.5 million
increase is primarily due to the increase in our capitalized asset base. In
1998, we recognized approximately $2.8 million of depreciation expense
associated with the first full year of operation for the facility in Bathgate,
Scotland and related assets.
Income from operations was $129.4 million or 10.6% of 1998 net revenue versus
$91.8 million or 10.4% of 1997 net revenue. Income from operations for the
product development group increased to $77.6 million or 11.0% of 1998 net
revenue from $52.2 million or 10.1% of 1997 net revenue. Income from operations
for the commercialization group increased to $47.3 million or 9.5% of 1998 net
revenue from $37.7 million or 10.6% of 1997 net revenue. Income from operations
for the QUINTERNET(TM) informatics group increased to $4.5 million or 26.2% of
1998 net revenue from $2.0 million or 17.1% of 1997 net revenue.
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<PAGE> 28
Other expense, which consists primarily of transaction costs and interest,
increased to $3.8 million in 1998 from $2.4 million in 1997. Transaction costs
included in other expense were $3.5 million in 1998 versus $2.2 million in 1997.
The effective income tax rate for 1998 was 31.8% versus a 35.1% rate in 1997.
Excluding transaction costs, which are not generally deductible for tax
purposes, the effective income tax rate for 1998 would have been 30.9% versus a
34.2% rate for 1997. The effective income tax rate reduction resulted from the
reversal of prior year valuation allowances relating to certain net operating
loss carryforwards that we now believe are more likely than not to be utilized
and profits generated in countries with favorable income tax rates. Since we
conduct operations on a global basis, our effective income tax rate may vary.
See "--Income Taxes."
Liquidity and Capital Resources
Cash flows generated from operations were $123.8 million in 1999 versus $125.6
million and $84.2 million in 1998 and 1997, respectively. Cash flows used in
investing activities in 1999 were $104.5 million, versus $76.0 million and
$156.4 million in 1998 and 1997, respectively. Of these investing activities,
capital asset purchases required $158.1 million in 1999 versus $97.0 million and
$81.3 million in 1998 and 1997, respectively. Capital asset expenditures in 1999
included approximately $35 million in connection with the acquisition of HMR's
Drug Innovation and Approval Facility. The remainder of the purchase price,
approximately $58 million, is expected to be paid in the first half of 2000 when
the acquisition of the physical facility is completed. Capital asset
expenditures in 1997 included (pound)15.8 million (approximately $26.5 million)
related to our purchase of land and construction of a facility in Bathgate,
Scotland. The remaining capital expenditures were predominantly incurred in
connection with the expansion of existing operations, the enhancement of
information technology capabilities and the opening of new offices.
Total working capital, excluding net assets of discontinued operation, decreased
$127.8 million to $69.2 million at December 31, 1999 from $197.0 million at
December 31, 1998. This decrease resulted from the $143.75 million of 4.25%
Convertible Subordinated Notes due May 31, 2000 being classified as a current
liability as of December 31, 1999 versus a long-term liability as of December
31, 1998. Trade accounts receivable and unbilled services increased 22.4% to
$377.3 million at December 31, 1999 from $308.3 million at December 31, 1998, as
a result of the growth in net revenue. Trade accounts receivable and unbilled
services, net of unearned income, increased 27.8% to $204.7 million at December
31, 1999 from $160.2 million at December 31, 1998. The number of days revenue
outstanding in trade accounts receivable and unbilled services, net of unearned
income, were 38 and 37 days at December 31, 1999 and December 31, 1998,
respectively.
During 1999, the Company invested approximately $6.2 million in Missouri Tax
Incentive Bonds. In connection with this investment, the Company entered into a
loan agreement with the Missouri Development Finance Board for approximately
$5.6 million. The bonds mature as we are required to make loan payments.
In May 1999, we signed a commercialization agreement with CV Therapeutics, a
development stage biopharmaceutical company, to commercialize one of its
products. The agreement calls for us to conduct certain pre-launch activities,
hire and train a dedicated sales force to promote the product and provide
post-launch marketing and sales services for at least three years after launch
and provide services in years four and five, if certain product sales levels are
achieved. As part of this agreement, we acquired approximately $5.0 million of
CVT common stock and will be required to provide a $10.0 million secured credit
facility to CVT if the Federal Drug Administration accepts the CVT's New Drug
Application for the product.
During 1998, we acquired a clinical trial production and warehouse facility in
Livingston, Scotland for a purchase commitment valued at (pound)1.75 million
(approximately $2.8 million), with payment due in May, 2001.
During 1995, we acquired a drug development facility in Edinburgh, Scotland.
Related to this acquisition, we entered into a purchase commitment valued at
(pound)12.5 million (approximately $20.9 million). During 1999 the payment terms
were amended, and we paid approximately (pound)6.2 million (approximately $10.1
million) of this commitment in October 1999. The remaining balance of
approximately (pound)6.3 million (approximately $10.1 million) is due in April
2000.
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<PAGE> 29
We have a $150 million senior unsecured credit facility with a U.S. bank. At
December 31, 1999, we had $150 million available under this facility. Based upon
our current financing plan, we believe the $150 million facility would be
available to retire our credit arrangements and obligations, if necessary.
In May 1999, we entered into a (pound)10.0 million (approximately $16.2 million)
unsecured line of credit with a U.K. bank. We also entered into a (pound)1.5
million (approximately $2.4 million) general bank facility with the same U.K.
bank. At December 31, 1999, we had (pound)11.5 million (approximately $18.6
million) available under these agreements.
All foreign currency denominated amounts due, subsequent to December 31, 1999,
have been translated using the Wednesday, December 29, 1999 foreign exchange
rates as published in the December 30, 1999 edition of the Wall Street Journal.
Based on our current operating plan, we believe that our available cash and cash
equivalents, together with future cash flows from operations and borrowings
under our line of credit agreements will be sufficient to meet our foreseeable
cash needs in connection with our operations. As part of our business strategy,
we review many acquisition candidates in the ordinary course of business, and in
addition to acquisitions already made, we are continually evaluating new
acquisition and expansion possibilities. We may from time to time seek to obtain
debt or equity financing in our ordinary course of business or to facilitate
possible acquisitions or expansion.
Income Taxes
Since we conduct operations on a global basis, our effective income tax rate has
depended and will continue to depend on the amount of profits in locations with
varying income tax rates. Our results of operations will be impacted by changes
in the income tax rates of the various jurisdictions and by changes in any
applicable tax treaties. In particular, as the portion of our non-U.S. business
varies, our effective income tax rate may vary significantly from period to
period. Our effective tax rate may also depend upon the extent to which we are
allowed (and are able to use under applicable limitations) U. S. foreign tax
credits in respect of income taxes paid on its foreign operations.
Inflation
We believe the effects of inflation generally do not have a material adverse
impact on our operations or financial condition.
Impact of Year 2000 Issue
We have not experienced any immediate, adverse impact to our operations
resulting from the millennium date change or leap year change. However, we
cannot provide any assurance that our systems and business relationships have
not been impacted in a manner that is not yet apparent. We will continue to
monitor our systems in order to promptly remediate any adversely impacted
systems. The aggregate cost of our Year 2000 program, including costs stemming
from acquisitions, was approximately $16.6 million, of which approximately $5.1
million were not incremental costs but represented the redeployment of existing
resources.
Conversion to the Euro Currency
On January 1, 1999, a new currency, the euro, became the legal currency for 11
of the 15 member countries of the European Economic Community. Between January
1, 1999 and January 1, 2002, governments, companies and individuals may conduct
business in the member countries in both the euro and existing national
currencies. On January 1, 2002, the euro will become the sole currency in the
member countries. We conduct business in the member countries. We have reviewed
the issues involved with the introduction of the euro including: (1) whether we
may have to change the prices of our services in the different countries and (2)
whether we will have to change the terms of any financial instruments in
connection with our hedging activities.
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The use of the euro has not had a significant impact on our business or
operations. Based on current information, we do not expect the conversion to the
euro to have a material effect on our financial condition or results of
operations.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement No. 133 requires that upon adoption, all
derivative instruments be recognized in the balance sheet at fair value, and
that changes in such fair values be recognized in earnings unless specific
hedging criteria are met. Changes in the values of derivatives that meet these
hedging criteria will ultimately offset related earnings effects of the hedged
items; effects of certain changes in fair value are recorded in other
comprehensive income pending recognition in earnings. We will adopt Statement
No. 133 when required to do so on January 1, 2001. Because of our limited use of
derivatives, we do not expect the application of Statement No. 133 to have a
significant impact on our financial position or results of operations.
Market Risk
Market risk is the potential loss arising from adverse changes in the market
rates and prices, such as foreign currency rates, interest rates, and other
relevant market rate or price changes. In the ordinary course of business, we
are exposed to various market risks, including changes in foreign currency
exchange rates, interest rates and equity price changes, and we regularly
evaluate our exposure to such changes. Our overall risk management strategy
seeks to balance the magnitude of the exposure and the cost and availability of
appropriate financial instruments. From time to time, we have utilized forward
exchange contracts to manage our foreign currency exchange rate risk. We do not
hold or issue derivative instruments for trading purposes. The following
analyses present the sensitivity of our financial instruments to hypothetical
changes in interest and foreign currency exchange rates that are reasonably
possible over a one-year period.
Foreign Currency Exchange Rates
Approximately 45.8%, 50.9% and 51.6% of our net revenue for the years ended
December 31, 1999, 1998, and 1997, respectively, were derived from our
operations outside the United States. We do not have significant operations in
countries in which the economy is considered to be highly-inflationary. Our
financial statements are denominated in U.S. dollars, and accordingly, changes
in the exchange rate between foreign currencies and the U.S. dollar will affect
the translation of our subsidiaries' financial results into U.S. dollars for
purposes of reporting our consolidated financial results. Accumulated currency
translation adjustments recorded as a separate component (reduction) of
shareholders' equity were ($15.5) million at December 31, 1999 as compared to
($4.6) million at December 31, 1998.
We may be subject to foreign currency transaction risk when our service
contracts are denominated in a currency other than the currency in which we earn
fees or incur expenses related to such contracts. At December 31, 1999, our most
significant foreign currency exchange rate exposures were in the British pound,
German mark and French franc. We limit our foreign currency transaction risk
through exchange rate fluctuation provisions stated in our contracts with
customers, or we may hedge our transaction risk with foreign currency exchange
contracts or options. We recognize changes in value in income only when foreign
currency exchange contracts or options are settled or exercised, respectively.
There were no open foreign exchange contracts or options relating to service
contracts at December 31, 1999.
As of December 31, 1999, we had short-term obligations denominated in a foreign
currency (approximately (pound)8.0 million). Assuming a hypothetical change of
10% in year-end exchange rates (a weakening of the U.S. dollar), the fair value
of these instruments would increase by approximately $1.3 million.
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<PAGE> 31
Interest Rates
At December 31, 1999, we had outstanding $143.75 million of 4.25% Convertible
Subordinated Notes due May 31, 2000. The fair value of long-term fixed interest
rate debt is subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. The carrying value of the Notes at December 31, 1999
approximates the fair value. A 10% increase in prevailing interest rates at
December 31, 1999 would not result in a material decrease in the fair value of
the Notes due to the short term remaining until maturity. Currently, we do not
hold any derivative instruments to manage interest rate risk.
At December 31, 1999, our investment in debt securities portfolio consists
primarily of U.S. Government Securities and money funds. The portfolio is
primarily classified as available-for-sale and therefore these investments are
recorded at fair value in the financial statements. These securities are exposed
to market price risk which also takes into account interest rate risk. As of
December 31, 1999, the fair value of the investment portfolio was $109.4
million, based on quoted market prices. The potential loss in fair value
resulting from a hypothetical decrease of 10% in quoted market price is
approximately $10.9 million.
Equity Prices
At December 31, 1999, we had investments in marketable equity securities. These
investments are classified as available-for-sale and are recorded at fair value
in the financial statements. These securities are subject to equity price risk.
As of December 31, 1999, the fair value of these investments was $45.2 million,
based on quoted equity prices. The potential loss in fair value resulting from a
hypothetical decrease of 10% in quoted equity price is approximately $4.5
million.
Subsequent Events
On January 26, 2000, we announced the adoption of a restructuring plan. In
connection with this plan, we anticipate recognizing a restructuring charge of
approximately $55.0 million during the first quarter of 2000. The restructuring
charge will consist primarily of severance costs related to a worldwide
workforce reduction of approximately 800 positions and lease termination costs
related to the consolidation of offices. This restructuring is targeted to
result in annualized cost savings of $40.0 million to $50.0 million, of which
$30.0 million to $35.0 million are targeted to be realized in 2000.
On February 3, 2000, the Board of Directors authorized us to repurchase up to
$200 million of our common stock from time to time over the next 12 months in
open market, block or negotiated transactions.
Risk Factors
In addition to the other information provided in our reports, you should
consider the following factors carefully in evaluating our business and us.
Additional risks and uncertainties not presently known to us, that we currently
deem immaterial or that are similar to those faced by other companies in our
industry or business in general, such as competitive conditions, may also impair
our business operations. If any of the following risks occur, our business,
financial condition, or results of operations could be materially adversely
affected.
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<PAGE> 32
Changes in outsourcing trends in the pharmaceutical and biotechnology industries
could adversely affect our operating results and growth rate.
Economic factors and industry trends that affect our primary customers,
pharmaceutical and biotechnology companies also affect our business. For
example, the practice of many companies in these industries has been to hire
outside organizations like us to conduct large clinical research and sales and
marketing projects. This practice has grown substantially over the past decade,
and we have benefited from this trend. Some industry commentators believe that
the rate of growth of outsourcing has slowed. If these industries reduce their
tendency to outsource those projects, our operations, financial condition and
growth rate could be materially and adversely affected. Recently, we also
believe we have been negatively impacted by pending mergers and other factors in
the pharmaceutical industry, which appear to have slowed decision making by our
customers and delayed certain trials. A continuation of these trends would have
an ongoing adverse effect on our business. In addition, numerous governments
have undertaken efforts to control growing healthcare costs through legislation,
regulation and voluntary agreements with medical care providers and
pharmaceutical companies. If future regulatory cost containment efforts limit
the profits, which can be derived on new drugs, our customers may reduce their
research and development spending which could reduce the business they outsource
to us. We cannot predict the likelihood of any of these events or the effects
they would have on our business, results of operations or financial condition.
If companies we acquire do not perform as expected or if we are unable to make
strategic acquisitions, our business could be adversely affected.
A key element of our growth strategy has depended on our ability to complete
acquisitions that complement or expand our business and successfully integrate
the acquired companies into our operations. In the past, some of our
acquisitions performed below our expectations in the short term, but we
experienced no impact to our expectations for our overall results, due in part
to the size of such acquisitions and the performance of other areas of our
business. In the future, if we are unable to operate the business of an acquired
company so that its results meet our expectations, those results could have a
negative impact on our results as a whole. The risk that our results may be
affected if we are unable to successfully operate the businesses we acquire may
increase in proportion with (1) the size of the businesses we acquire, (2) the
lines of business we acquire and (3) the number of acquisitions we complete in
any given time period. In addition, in recent months our acquisition activity
has slowed, and we have not completed an acquisition since August 1999. As a
result, we currently are not growing from acquisitions. If we do not acquire
other companies, our overall growth, when compared to historical levels, will be
adversely affected.
In 1999, we completed nine acquisitions, including PMSI and ENVOY, the largest
acquisitions we have completed to date. We are continually evaluating and
competing for new acquisition opportunities. Other risk factors we face as a
result of our acquisition strategy include the following:
- our ability to achieve anticipated synergies from combined operations;
- our ability to integrate the operations and personnel of acquired
companies, especially those in lines of business that differ from our
current lines of business;
- the ability of acquired companies to meet anticipated net revenue and
net income targets;
- potential loss of the acquired companies' key employees;
- our ability to efficiently operate and expand the acquired companies'
lines of business that differ from our current lines of business;
- the possibility that we may be adversely affected by risk factors
present at the acquired companies;
- potential losses resulting from undiscovered liabilities of acquired
companies that are not covered by the indemnification we may obtain
from the sellers;
- risks of assimilating differences in foreign business practices and
overcoming language barriers (for acquisitions of foreign companies);
and
- risks experienced by companies in general that are involved in
acquisitions.
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If we are unable to successfully develop and market potential new services, our
growth could be adversely affected.
Another key element of our growth strategy is the successful development and
marketing of new services that complement or expand our existing business. If we
are unable to succeed in (1) developing new services and (2) attracting a
customer base for those newly developed services, we will not be able to
implement this element of our growth strategy, and our future business, results
of operations and financial condition could be adversely affected.
For example, we are expanding our pharmaceutical and healthcare information and
market research services. These services involve analyzing healthcare
information to study aspects of current healthcare products and procedures for
use in developing new products and services or in analyzing sales and marketing
of existing products. In addition to the other difficulties associated with the
development of any new service, our ability to develop these services may be
limited further by contractual provisions limiting our use of the healthcare
information or the legal rights of others that may prevent or impair our use of
the healthcare information. Due to these and other limitations, we cannot assure
you that we will be able to develop this type of service successfully. Our
inability to develop new products or services or any delay in development may
adversely affect our ability to maintain our rate of growth in the future.
The potential loss or delay of our large contracts could adversely affect our
results.
Many of our contract research customers can terminate our contracts upon 15-90
days' notice. In the event of termination, our contracts often provide for fees
for winding down the project, but these fees may not be sufficient for us to
maintain our margins, and termination may result in lower resource utilization
rates. Thus, the loss or delay of a large contract or the loss or delay of
multiple contracts could adversely affect our net revenue and profitability. We
believe that this risk has potentially greater effect as we pursue larger
outsourcing arrangements with global pharmaceutical companies, which may
encompass global clinical trials at a number of sites and cross many service
lines. Also, recently we have observed that customers may be more willing to
delay, cancel or reduce contracts more rapidly than in the past. If this becomes
a trend, it could become more difficult for us to balance our resources with
demands for our services and our financial results could be adversely affected.
The proposed sale of ENVOY may fail to close or be delayed.
The proposed sale of ENVOY to Healtheon/WebMD is important to our strategic plan
and, if the transaction fails to close or the closing is delayed, we may not be
able to execute strategies that are critical to our continued growth as planned,
if at all. For example, we have agreed to form a strategic alliance with
Healtheon/WebMD designed to enable us to develop and market web-based products
and services relating to our informatics strategy, and Healtheon/WebMD has
agreed to give us access to data that is important to our informatics business.
Healtheon/WebMD's obligation to perform under these arrangements is contingent
upon closing of the ENVOY transaction. As a result, if the transaction does not
close, we would not be able to take advantage of the benefits of the proposed
alliance as planned, and we would need to seek other partnerships or develop
such capabilities internally. These consequences may substantially delay our
ability to execute our Internet strategy relating to our product development and
commercialization service groups and increase our costs. The sale of ENVOY is
subject to regulatory approval and other conditions that are beyond our control.
Our backlog may not be indicative of future results.
We report backlog based on anticipated net revenue from uncompleted projects
that a customer has authorized. We cannot assure you that the backlog we have
reported will be indicative of our future results. A number of factors may
affect our backlog, including:
- the variable size and duration of projects (some are performed over
several years);
- the loss or delay of projects; and - a change in the scope of work
during the course of a project.
Also, if customers delay projects, the projects will remain in backlog, but will
not generate revenue at the rate originally expected. Accordingly, historical
indications of the relationship of backlog to revenues are not indicative of the
future relationship.
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If we lose the services of Dennis Gillings or other key personnel, our business
could be adversely affected.
Our success substantially depends on the performance, contributions and
expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our
Chairman of the Board of Directors and Chief Executive Officer. We maintain key
man life insurance on Dr. Gillings in the amount of $3 million. Our performance
also depends on our ability to attract and retain qualified management and
professional, scientific and technical operating staff, as well as our ability
to recruit qualified representatives for our contract sales services. The
departure of Dr. Gillings, or any key executive, or our inability to continue to
attract and retain qualified personnel could have a material adverse effect on
our business, results of operations or financial condition.
Our product development services create a risk of liability from clinical trial
participants and the parties with whom we contract.
We contract with drug companies to perform a wide range of services to assist
them in bringing new drugs to market. Our services include supervising clinical
trials, data and laboratory analysis, patient recruitment and other services.
The process of bringing a new drug to market is time-consuming and expensive. If
we do not perform our services to contractual or regulatory standards, the
clinical trial process could be adversely affected. Additionally, if clinical
trial services such as laboratory analysis do not conform to contractual or
regulatory standards, trial participants could be affected. These events would
create a risk of liability to us from the drug companies with whom we contract
or the study participants.
We also contract with physicians to serve as investigators in conducting
clinical trials. Such testing creates risk of liability for personal injury to
or death of volunteers, particularly to volunteers with life-threatening
illnesses, resulting from adverse reactions to the drugs administered during
testing. It is possible third parties could claim that we should be held liable
for losses arising from any professional malpractice of the investigators with
whom we contract or in the event of personal injury to or death of persons
participating in clinical trials. We do not believe we are legally accountable
for the medical care rendered by third party investigators, and we would
vigorously defend any such claims. Nonetheless, it is possible we could be found
liable for those types of losses.
In addition to supervising tests or performing laboratory analysis, we also own
a number of labs where Phase I clinical trials are conducted. Phase I clinical
trials involve testing a new drug on a limited number of healthy individuals,
typically 20 to 80 persons, to determine the drug's basic safety. We also could
be liable for the general risks associated with ownership of such a facility.
These risks include, but are not limited to, adverse events resulting from the
administration of drugs to clinical trial participants or the professional
malpractice of Phase I medical care providers.
We also could be held liable for errors or omissions in connection with our
services. For example, we could be held liable for errors or omissions or breach
of contract if one of our laboratories inaccurately reports or fails to report
lab results or if our informatics products violate rights of third parties. We
maintain insurance to cover ordinary risks but any insurance might not be
adequate, and it would not cover the risk of a customer deciding not to do
business with us as a result of poor performance.
Relaxation of government regulation could decrease the need for the services we
provide.
Governmental agencies throughout the world, but particularly in the United
States, highly regulate the drug development/approval process. A large part of
our business involves helping pharmaceutical and biotechnology companies through
the regulatory drug approval process. Any relaxation in regulatory approval
standards could eliminate or substantially reduce the need for our services,
and, as a result, our business, results of operations and financial condition
could be materially adversely affected. Potential regulatory changes under
consideration in the United States and elsewhere include mandatory substitution
of generic drugs for patented drugs, relaxation in the scope of regulatory
requirements or the introduction of simplified drug approval procedures. These
and other changes in regulation could have an impact on the business
opportunities available to us.
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Failure to comply with existing regulations could result in a loss of revenue.
Any failure on our part to comply with applicable regulations could result in
the termination of ongoing clinical research or sales and marketing projects or
the disqualification of data for submission to regulatory authorities, either of
which could have a material adverse effect on us. For example, if we were to
fail to verify that informed consent is obtained from patient participants in
connection with a particular clinical trial, the data collected from that trial
could be disqualified, and we could be required to redo the trial under the
terms of our contract at no further cost to our customer, but at substantial
cost to us.
Proposed regulations may increase the cost of our business or limit our service
offerings.
The confidentiality of patient-specific information and the circumstances under
which such patient-specific records may be released for inclusion in our
databases or used in other aspects of our business are subject to substantial
government regulation. Additional legislation governing the possession, use and
dissemination of medical record information and other personal health
information has been proposed at both the state and federal levels. This
legislation may (1) require us to implement security measures that may require
substantial expenditures or (2) limit our ability to offer some of our products
and services. These and other changes in regulation could limit our ability to
offer some of our products or have an impact on the business opportunities
available to us.
Industry regulation may restrict our ability to analyze and disseminate
pharmaceutical and healthcare data.
We are directly subject to certain restrictions on the collection and use of
data. Laws relating to the collection and use of data are evolving, as are
contractual rights. We cannot assure you that contractual restrictions imposed
by our customers, legislation or regulations will not, now or in the future,
directly or indirectly restrict the analysis or dissemination of the type of
information we gather and therefore materially adversely affect our operations.
Our services are subject to evolving industry standards and rapid technological
changes.
The markets for our services, particularly our QUINTERNET(TM) informatics
services, which include our data analysis services, are characterized by rapidly
changing technology, evolving industry standards and frequent introduction of
new and enhanced services.
To succeed, we must continue to:
- enhance our existing services;
- introduce new services on a timely and cost-effective basis to meet
evolving customer requirements;
- achieve market acceptance for new services; and
- respond to emerging industry standards and other technological
changes.
Exchange rate fluctuations may affect our results of operations and financial
condition.
We derive a large portion of our net revenue from international operations; for
example, we derived approximately 45.8% of our 1999 net revenue from outside the
United States. Our financial statements are denominated in U.S. dollars; thus,
factors associated with international operations, including changes in foreign
currency exchange rates and any trends associated with the transition to the
euro, could significantly affect our results of operations and financial
condition. Exchange rate fluctuations between local currencies and the U.S.
dollar create risk in several ways, including:
- Foreign Currency Translation Risk. The revenue and expenses of our
foreign operations are generally denominated in local currencies.
- Foreign Currency Transaction Risk. Our service contracts may be
denominated in a currency other than the currency in which we incur
expenses related to such contracts.
We try to limit these risks through exchange rate fluctuation provisions stated
in our service contracts, or we may hedge our transaction risk with foreign
currency exchange contracts or options. Despite these efforts, we may still
experience fluctuations in financial results from our operations outside the
United States, and we cannot assure you that we will be able to favorably reduce
our currency transaction risk associated with our service contracts.
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We may be adversely affected by customer concentration.
We have one customer that accounted for 11 % of our revenues for the year ended
December 31, 1999. These revenues resulted from services provided by our product
development and commercialization service groups. If this or any future customer
of similar size decreases or terminates its relationship with us, our business,
results of operations or financial condition could be materially adversely
affected.
New healthcare legislation or regulation could restrict our informatics
business.
The Department of Health and Human Services published proposed regulations
setting privacy standards to protect health information that is transmitted
electronically in the Federal Register on November 3, 1999. The comment period
for these proposed rules ended February 17, 2000. We understand generally that
final regulations will be issued no earlier than 60 days after the end of the
comment period, however, HHS has indicated that a significant delay is likely
which will add additional months to the expected date of the final rules. While
the proposed rules, if promulgated without modification, likely would not
restrict us from de-identifying individual health information and providing such
de-identified, aggregated data to our Synergy subsidiary for purposes of
analysis, the proposed rule may be changed in response to comments and further
modification and could be preempted by legislation. Such legislative or
regulatory changes could occur as early as this year and their impact cannot be
predicted. If legislation or a more restrictive regulation is adopted, it could
inhibit third party processors in using, transmitting or disclosing health data
(even if they have been de-identified) for purposes other than facilitating
payment or performing other clearinghouse functions which would restrict our
ability to obtain data for use in our informatics services. In addition, it
could require us to establish uniform specifications for obtaining de-identified
data, so that de-identified data obtained from different sources could be
aggregated. Third party processors, under the proposed rules, or modified rules,
also may require us to provide indemnity from claims against them arising from
our use of data, even in de-identified form. While the impact of developments in
legislation, regulations or the demands of third party processors is difficult
to predict, each could materially adversely affect our informatics business.
Risks associated with discontinued operation--the ENVOY EDI business
Until the proposed sale of our ENVOY subsidiary closes, we will continue to
operate ENVOY's EDI business and will continue to be subject to the following
additional risks associated with ENVOY's EDI business.
EDI Services Are Subject to Evolving Industry Standards and Rapid Technological
Changes
The current industry standard EDI platform for processing transactions could be
replaced or supplemented by an Internet platform to handle these transactions.
Some of ENVOY's competitors in the EDI business are beginning to implement such
a platform. If others succeed in implementing an Internet platform and are able
to gain market acceptance of that platform, whether or not we develop and
execute an Internet platform, ENVOY's EDI business could be materially adversely
affected.
We Rely on Specific Data Centers for ENVOY's EDI Business
ENVOY's EDI business relies on a host computer system to perform real-time EDI
transaction processing. This host computer system is contained in a single data
facility. The host computer system does not have a remote backup data center.
Although the host computer system is insured, if there is a fire or other
disaster at the data facility, ENVOY's EDI business could be materially
adversely affected.
ENVOY's EDI business also relies on a data center operated by a third party to
perform many of ENVOY's other healthcare EDI transaction processing services.
The facility is located in Tampa, Florida and is operated by GTE Data Services
Incorporated, with whom ENVOY has contracted for such processing services.
ENVOY's EDI business relies primarily on this facility to process batch claims
and other medical EDI transaction sets. ENVOY's contract with GTE requires GTE
to maintain continuous processing capability and a "hot site" disaster recovery
system. This contract expires in December 2003. If the GTE facility's services
are disrupted or delayed, ENVOY's EDI business could be materially adversely
affected.
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We Cannot Predict the Need for Independent Healthcare EDI Processing
ENVOY's EDI business strategy anticipates that providers of healthcare services
and payors will increase their use of electronic processing of healthcare
transactions in the future. The development of the business of electronically
transmitting healthcare transactions is affected, and somewhat hindered, by the
complex nature and types of transactions that must be processed. Furthermore,
while the wide variety of processing forms used by different payors has fostered
the need for healthcare EDI and transaction processing clearinghouses such as
ENVOY to date, if such forms become standardized, through consolidation of
payors or otherwise, then the need for independent third party healthcare EDI
processing could become less prevalent. We cannot assure you that the electronic
processing of healthcare transactions will increase or that ENVOY's EDI business
will grow.
Direct Links May Bypass Need for ENVOY's EDI Services
Some third party payors provide electronic data transmission systems to
healthcare providers, thereby directly linking the payor to the provider. These
direct links bypass third party processors like us. An increase in the use of
direct links between payors and providers would materially adversely affect
ENVOY's EDI business.
Increased Competition in the Healthcare EDI Business Could Adversely Impact Our
Results
Increased competition in the healthcare EDI and transaction processing business
could force ENVOY to reduce, or even eliminate, per transaction fees, which
could adversely affect our results of operations. EDI services face different
types of competition, any or all of which could affect ENVOY's EDI business.
Some of ENVOY's competitors are similarly specialized, such as its former
regional partners that have direct provider relationships, and others are
involved in more highly developed areas of the business. In addition, some
vendors of provider information management systems include or may include, in
their offered products, their own electronic transaction processing systems. If
electronic transaction processing becomes the standard method of processing
healthcare claims and information, other companies with significant capital
resources could enter the industry.
Unauthorized Access To Data Centers Could Adversely Affect ENVOY's EDI Business
Unauthorized access to ENVOY's EDI data centers and misappropriation of our
proprietary information could have a material adverse effect on ENVOY's EDI
business and financial results. While we believe our current security measures
and the security measures used by third parties for which we process or transmit
healthcare information are adequate, such unauthorized access or
misappropriation could occur.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is included under Item 7 of this report under the
caption "Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Net revenue $ 1,607,087 $ 1,221,776 $ 885,557
Costs and expenses:
Direct 883,274 640,764 468,292
General and administrative 505,166 394,432 286,760
Depreciation and amortization 82,292 57,191 38,691
----------- ----------- ---------
1,470,732 1,092,387 793,743
----------- ----------- ---------
Income from operations 136,355 129,389 91,814
Other income (expense):
Interest income 14,391 11,646 8,575
Interest expense (11,233) (11,810) (8,865)
Transaction costs (26,322) (3,475) (2,234)
Other 2,719 (183) 149
----------- ----------- ---------
(20,445) (3,822) (2,375)
----------- ----------- ---------
Income from continuing operations before income taxes 115,910 125,567 89,439
Income taxes 42,742 39,924 31,376
----------- ----------- ---------
Income from continuing operations 73,168 85,643 58,063
Income (loss) from discontinued operation, net of
income taxes 36,123 2,926 (9,197)
----------- ----------- ---------
Net income $ 109,291 $ 88,569 $ 48,866
=========== =========== =========
Basic net income per share:
Income from continuing operations $ 0.64 $ 0.82 $ 0.58
Income (loss) from discontinued operation 0.32 0.03 (0.09)
----------- ----------- ---------
Basic net income per share $ 0.96 $ 0.85 $ 0.49
=========== =========== =========
Diluted net income per share:
Income from continuing operations $ 0.63 $ 0.77 $ 0.54
Income (loss) from discontinued operation 0.31 0.03 (0.09)
----------- ----------- ---------
Diluted net income per share $ 0.94 $ 0.80 $ 0.46
=========== =========== =========
Shares used in computing net income per share:
Basic 113,525 104,799 99,908
Diluted 115,687 110,879 107,141
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
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QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 191,653 $ 128,621
Trade accounts receivable and unbilled services, net 377,278 308,267
Investments 32,476 32,241
Prepaid expenses 37,216 26,326
Other receivables 21,571 14,133
Other current assets 21,888 17,747
Net assets of discontinued operation 122,981 130,458
----------- -----------
Total current assets 805,063 657,793
Property and equipment:
Land, buildings and leasehold improvements 182,648 94,284
Equipment and software 296,843 201,458
Furniture and fixtures 47,356 41,116
Motor vehicles 47,243 46,875
----------- -----------
574,090 383,733
Less accumulated depreciation (174,406) (128,402)
----------- -----------
399,684 255,331
Intangibles and other assets:
Goodwill, net 204,307 78,082
Other intangibles, net 4,639 5,074
Investments in debt securities 76,902 64,963
Investments in marketable equity securities 45,237 493
Deferred income taxes 84,356 71,401
Deposits and other assets 36,434 36,971
----------- -----------
451,875 256,984
----------- -----------
Total Assets $ 1,656,622 $ 1,170,108
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
38
<PAGE> 41
QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Lines of credit $ 12 $ 921
Accounts payable 69,349 60,650
Accrued expenses 165,446 80,593
Unearned income 172,557 148,074
Income taxes payable 35,755 5,661
Current portion of obligations held under capital leases 14,727 12,568
Current portion of long-term debt and obligation 154,178 21,126
Other current liabilities 823 737
----------- -----------
Total current liabilities 612,847 330,330
Long-term liabilities:
Obligations held under capital leases, less current portion 8,589 12,447
Long-term debt and obligation, less current portion 7,290 145,460
Deferred income taxes 31,381 30,439
Other liabilities 4,756 5,300
----------- -----------
52,016 193,646
----------- -----------
Total liabilities 664,863 523,976
Commitments and contingencies
Shareholders' Equity:
Preferred stock, 0 and 3,264,800 shares issued and
outstanding at December 31, 1999 and 1998, respectively -- 33
Common Stock and additional paid-in capital, 115,118,347 and
105,775,628 shares issued and outstanding at December 31,
1999 and 1998, respectively 788,247 559,496
Retained earnings 204,062 95,618
Accumulated other comprehensive income (loss) 1,677 (5,198)
Other equity (2,227) (3,817)
----------- -----------
Total shareholders' equity 991,759 646,132
----------- -----------
Total liabilities and shareholders' equity $ 1,656,622 $ 1,170,108
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
39
<PAGE> 42
QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income $ 109,291 $ 88,569 $ 48,866
(Income) loss from discontinued operation, net of
income taxes (36,123) (2,926) 9,197
--------- --------- ---------
Income from continuing operations 73,168 85,643 58,063
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 82,292 57,191 38,691
Non-recurring transaction costs 26,322 -- --
Net loss (gain) on sale of property and equipment (355) 534 670
Gain on sale of marketable equity securities (2,057) -- --
Provision for (benefit from) deferred income taxes (1,448) (1,728) 10,962
Change in operating assets and liabilities:
Accounts receivable and unbilled services (76,156) (85,657) (33,334)
Prepaid expenses and other assets (16,493) (5,291) (16,236)
Accounts payable and accrued expenses 16,320 26,275 14,056
Unearned income 13,960 49,332 3,092
Income taxes payable and other current liabilities 7,659 (780) 8,728
Other 585 81 (519)
--------- --------- ---------
Net cash provided by operating activities 123,797 125,600 84,173
Investing activities:
Proceeds from disposition of property and equipment 6,535 6,297 4,642
Purchase of investments held-to-maturity (6,215) -- --
Maturities of investments held-to-maturity 86,683 10,593 35,579
Purchase of investments available-for-sale (110,310) (125,413) (137,597)
Proceeds from sale of investments available-for-sale 25,296 130,422 51,278
Purchase of marketable equity securities (12,424) -- --
Proceeds from sale of marketable equity securities 5,913 -- --
Purchase of other investments -- -- (12,011)
Acquisition of property and equipment (158,128) (96,954) (81,255)
Acquisition of businesses, net of cash acquired 84,746 2,403 (11,329)
Payment of non-recurring transaction costs (26,322) -- (5,648)
Loan to ESOP, net -- (3,429) --
Other (233) 85 (17)
--------- --------- ---------
Net cash used in investing activities $(104,459) $ (75,996) $(156,358)
</TABLE>
40
<PAGE> 43
QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Financing activities:
Increase (decrease) in lines of credit, net $ (909) $ (8,597) $ 660
Proceeds from issuance of debt -- -- 566
Repayment of debt (4,341) (677) (7,302)
Principal payments on capital lease obligations (13,865) (18,656) (16,778)
Issuance of common stock 19,724 24,280 110,758
Dividend from discontinued operation 47,070 150 --
Dividends paid by pooled entity (1,089) (3,499) (5,397)
Other (28) 827 2
--------- --------- ---------
Net cash provided by (used in) financing activities 46,562 (6,172) 82,509
Effect of foreign currency exchange rate changes on cash (2,868) 592 (1,856)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 63,032 44,024 8,468
Cash and cash equivalents at beginning of year 128,621 84,597 76,129
--------- --------- ---------
Cash and cash equivalents at end of year $ 191,653 $ 128,621 $ 84,597
========= ========= =========
Supplemental Cash Flow Information:
Interest paid $ 12,550 $ 11,617 $ 8,946
Income taxes paid 32,961 22,286 16,848
Non-cash Investing and Financing Activities:
Capitalized leases 12,871 19,531 23,027
Equity impact of mergers and acquisitions 206,275 5,046 1,134
Equity impact from exercise of non-qualified stock
options 3,711 5,498 24,049
Unrealized gain (loss) on marketable securities, net
of tax 17,781 (572) (104)
Tax effect of pooled transactions -- -- 62,700
Conversion of debt to equity $ -- $ -- $ 8,214
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
41
<PAGE> 44
QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Employee
Stock
Accumulated Ownership
Other Additional Plan Loan
Comprehensive Retained Comprehensive Preferred Common Paid-In Guarantee
Income Earnings Income (Loss) Stock Stock Capital & Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $(26,830) $ 541 $ 43 $ 613 $305,344 $(1,137) $278,574
Issuance of common stock -- -- -- -- 27 114,657 -- 114,684
Principal payments on ESOP loan -- -- -- -- -- -- 536 536
Stock issued for acquisitions -- (445) -- -- -- 244 -- (201)
Issuance of common stock for other
than cash -- -- -- -- 1 19 -- 20
Conversion of debt by pooled entity -- -- -- -- 9 8,205 -- 8,214
Effect due to change in fiscal year
of pooled entity -- (3,775) 117 -- -- -- -- (3,658)
Tax effect of pooling of interests -- -- -- -- -- 62,700 -- 62,700
Tax benefit from the exercise of
non-qualified stock options -- -- -- -- -- 21,367 -- 21,367
Dividends paid by pooled entity -- (5,814) -- -- -- (72) -- (5,886)
Two-for-one stock split -- -- -- -- 369 (369) -- --
Other equity transactions -- -- -- -- -- 28 (1) 27
Comprehensive income:
Net income 48,866 48,866 -- -- -- -- -- 48,866
Unrealized loss on marketable
securities, net of tax (104) -- (104) -- -- -- -- (104)
Foreign currency adjustments (7,856) -- (7,856) -- -- -- -- (7,856)
-------- -------- ------- ---- ------ -------- ------- ---------
Comprehensive income for year ended
December 31, 1997 40,906
========
Balance, December 31, 1997 12,002 (7,302) 43 1,019 512,123 (602) 517,283
Issuance of common stock -- -- -- -- 17 24,263 -- 24,280
Principal payments on ESOP loan -- -- -- -- -- -- 215 215
Loan to ESOP -- -- -- -- -- -- (3,429) (3,429)
Stock issued for acquisitions -- (272) -- -- 11 4,474 -- 4,213
Tax benefit from the exercise of
non-qualified stock options -- -- -- -- -- 15,603 -- 15,603
Conversion of preferred stock by
pooled entity -- -- -- (10) 10 -- -- --
Dividends paid by pooled entity -- (3,181) -- -- -- -- -- (3,181)
Other equity transactions -- (1,500) -- -- -- 1,976 (1) 475
Comprehensive income:
Net income 88,569 88,569 -- -- -- -- -- 88,569
Unrealized loss on marketable
securities, net of tax (572) -- (572) -- -- -- -- (572)
Foreign currency adjustments 2,676 -- 2,676 -- -- -- -- 2,676
-------- -------- ------- ---- ------ -------- ------- ---------
Comprehensive income for year ended
December 31, 1998 90,673
========
Balance, December 31, 1998 95,618 (5,198) 33 1,057 558,439 (3,817) 646,132
Issuance of common stock -- -- -- -- 8 19,716 -- 19,724
Principal payments on ESOP loan -- -- -- -- -- -- 756 756
Stock issued for acquisitions -- -- -- -- 51 206,224 -- 206,275
Tax benefit from the exercise of
non-qualified stock options -- -- -- -- -- 3,711 -- 3,711
Conversion of preferred stock by
pooled entity -- -- -- (33) 33 -- -- --
Dividends paid by pooled entity -- (1,089) -- -- -- -- -- (1,089)
Effect due to change in fiscal year
of pooled entity -- 200 -- -- -- -- -- 200
Other equity transactions -- 42 (128) -- -- (992) 834 (244)
Comprehensive income:
Net income 109,291 109,291 -- -- -- -- -- 109,291
Unrealized gain on marketable
securities, net of tax 17,781 -- 17,781 -- -- -- -- 17,781
Foreign currency adjustments (10,778) -- (10,778) -- -- -- -- (10,778)
-------- -------- -------- ---- ------ -------- ------- ---------
Comprehensive income for year ended
December 31, 1999 $116,294
========
Balance, December 31, 1999 $204,062 $ 1,677 $ -- $1,149 $787,098 $(2,227) $ 991,759
======== ======= ==== ====== ======== ======= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
42
<PAGE> 45
QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Quintiles Transnational Corp. (the "Company") improves healthcare by
bringing new medicines to patients faster and providing knowledge-rich medical
and drug data to advance the quality and cost effectiveness of healthcare. The
Company is a global market leader in helping pharmaceutical, biotechnology and
medical device companies market and sell their products. The Company also
provides insightful market research solutions and strategic analyses to support
healthcare decisions.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
operations of the Company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FOREIGN CURRENCIES
Assets and liabilities recorded in foreign currencies on the books of
foreign subsidiaries are translated at the exchange rate on the balance sheet
date. Revenues, costs and expenses are recorded at average rates of exchange
during the year. Translation adjustments resulting from this process are charged
or credited to equity. Gains and losses on foreign currency transactions are
included in other income (expense).
REVENUE RECOGNITION
Many of the Company's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. The
Company is also party to fee-for-service and unit-of-service contracts. The
Company recognizes net revenue based upon (1) labor costs expended as a
percentage of total labor costs expected to be expended (percentage of
completion) for fixed price contracts, (2) contractual per diem or hourly rate
basis as work is performed under fee-for-service contracts or (3) completion of
units of service for unit-of-service contracts.
The Company's commercialization service group has entered into agreements
with certain customers, whereby the Company will provide a dedicated sales force
and fund certain sales and marketing expenses and receive payments based on the
achievement of certain sales levels of the promoted product. During the sales
force recruitment and training phase, the Company defers certain costs and will
amortize those costs over the lesser of the contractual termination period
(generally one year) or the proportion to revenue recognized.
The Company's contracts provide for price renegotiation upon scope of work
changes. The Company recognizes revenue related to these scope changes when the
underlying services are performed and realization is reasonably assured. Most
contracts are terminable upon 15 - 90 days' notice by the customer. In the event
of termination, contracts typically require payment for services rendered
through the date of termination, as well as for subsequent services rendered to
close out the contract. Any anticipated losses resulting from contract
performance are charged to earnings in the period identified.
43
<PAGE> 46
CONCENTRATION OF CREDIT RISK
Substantially all net revenue is earned by performing services under
contracts with various pharmaceutical, biotechnology, medical device and
healthcare companies. The concentration of credit risk is equal to the
outstanding accounts receivable and unbilled services balances, less the
unearned income related thereto, and such risk is subject to the financial and
industry conditions of the Company's customers. The Company does not require
collateral or other securities to support customer receivables. Credit losses
have been immaterial and consistently within management's expectations. One
customer accounted for greater than 11% of consolidated net revenue in 1999.
These revenues were derived from both the Company's product development and
commercialization segments.
UNBILLED SERVICES AND UNEARNED INCOME
In general, prerequisites for billings and payments are established by
contractual provisions including predetermined payment schedules, submission of
appropriate billing detail or the achievement of contract milestones, depending
on the type of contract. Unbilled services arise when services have been
rendered but customers have not been billed. Similarly, unearned income
represents prebillings for services that have not yet been rendered.
CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company does not
report in the accompanying balance sheets cash held for customers for
investigator payments in the amount of $7.5 million and $7.3 million at December
31, 1999 and 1998, respectively, that pursuant to agreements with these
customers, remains the property of the customers.
The Company's investments in debt and marketable equity securities are
classified as either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are recorded at amortized cost. Investments
classified as available-for-sale are measured at market value and net unrealized
gains and losses are recorded as a component of shareholders' equity until
realized. In addition, the Company has recorded $10.2 million and $19.2 million
in deposits and other assets at December 31, 1999 and 1998, respectively, that
represents investments in equity securities of and advances to companies for
which there are not readily available market values and for which the Company
does not exercise significant influence or control; such investments are
accounted for using the cost method. Any gains or losses on sales of investments
are computed by specific identification.
PROPERTY AND EQUIPMENT
Property and equipment are carried at historical cost and are depreciated
using the straight-line method over the shorter of the asset's estimated useful
life or the lease term as follows:
Buildings and leasehold improvements 3 - 50 years
Equipment and software 3 - 10 years
Furniture and fixtures 5 - 10 years
Motor vehicles 3 - 5 years
INTANGIBLE ASSETS
Intangibles consist principally of the excess cost over the fair value of
net assets acquired ("goodwill"). Goodwill and other intangible assets are being
amortized on a straight-line basis over periods from two to 40 years.
Accumulated amortization totaled $22.3 million and $11.4 million at December 31,
1999 and 1998, respectively.
The carrying values of intangible assets are reviewed if the facts and
circumstances suggest that a potential impairment may have occurred. If this
review indicates that carrying values will not be recoverable, as determined
based on undiscounted cash flows over the remaining amortization period, the
Company will reduce carrying values to estimated fair value.
44
<PAGE> 47
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" which established new standards for
computing and presenting net income per share information. As required, the
Company adopted the provisions of Statement No. 128 in its 1997 financial
statements. Basic net income per share was determined by dividing net income by
the weighted average number of common shares outstanding during each year.
Diluted net income per share reflects the potential dilution that could occur
assuming conversion or exercise of all convertible securities and issued and
unexercised stock options. A reconciliation of the net income and number of
shares used in computing basic and diluted net income per share is in Note 5.
INCOME TAXES
Income tax expense includes U.S. and international income taxes. Certain
items of income and expense are not reported in income tax returns and financial
statements in the same year. The income tax effects of these differences are
reported as deferred income taxes. Income tax credits are accounted for as a
reduction of income tax expense in the year in which the credits reduce income
taxes payable. Valuation allowances are provided against deferred income tax
assets which are not likely to be realized.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs relating principally to new software
applications and computer technology are charged to expense as incurred. These
expenses totaled $3.0 million, $3.5 million and $2.9 million in 1999, 1998 and
1997, respectively.
EMPLOYEE STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
FOREIGN CURRENCY HEDGING
The Company may use foreign exchange contracts and options to hedge the
risk of changes in foreign currency exchange rates associated with contracts in
which the expenses for providing services are incurred in one currency and paid
for by the customer in another currency. The Company recognizes changes in value
in income only when contracts are settled or options are exercised. There were
no open foreign exchange contracts or options relating to service contracts open
at December 31, 1999.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which requires presentation of comprehensive income, defined as net
income plus all other changes in net assets from non-owner sources. Statement
No. 130 requires foreign currency translation adjustments and unrealized gains
and losses on the Company's available-for sale securities to be included in
other comprehensive income. Accumulated other comprehensive income at December
31, 1999 was $1.7 million, consisting of ($15.5) million in foreign currency
translation adjustments and $17.2 million in unrealized gains on
available-for-sale securities.
45
<PAGE> 48
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 requires that upon
adoption, all derivative instruments be recognized in the balance sheet at fair
value, and that changes in such fair values be recognized in earnings unless
specific hedging criteria are met. Changes in the values of derivatives that
meet these hedging criteria will ultimately offset related earnings effects of
the hedged items; effects of certain changes in fair value are recorded in other
comprehensive income pending recognition in earnings. The Company will adopt
Statement No. 133 when required to do so on January 1, 2001. Because of its
limited use of derivatives, the Company does not expect the application of
Statement No. 133 to have a significant impact on its financial position or
results of operations.
2. SHAREHOLDERS' EQUITY
The Company is authorized to issue 25 million shares of preferred stock,
$.01 per share par value. At December 31, 1999, 200 million common shares of
$.01 par value were authorized.
In November 1999, the Board of Directors declared a dividend distribution
of one preferred stock purchase right (a "Right") for each outstanding share of
the Company's Common Stock. Each Right, if activated, entitles the holder to
purchase one one-thousandth of a share of the Company's Series A Preferred Stock
at a purchase price of $150, subject to adjustment in certain circumstances.
Each one one-thousandth of a preferred share will have the same voting and
dividend rights as a share of Common Stock. The Rights become exercisable if any
person or group announces it has acquired or obtained the right to acquire 15%
or more of the outstanding shares of Common Stock or commences a tender offer or
exchange offer for more than 15% of the Common Stock, subject to limited
exceptions. In the event that any party should acquire more than 15% of the
Common Stock without the Board's approval, the rights entitle all other
shareholders to purchase shares of Common Stock at a substantial discount. In
addition, if any person holding 15% of the Common Stock acquires the Company or
substantially all of its assets, the Rights entitle all other shareholders to
purchase common stock of the acquirer at a substantial discount. The Rights
expire on November 15, 2009, unless redeemed earlier by the Company.
3. OPERATIONS OF ENVOY
On March 30, 1999, the Company acquired ENVOY Corporation ("ENVOY") in
exchange for 28,465,160 shares of the Company's Common Stock. Outstanding ENVOY
options became options to acquire 3,914,583 shares of the Company's Common
Stock. The acquisition of ENVOY was accounted for by the pooling of interests
method of accounting and all prior period financial information has been
restated to include ENVOY.
On January 24, 2000, the Company announced a definitive agreement to sell
ENVOY to Healtheon/WebMD Corp. ("Healtheon/WebMD"). Following the sale, the
Company will no longer be in the electronic data interchange business. However,
prior to the sale, ENVOY will transfer its informatics subsidiary, Synergy
Health Care, Inc. ("Synergy") to the Company. Net revenues of Synergy for 1999
and 1998 were approximately $3.0 million per year. The Company will receive $400
million in cash and 35 million shares of Healtheon/WebMD common stock in
exchange for its entire interest in ENVOY and a warrant to acquire 10 million
shares of the Company's Common Stock at $40 per share, exercisable for four
years. Closing is expected to occur during the second quarter of 2000.
After the proposed sale of ENVOY, the Company will retain exclusive rights
to de-identified ENVOY transaction data and certain other de-identified data
available from Healtheon/WebMD, subject to limited exceptions. The Company
agreed to share with Healtheon/WebMD a royalty derived from sales of products
using the licensed data. Upon the closing of the sale of ENVOY, the Company
plans to form a strategic alliance with Healtheon/WebMD to develop a web-based
suite of integrated products and services for the pharmaceutical industry. The
Company will provide $100 million in funding for development.
ENVOY is being accounted for as a discontinued operation. The accompanying
consolidated financial statements reflect the operating results and balance
sheet items of ENVOY separately.
46
<PAGE> 49
The results of ENVOY have been reported separately as a discontinued
operation in the Consolidated Statement of Operations. The results of the
discontinued operation do not reflect any interest expense, management fee or
transaction costs allocated by the Company. Prior year consolidated financial
statements have been restated to present ENVOY as a discontinued operation.
The following is a summary of income (loss) from operations of ENVOY (in
thousands):
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
-------- -------- ---------
Net revenue $219,908 $181,943 $ 137,605
======== ======== =========
Income (loss) before income taxes $ 61,438 $ 21,407 $ (2,864)
Income taxes 25,315 18,481 6,333
-------- -------- ---------
Net income (loss) $ 36,123 $ 2,926 $ (9,197)
======== ======== =========
The assets and liabilities of ENVOY have been reclassified in the
accompanying consolidated balance sheets as net assets of discontinued
operation. The following is a summary of these net assets of discontinued
operation (in thousands):
DECEMBER 31,
-------------------------
1999 1998
--------- ---------
Current assets $ 70,006 $ 75,484
Other assets 88,794 95,789
Current liabilities (33,977) (33,050)
Long-term liabilities (1,842) (7,765)
--------- ---------
Net assets of discontinued operation $ 122,981 $ 130,458
========= =========
On February 27, 1998, ENVOY acquired the Express Bill Companies pursuant to
separate agreements and plans of merger for an aggregate of 3.5 million shares
of ENVOY common stock (approximately 4.1 million shares of the Company's Common
Stock). These transactions were accounted for as poolings of interests and as
such, the historical financial data for ENVOY has been restated to include the
results of the Express Bill Companies.
On May 6, 1998, ENVOY acquired all of the issued and outstanding capital
stock of Synergy for approximately $10.2 million in cash. ENVOY recorded
approximately $6.9 million related to the excess cost over the fair value of net
assets acquired. This acquisition was accounted for as a purchase and
accordingly, the results of Synergy have been included from the date of
acquisition.
On October 1, 1998, ENVOY acquired substantially all of the assets of
Control-O-Fax Corporation and its wholly-owned subsidiary Control-O-Fax Systems,
Inc. (collectively, "Control-O-Fax"), for approximately $8.3 million in cash.
ENVOY recorded approximately $3.1 million related to the excess cost over the
fair value of the net assets acquired. This acquisition was accounted for as a
purchase and accordingly, the results of Control-O-Fax have been included from
the date of acquisition.
On August 7, 1997, ENVOY acquired all of the issued and outstanding capital
stock of Healthcare Data Interchange Corporation ("HDIC"), the electronic data
interchange subsidiary of Aetna U.S. Healthcare Inc., for approximately $36.4
million in cash. ENVOY recorded approximately $38.9 million related to the
excess cost over the fair value of net assets acquired. As part of the HDIC
acquisition, ENVOY also recorded a one-time write-off of acquired in-process
technology of approximately $6.0 million. The acquisition was accounted for as a
purchase and accordingly, the results of HDIC have been included from the date
of acquisition.
47
<PAGE> 50
4. MERGERS AND ACQUISITIONS
On January 1, 1999, the Company acquired substantial assets of Hoechst
Marion Roussel's ("HMR") Kansas City-based Drug Innovation and Approval facility
for approximately $93 million in cash, most of which (approximately $58 million)
is expected to be paid in the first half of 2000 when the acquisition of the
physical facility is completed. As a part of this transaction, the Company was
awarded a $436 million contract for continued support and completion of ongoing
HMR development projects over a five-year period. In addition, HMR will offer
the Company the opportunity to provide all U.S. clinical research services up to
an additional $144 million over the same period.
On March 29, 1999, the Company acquired Pharmaceutical Marketing Services,
Inc. ("PMSI") and its core company, Scott-Levin, a leader in pharmaceutical
market information and research services in the U.S. The Company acquired PMSI
in exchange for approximately 4,993,787 shares of the Company's Common Stock.
Outstanding PMSI options became options to acquire approximately 440,426 shares
of the Company's Common Stock. In addition, the Company agreed to pay contingent
value payments to former PMSI shareholders who deferred receipt of one-half of
the shares of the Company's Common Stock they were entitled to receive in the
transaction until June 14, 1999. The right to receive contingent value payments
terminated in accordance with the merger agreement. Accordingly, no contingent
value payments were made or are payable to any former PMSI shareholder. The
total purchase price of the PMSI acquisition approximates $201.8 million. The
PMSI net assets acquired included approximately $90.0 million in cash. The
Company recorded approximately $111.5 million related to the excess cost over
the fair value of net assets acquired, which amount is being amortized over 30
years. The acquisition of PMSI has been accounted for as a purchase and
accordingly, the results of PMSI have been included from the date of
acquisition.
On March 31, 1999, the Company acquired Medlab Pty Ltd and the assets of the
Niehaus & Botha partnership (collectively "N&B") in exchange for 271,146 shares
of the Company's Common Stock. On May 19, 1999, the Company acquired Minerva
Medical plc ("Minerva") in exchange for 1,143,625 shares of the Company's Common
Stock. On June 3, 1999, the Company acquired SMG Marketing Group, Inc. ("SMG")
in exchange for 1,170,291 shares of the Company's Common Stock. These
transactions were accounted for by the pooling of interests method and prior
period financial statements have been restated to include the results of
operations for these companies for all periods presented.
The following is a summary of net revenue and net income from the beginning
of the year through the date of combination for companies acquired in
transactions accounted for as poolings of interests in 1999 and included in
continuing operations (in thousands):
N&B Minerva SMG
--- ------- ---
Net revenue $2,724 $1,938 $6,439
Net income $ 535 $ 290 $1,647
On February 2, 1998, the Company acquired Pharma Networks N.V. in
exchange for 132,000 shares of the Company's Common Stock. On February 26, 1998,
the Company acquired T2A S.A. in exchange for 311,899 shares of the Company's
Common Stock. On May 31, 1998, the Company acquired Crossbox Limited t/a Cardiac
Alert in exchange for 70,743 shares of the Company's Common Stock. On August 24,
1998, the Company acquired Royce Consultancy, Limited in exchange for 664,194
shares of the Company's Common Stock. On September 9, 1998, the Company acquired
Data Analysis Systems, Inc. in exchange for 358,897 shares of the Company's
Common Stock. On October 12, 1998, the Company acquired QED International, Inc.
in exchange for 523,520 shares of the Company's Common Stock. These transactions
were accounted for by the pooling of interests method and the financial
statements of the Company have been restated to reflect the results of
operations of these acquisitions.
On June 2, 1997, the Company acquired Butler Communications, Inc. in
exchange for 428,610 shares of the Company's Common Stock. On June 11, 1997, the
Company acquired 100% of the stock of Medical Action Communications Limited for
1,131,394 shares of the Company's Common Stock. On July 2, 1997, the Company
acquired CerebroVascular Advances, Inc. ("CVA") through an exchange of 100% of
CVA's stock for 467,936 shares of the Company's Common Stock. On August 29,
1997, the Company acquired Intelligent Imaging, Inc. ("Intelligent Imaging") in
exchange for 171,880 shares of the Company's Common Stock. On August 29, 1997,
the Company acquired Clindepharm International (Pty) Limited in exchange for
477,966 shares of the Company's Common Stock. These transactions were accounted
for by the pooling of interests method and the financial statements of the
Company have been restated to reflect the results of operations of these
acquisitions.
48
<PAGE> 51
In addition to the above mergers and acquisitions, the Company has completed
other mergers and acquisitions all of which are immaterial to the financial
statements. For immaterial pooling of interests transactions, the Company's
financial statements for the year of the transaction have been restated to
include the pooled companies from January 1 of that year, but the financial
statements for years prior to the year of the transaction have not been restated
because the effect of such restatement would be immaterial. For the Company's
1999 purchase transactions, the Company has not presented pro forma disclosures
because the results of operations for these transactions are not material to the
Company.
5. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- -------- ---------
<S> <C> <C> <C>
Net income:
Income from continuing operations $ 73,168 $ 85,643 $ 58,063
Income (loss) from discontinued operation, net of income 36,123 2,926 (9,197)
----------- -------- ---------
Net income $ 109,291 $ 88,569 $ 48,866
=========== ======== =========
Weighted average shares:
Basic weighted average shares 113,525 104,799 99,908
Effect of dilutive securities:
Stock options 2,162 2,815 2,884
Preferred Stock -- 3,265 4,349
----------- -------- ---------
Diluted weighted average shares 115,687 110,879 107,141
=========== ======== =========
Basic net income per share:
Income from continuing operations $ 0.64 $ 0.82 $ 0.58
Income (loss) from discontinued operation 0.32 0.03 (0.09)
----------- -------- ---------
Basic net income per share $ 0.96 $ 0.85 $ 0.49
=========== ======== =========
Diluted net income per share:
Income from continuing operations $ 0.63 $ 0.77 $ 0.54
Income (loss) from discontinued operation 0.31 0.03 (0.09)
----------- -------- ---------
Diluted net income per share $ 0.94 $ 0.80 $ 0.46
=========== ======== =========
</TABLE>
Options to purchase 6.1 million shares of common stock with exercise prices
ranging between $34.84 and $53.375 per share were outstanding during 1999 but
were not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
The conversion of the Company's 4.25% Convertible Subordinated Notes
("Notes") into approximately 3.5 million shares of common stock was not included
in the computation of diluted net income per share because the effect would be
antidilutive.
For additional disclosures regarding the outstanding stock options and the
Notes, see "Employee Benefit Plans" and "Credit Arrangements and Obligations."
49
<PAGE> 52
6. COMMITMENTS AND CONTINGENCIES
On September 30, 1999, a class action lawsuit was filed in the United States
District Court for the Middle District of North Carolina against the Company and
two of its executive officers and directors on behalf of all persons who
purchased or otherwise acquired shares of the Company's Common Stock between
July 16, 1999 and September 15, 1999. The complaint alleges violations of
federal securities laws, including violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. In particular, among other
claims, the complaint alleges that defendants made certain statements about the
Company's anticipated growth that were misleading because they failed to
disclose that the pharmaceutical industry allegedly had reversed its trend of
outsourcing clinical trials and that the Company had been notified that clinical
trials for a class of cardiovascular drugs would be discontinued. The complaint
seeks unspecified damages, plus costs and expenses, including attorneys' fees
and experts' fees.
Since then, three additional class action complaints have been filed against
the Company in the same court. These three new actions assert essentially the
same claims and seek the same relief as the original complaint. One of the new
complaints, filed October 26, 1999, seeks to expand the class to include a
purported sub-class of persons who purchased Company call options, or sold
Company put options, during the class period. A group of investors in three of
the actions against the Company has filed a motion asking that all of the
actions be consolidated and that they be appointed as lead plaintiffs. The court
has not yet ruled on this motion. The Company anticipates that all of the
existing lawsuits, and any additional suits that may be filed, ultimately will
be consolidated into a single action. The Company continues to believe that all
of the claims are without merit and intends vigorously to defend the lawsuits.
In February 1999, Kenneth Hodges ("Plaintiff") filed a civil lawsuit naming
as defendants Richard L. Borison, Bruce I. Diamond, 14 pharmaceutical companies
and Quintiles Laboratories Limited, a subsidiary of the Company. The complaint
alleges that certain drug trials conducted by Drs. Borison and Diamond in which
Plaintiff alleges he participated between 1988 and 1996 were not properly
conducted or supervised, that Plaintiff had violent adverse reactions to many of
the drugs and that his schizophrenia was aggravated by the drug trials.
Consequently, Plaintiff alleges that he was subject to severe mortification,
injured feelings, shame, public humiliations, victimization, emotional turmoil
and distress. The complaint alleges claims for battery, fraudulent inducement to
participate in the drug experiments, medical malpractice, negligence in
conducting the experiments, and intentional infliction of emotional distress.
Plaintiff seeks to recover damages in an amount in excess of $100 million.
Nowhere in the complaint are found any specific allegations against Quintiles
Laboratories Limited nor any specific factual connection between the Company and
the Plaintiff's claims. The Company believes the claims alleged against it are
vague and meritless, and the recovery sought is baseless. The Company intends to
vigorously defend itself against these claims.
Three class action complaints were filed in 1998, and later consolidated
into a single action against ENVOY and certain of its executive officers. The
complaint asserted claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and
also asserted additional claims under Tennessee common law for fraud and
negligent misrepresentation (which state law claims were voluntarily dismissed
by the plaintiffs). The claims were consolidated into one Consolidated
Complaint. On September 15, 1999, the Federal Court for the Middle District of
Tennessee granted ENVOY's motion to dismiss the Consolidated Complaint. The
Court dismissed the complaint without prejudice. On November 23, 1999, the
plaintiffs filed what they deemed to be an Amended Consolidated Complaint.
Defendants moved to strike the purported Amended Consolidated Complaint on the
ground that the September 1999 dismissal order did not grant plaintiffs leave to
file an amended complaint (but does allow them to file a new lawsuit). On
January 6, 2000, the plaintiffs then moved to administratively re-open the case,
which motion the court granted on January 24, 2000, and then transferred the
case to another district judge. Defendants' motion to strike the purported
Amended Consolidated Complaint is still pending before the new district judge.
The plaintiffs in this action seek unspecified compensatory damages, attorney's
fees and other relief. The Company believes that these claims are without merit
and intend to defend the allegations vigorously. Neither the likelihood of an
unfavorable outcome nor the amount of the ultimate liability, if any, with
respect to these claims can be determined at this time.
The Company is also a party in certain other pending litigation arising in
the normal course of business. In the opinion of management, the outcome of such
litigation currently pending will not have a material affect on the Company's
consolidated financial statements.
50
<PAGE> 53
7. CREDIT ARRANGEMENTS AND OBLIGATIONS
On October 1, 1999, the Company entered into a loan agreement with the
Missouri Development Finance Board due on October 1, 2009. Net proceeds to the
Company were $5.6 million. Interest is charged at an annual rate of 6.7%.
On May 31, 1998, the Company acquired a clinical trial supply production and
warehouse facility in Livingston, Scotland for a purchase commitment valued at
(pound)1.75 million (approximately $2.9 million), with payment due in May, 2001.
On May 23, 1996, the Company completed a private placement of $143.75
million of 4.25% Convertible Subordinated Notes ("Notes") due May 31, 2000. Net
proceeds to the Company amounted to approximately $139.7 million. The Notes are
convertible into 3,474,322 shares of Common Stock, at the option of the holder,
at a conversion price of $41.37 per share, subject to adjustment under certain
circumstances, at any time after August 21, 1996. The Notes are redeemable, at
the option of the Company, beginning May 31, 1999. Interest is payable on the
notes semi-annually on May 31 and November 30 each year.
The Company has a $150 million senior unsecured credit facility with a U.S.
bank. At the option of the Company, interest is charged at either the bank's
prime rate (8.5% at December 31, 1999) or LIBOR rate (5.8225% at December 31,
1999) plus an applicable rate (0.17% at December 31, 1999). No balance was
outstanding as of December 31, 1999.
The Company has a (pound)10.0 million (approximately $16.2 million)
unsecured line of credit with a U.K. bank. Interest is charged at a base rate
(5.5% at December 31, 1999) plus 0.75%. No balance was outstanding at December
31, 1999.
The Company has a (pound)1.5 million (approximately $2.4 million) general
banking facility with the same U.K. bank. This facility is used for the issuance
of guarantees and the bank charges a 1% per annum fee for each guarantee issued.
No balance was outstanding as of December 31, 1999.
The Company had a (pound)5.0 million (approximately $8.4 million) unsecured
line of credit with a second U.K. bank. The line of credit had an outstanding
balance of (pound)200,000 (approximately $400,000) at December 31, 1998.
In accordance with its terms, this facility was repaid and expired in May 1999.
In March 1995, Quintiles Scotland Limited, a wholly-owned subsidiary of the
Company, acquired assets of a drug development facility in Edinburgh, Scotland
from Syntex Pharmaceuticals Limited, a member of the Roche group based in Basel,
Switzerland for a purchase commitment valued at (pound)12.5 million
(approximately $20.9 million). During 1999 the payment terms were amended and
the Company paid approximately (pound)6.2 million (approximately $10.1 million)
in October, 1999. The remaining balance of approximately (pound)6.3 million
(approximately $10.1 million) is due in April, 2000.
Long-term debt and obligations consist of the following (in thousands):
DECEMBER 31,
-----------------------
1999 1998
--------- ---------
4.25% Convertible Subordinated Notes due May 2000 $ 143,747 $ 143,747
Other notes payable 148 678
Obligations 12,940 23,830
Missouri tax incentive bonds 5,614 --
--------- ---------
162,449 168,255
Less: current portion 154,178 21,126
unamortized issuance costs 981 1,669
--------- ---------
$ 7,290 $ 145,460
========= =========
51
<PAGE> 54
Maturities of long-term debt and obligations at December 31, 1999 are as
follows (in thousands):
2000 $ 154,671
2001 3,315
2002 446
2003 467
2004 499
Thereafter 3,051
---------
$ 162,449
=========
The fair value of the Company's long-term debt approximates its carrying value.
8. INVESTMENTS
The following is a summary as of December 31, 1999 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD-TO-MATURITY SECURITIES: COST GAINS LOSSES VALUE
- ---------------------------- --------- ---------- ---------- ------
State Securities --
maturing in one year or less $ 798 $ -- $ -- $ 798
maturing in over five years 5,416 -- -- 5,416
-------- -------- -------- --------
$ 6,214 $ -- $ -- $ 6,214
======== ======== ======== ========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE-FOR-SALE SECURITIES: COST GAINS LOSSES VALUE
- ------------------------------ --------- ---------- ---------- ------
U.S. Government Securities --
maturing in one year or less $ 5,438 $ -- $ (27) $ 5,411
maturing between one and
three years 12,535 -- (315) 12,220
maturing between three and
five years 58,538 -- (2,421) 56,117
State and Municipal Securities --
maturing between one and
three years 1,544 -- (3) 1,541
Equity Securities 15,523 29,714 -- 45,237
Money Funds 27,013 -- (746) 26,267
Other 1,608 -- -- 1,608
-------- -------- -------- --------
$122,199 $ 29,714 $ (3,512) $148,401
======== ======== ======== ========
52
<PAGE> 55
The following is a summary as of December 31, 1998 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD-TO-MATURITY SECURITIES: COST GAINS LOSSES VALUE
- ---------------------------- --------- ---------- ---------- ------
U.S. Government Securities --
maturing in one year or less $ 2,990 $ 15 $ -- $ 3,005
Other 2,333 217 -- 2,550
-------- -------- -------- --------
$ 5,323 $ 232 $ -- $ 5,555
======== ======== ======== ========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE-FOR-SALE SECURITIES: COST GAINS LOSSES VALUE
- ------------------------------ --------- ---------- ---------- ------
U.S. Government Securities:
maturing between one and
three years $ 6,506 $ 2 $ (9) $ 6,499
maturing between three and
five years 43,584 9 (298) 43,295
maturing between five and
seven years 13,000 13 (39) 12,974
State and Municipal Securities --
maturing in one year or less 2,000 -- -- 2,000
maturing between one and
three years 1,568 27 -- 1,595
Equity Securities 556 -- (63) 493
Money Funds 25,512 -- (594) 24,918
Other 605 -- (5) 600
-------- -------- -------- --------
$ 93,331 $ 51 $ (1,008) $ 92,374
======== ======== ======== ========
The gross realized gains and losses on sales of available-for-sale
securities were $2.1 million and $1,000, respectively, in 1999, and $81,000 and
$210,000, respectively, in 1998. The net adjustment to unrealized holding gains
(losses) on available-for-sale securities included as a separate component of
shareholders' equity was $17.8 million, ($572,000) and ($104,000) in 1999, 1998
and 1997, respectively.
9. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES
Accounts receivable and unbilled services consist of the following (in
thousands):
DECEMBER 31,
-------------------------
1999 1998
--------- ---------
Trade:
Billed $ 221,827 $ 178,874
Unbilled services 157,022 131,170
--------- ---------
378,849 310,044
Allowance for doubtful accounts (1,571) (1,777)
--------- ---------
$ 377,278 $ 308,267
========= =========
53
<PAGE> 56
Substantially all of the Company's trade accounts receivable and unbilled
services are due from companies in the pharmaceutical, biotechnology, medical
device, and healthcare industries and are a result of contract research, sales,
marketing, healthcare consulting and health information management services
provided by the Company on a global basis. The percentage of accounts receivable
and unbilled services by region is as follows:
DECEMBER 31,
--------------
REGION 1999 1998
- ------ ---- ----
Americas:
United States 55% 54%
Other 1 1
--- ---
Americas 56 55
Europe and Africa:
United Kingdom 30 31
Other 11 12
--- ---
Europe and Africa 41 43
Asia - Pacific 3 2
--- ---
100% 100%
=== ===
10. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
DECEMBER 31,
---------------------
1999 1998
-------- -------
Compensation and payroll taxes $ 51,704 $47,627
Acquisition related accruals 67,086 --
Other 46,656 32,966
-------- -------
$165,446 $80,593
======== =======
11. LEASES
The Company leases certain office space and equipment under operating
leases. The leases expire at various dates through 2049 with options to cancel
certain leases at five-year increments. Some leases contain renewal options.
Annual rental expenses under these agreements were approximately $46.5 million,
$36.8 million and $26.2 million for the years ended December 31, 1999, 1998 and
1997, respectively. The Company leases certain assets, primarily vehicles, under
capital leases. Capital lease amortization is included with depreciation and
amortization expenses and accumulated depreciation in the accompanying financial
statements.
The following is a summary of future minimum payments under capitalized
leases and under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1999 (in thousands):
CAPITAL LEASES OPERATING LEASES
2000 $15,581 $ 45,903
2001 8,999 37,553
2002 106 30,611
2003 2 22,657
2004 -- 18,096
Thereafter -- 73,098
------- --------
Total minimum lease payments 24,688 $227,918
Amounts representing interest 1,372 ========
-------
Present value of net minimum payments 23,316
Current portion 14,727
-------
Long-term capital lease obligations $ 8,589
=======
54
<PAGE> 57
12. INCOME TAXES
The components of income tax expense attributable to continuing operations
are as follows (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
-------- -------- -------
Current:
Federal $ 21,351 $ 26,640 $11,201
State 3,764 3,995 2,655
Foreign 10,099 12,736 7,003
-------- -------- -------
35,214 43,371 20,859
-------- -------- -------
Deferred expense (benefit):
Federal 11,320 (1,068) 8,021
Foreign (3,792) (2,379) 2,496
-------- -------- -------
7,528 (3,447) 10,517
-------- -------- -------
$ 42,742 $ 39,924 $31,376
======== ======== =======
Income tax expense attributable to continuing operations excludes income tax
expense from its discontinued operation.
The Company has allocated directly to additional paid-in capital
approximately $3.7 million in 1999, $15.6 million in 1998 and $21.4 million in
1997 related to the tax benefit from non-qualified stock options exercised.
The differences between the Company's consolidated income tax expense
attributable to continuing operations and the expense computed at the 35% U.S.
statutory income tax rate were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Federal income taxes at statutory rate $ 40,569 $ 43,949 $ 31,304
State and local income taxes, net of federal benefit 2,446 2,597 1,745
Non-deductible expenses and transaction costs 9,966 -- --
Foreign earnings taxed at different rates (4,240) (519) 726
Utilization of net operating loss carryforwards (461) (2,194) (398)
Non-taxable income -- (590) (1,521)
Other (5,538) (3,319) (480)
-------- -------- --------
$ 42,742 $ 39,924 $ 31,376
======== ======== ========
</TABLE>
Income before income taxes from foreign operations was approximately $27.8
million, $30.8 million and $4.7 million for the years 1999, 1998 and 1997,
respectively. Income from foreign operations was approximately $59.5 million,
$63.0 million and $35.8 million for the years 1999, 1998 and 1997, respectively.
The difference between income from operations and income before income taxes is
due primarily to intercompany charges which eliminate in consolidation.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $120.6 million at December 31, 1999. Those earnings are considered
to be indefinitely reinvested, and accordingly, no U.S. federal and state income
taxes have been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various countries.
55
<PAGE> 58
The tax effects of temporary differences from continuing operations that
give rise to significant portions of deferred income tax assets (liabilities)
are presented below (in thousands):
DECEMBER 31,
-------------------------
1999 1998
--------- ---------
Deferred income tax liabilities:
Depreciation and amortization $ (25,834) $ (29,077)
Prepaid expenses (6,274) (1,835)
Unrealized gain on equity investments (9,297) --
Other (11,386) (3,693)
--------- ---------
Total deferred income tax liabilities (52,791) (34,605)
Deferred income tax assets:
Net operating loss carryforwards 29,398 24,456
Accrued expenses and unearned income 15,469 13,434
Goodwill, net of amortization 87,304 94,432
Other 14,778 5,902
--------- ---------
146,949 138,224
Valuation allowance for deferred income tax assets (56,224) (52,685)
--------- ---------
Total deferred income tax assets 90,725 85,539
--------- ---------
Net deferred income tax assets $ 37,934 $ 50,934
========= =========
The increase in the Company's valuation allowance for deferred income tax
assets to $56.2 million at December 31, 1999 from $52.7 million at December 31,
1998 is primarily due to the uncertainty related to the deferred income tax
asset for certain acquisition costs offset by the reduction of prior year
valuation allowances relating to net operating loss carryforwards that more
likely than not will be available for utilization in the future. In connection
with the Innovex acquisition, the Company established an initial deferred income
tax asset of $108 million to reflect the income tax benefits arising from the
deductibility of goodwill recorded for tax purposes. The Innovex business
combination was accounted for as a pooling of interests for financial reporting
purposes, and no goodwill was recorded. In addition, the Company recorded a
$45.3 million valuation allowance related to this taxable goodwill to reflect
uncertainties that might affect the realization of this deferred income tax
asset. These uncertainties include the projection of future taxable and foreign
source income, the interplay of U.S. income tax statutes and the Company's
ability to minimize foreign tax credit limitations. Based on its analysis, the
Company believes it is more likely than not that a portion of the deferred
income tax asset related to this taxable goodwill will not be recognized. The
resulting net asset of $62.7 million was recorded as an increase to additional
paid-in capital.
The Company's deferred income tax expense (benefit) results from the
following (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
Excess (deficiency) of income tax over
financial reporting:
Depreciation and amortization $ 8,322 $ 10,326 $ 14,936
Net operating loss carryforwards 795 (6,816) (6,057)
Valuation allowance reduction (2,120) (2,194) (636)
Accrued expenses and unearned income (2,397) (6,611) (874)
Other items, net 2,928 1,848 3,148
------- -------- --------
$ 7,528 $ (3,447) $ 10,517
======= ======== ========
The U.K. subsidiaries qualify for Scientific Research Allowances (SRAs) for
100% of capital expenditures on certain assets under the Inland Revenue Service
guidelines. For 1999, 1998 and 1997, these allowances were $9.7 million, $23
million and $28 million, respectively, which helped to generate net operating
loss carryforwards of $5.0 million to be used to offset taxable income in that
country. Assuming the U.K. subsidiaries continue to invest in qualified capital
expenditures at an adequate level, the portion of the deferred income tax
liability relating to the U.K. subsidiaries may be deferred indefinitely. The
Company recognizes a deferred income tax benefit for foreign generated operating
losses at the time of the loss, as the Company believes it is more likely than
not that the benefit will be realized. The Company has net operating loss
carryforwards of approximately $53.7 million in various entities within the
United Kingdom which have no expiration date and has over $16 million of net
operating loss carryforwards from various foreign jurisdictions which have
different expiration periods. In addition, the Company has approximately
$800,000 of U.S. state operating loss carryforwards which expire through 2014
and has approximately $17.9 million of U.S. federal operating loss carryforwards
which begin to expire in 2005.
56
<PAGE> 59
13. EMPLOYEE BENEFIT PLANS
The Company has numerous employee benefit plans, which cover substantially
all eligible employees in the countries where the plans are offered.
Contributions are primarily discretionary, except in some countries where
contributions are contractually required. Plans include Approved Profit Sharing
Schemes in the U.K. and Ireland that are funded with Company stock, a defined
contribution plan funded by Company stock in Australia, Belgium, Singapore and
Canada, defined contribution plans in Belgium, Holland, Sweden, and Great
Britain, a profit sharing scheme in France, and defined benefit plans in Germany
and the U.K. The defined benefit plan in Germany is an unfunded plan, which is
provided for in the balance sheet. In addition, the Company sponsors a
supplemental non-qualified deferred compensation plan, covering certain
management employees.
Effective May 1, 1999, the Company merged, for administrative purposes only,
its leveraged employee stock ownership plan (the "ESOP") and employee savings
and investment plan (the "401(k)"). The eligibility requirements and benefits
offered to employees under each plan were not affected by the merger.
In 1992, the Company loaned the ESOP approximately $2.0 million to purchase
413,222 shares of the Company's Common Stock. As of December 31, 1997, the loan
was repaid. In connection with its acquisition of BRI, the Company merged the
existing BRI ESOP, also a leveraged plan, into the Company's ESOP effective
September 1, 1997. During 1998, the ESOP borrowed approximately $4.0 million
from the Company to purchase 100,000 shares of the Company's Common Stock. The
ESOP's trustee holds such shares in suspense and releases them for allocation to
participants as the loan is repaid. The Company's contributions to the ESOP are
used to repay the loan principal and interest.
The amount of ESOP expense recognized is equal to the cost of the shares
allocated to plan participants and the interest expense on the leveraged loans
for the year. ESOP expense totaled $1.3 million, $1.7 million and $568,000 in
1999, 1998 and 1997, respectively. As of December 31, 1999, 1998 and 1997,
1,510,654, 1,520,950 and 1,773,000 shares, respectively, were allocated to
participants. Shares unallocated and held in suspense as of December 31, 1999,
totaled 111,748 and had a fair value of $2.1 million. All ESOP shares are
considered outstanding for net income per share calculations.
Under the 401(k), the Company matches employee deferrals at varying
percentages, set at the discretion of the Board of Directors. For the years
ended December 31, 1999, 1998 and 1997, the Company expensed $4.3 million, $3.4
million and $2.1 million, respectively, as matching contributions.
The Company has an employee stock purchase plan (the "Purchase Plan"), which
is intended to provide eligible employees an opportunity to acquire the
Company's Common Stock. Participating employees have the option to purchase
shares at 85% of the lower of the closing price per share of common stock on the
first or last day of the calendar quarter. The Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. During 1999, 1998 and 1997, 414,971, 141,727
and 84,522 shares, respectively, were purchased under the Purchase Plan. At
December 31, 1999, 2,355,767 shares were available for issuance under the
Purchase Plan.
The Company has stock option plans to provide incentives to eligible
employees, officers and directors in the form of incentive stock options,
non-qualified stock options, stock appreciation rights and restricted stock. The
Board of Directors determines the option price (not to be less than fair market
value for incentive options) at the date of grant. Options, particularly those
assumed or exchanged as a result of acquisitions, have various vesting schedules
and expiration periods. The majority of options granted under the Executive
Compensation Plan typically vest 25% per year over four years expiring ten years
from the date of grant.
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<PAGE> 60
Stock option activity during the periods indicated is as follows:
Weighted-Average
Number Exercise Price
---------- ----------------
Outstanding at December 31, 1996 8,734,788 $ 12.62
Granted 3,206,831 31.69
Exercised (2,075,369) 6.76
Canceled (530,734) 20.77
----------
Outstanding at December 31, 1997 9,335,516 20.02
Granted 3,148,054 43.26
Exercised (1,535,542) 12.38
Canceled (728,087) 25.40
----------
Outstanding at December 31, 1998 10,219,941 27.99
Granted 9,064,319 27.56
Exercised (530,872) 20.21
Canceled (868,908) 36.69
----------
Outstanding at December 31, 1999 17,884,480 $ 27.59
==========
Pro forma information regarding net income and net income per share is
required by Statement No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement No. 123. The per share weighted-average fair value of stock options
granted during 1999, 1998 and 1997 was $9.05, $16.07 and $12.64 per share,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
Employee Stock Options Employee Stock Purchase Plan
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Expected dividend yield 0% 0% 0% 0% 0% 0%
Risk-free interest rate 5.8% 4.8% 5.9% 4.7% 4.9% 5.1%
Expected volatility 40.0% 42.0% 41.0% 40.0% 40.0% 34.4%
Expected life (in years from vesting) 1.40 1.35 1.20 0.25 0.25 0.25
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
transferable. All available option pricing models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Company's pro forma information (which includes expense related to
discontinued operation of approximately $5.0 million in 1999, $4.5 million in
1998 and $2.2 million in 1997) follows (in thousands, except for net income per
share information):
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------- ------- -------
Pro forma net income $81,793 $70,252 $36,773
Pro forma basic net income per share 0.72 0.67 0.37
Pro forma diluted net income per share 0.71 0.63 0.34
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<PAGE> 61
Selected information regarding stock options as of December 31, 1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------- -------------------------------
Number of Weighted-Average Weighted-Average Number of Weighted-Average
Options Exercise Price Range Exercise Price Remaining Life Options Exercise Price
- ----------- -------------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
2,207,989 $ 0.20 - $ 8.58 $ 6.87 3.9 1,859,169 $ 6.57
7,391,595 $ 8.75 - $ 24.01 19.50 8.6 1,188,752 18.86
3,472,851 $ 24.56 - $ 37.75 33.83 7.9 1,213,040 31.92
3,366,009 $ 37.81 - $ 52.13 41.44 8.3 1,508,460 40.15
1,446,036 $ 53.38 - $ 56.25 53.38 9.0 754,935 53.38
- ---------- ---------
17,884,480 $ 27.59 7.9 6,524,356 $ 26.70
========== =========
</TABLE>
14. OPERATIONS BY GEOGRAPHIC LOCATION
The table below presents the Company's operations by geographical location.
The Company attributes revenues to geographical locations based upon (1)
customer service activities, (2) operational management, (3) business
development activities and (4) customer contract coordination. The Company's
operations within each geographical region are further broken down to show each
country which accounts for 10% or more of the totals (in thousands):
1999 1998 1997
---------- ---------- --------
Net revenue:
Americas:
United States $ 870,559 $ 599,757 $428,920
Other 23,987 15,078 7,325
---------- ---------- --------
Americas 894,546 614,835 436,245
Europe and Africa:
United Kingdom 378,099 346,090 256,371
Other 260,096 232,047 170,248
---------- ---------- --------
Europe and Africa 638,195 578,137 426,619
Asia-Pacific 74,346 28,804 22,693
---------- ---------- --------
$1,607,087 $1,221,776 $885,557
========== ========== ========
Long-lived assets:
Americas:
United States $ 214,503 $ 78,599 $ 55,072
Other 2,211 1,544 1,130
---------- ---------- --------
Americas 216,714 80,143 56,202
Europe and Africa:
United Kingdom 156,067 149,101 117,407
Other 20,473 20,713 15,330
---------- ---------- --------
Europe and Africa 176,540 169,814 132,737
Asia-Pacific 6,430 5,374 2,414
---------- ---------- --------
$ 399,684 $ 255,331 $191,353
========== ========== ========
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<PAGE> 62
15. SEGMENTS
The following table presents the Company's operations by reportable
segment. The Company is managed through three reportable segments, namely, the
product development service group, the commercialization service group and the
QUINTERNET(TM) informatics service group. Management has distinguished these
segments based on the normal operations of the Company. The product development
group is primarily responsible for all phases of clinical research and outcomes
research consulting. The commercialization group is primarily responsible for
sales force deployment and strategic marketing services. The QUINTERNET(TM)
informatics group is primarily responsible for providing market research
solutions and strategic analyses to support healthcare decisions. The
QUINTERNET(TM) informatics group has been restated to exclude the electronic
data interchange operations of ENVOY, which has been treated as a discontinued
operation. The Company does not include non-recurring costs, interest income
(expense) and income tax expense (benefit) in segment profitability. Overhead
costs are allocated based upon management's best estimate of efforts expended in
managing the segments. There are not any significant intersegment revenues (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
Net revenue:
Product development $ 948,905 $ 708,508 $517,993
Commercialization 614,660 496,178 356,064
QUINTERNET(TM) informatics 43,522 17,090 11,500
----------- ---------- --------
$ 1,607,087 $1,221,776 $885,557
=========== ========== ========
Income (loss) from operations:
Product development $ 83,842 $ 77,605 $ 52,167
Commercialization 57,683 47,298 37,685
QUINTERNET(TM) informatics (5,170) 4,486 1,962
----------- ---------- --------
$ 136,355 $ 129,389 $ 91,814
=========== ========== ========
Total assets:
Product development $ 940,274 $ 754,129 $614,234
Commercialization 290,356 267,091 213,519
QUINTERNET(TM) informatics 303,011 18,430 5,433
Net assets of discontinued operation 122,981 130,458 125,082
----------- ---------- --------
$ 1,656,622 $1,170,108 $958,268
=========== ========== ========
Expenditures to acquire long-lived assets:
Product development $ 130,616 $ 77,587 $ 68,877
Commercialization 22,150 18,349 11,510
QUINTERNET(TM) informatics 5,362 1,018 868
----------- ---------- --------
$ 158,128 $ 96,954 $ 81,255
=========== ========== ========
Depreciation and amortization expense:
Product development $ 49,391 $ 33,341 $ 20,463
Commercialization 26,268 22,681 17,864
QUINTERNET(TM) informatics 6,633 1,169 364
----------- ---------- --------
$ 82,292 $ 57,191 $ 38,691
=========== ========== ========
</TABLE>
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<PAGE> 63
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 359,705 $ 402,276 $ 402,497 $ 442,609
Income from operations 38,517 42,455 27,997 27,386
Income from continuing operations 3,364 25,139 20,500 24,165
Income from discontinued operation,
net of taxes 5,250 10,041 10,679 10,153
Net income $ 8,614 $ 35,180 $ 31,179 $ 34,318
=========== =========== =========== ===========
Basic net income per share:
Income from continuing operations $ 0.03 $ 0.22 $ 0.18 $ 0.21
Income from discontinued operation 0.05 0.09 0.09 0.09
----------- ----------- ----------- -----------
Basic net income per share $ 0.08 $ 0.31 $ 0.27 $ 0.30
=========== =========== =========== ===========
Diluted net income per share:
Income from continuing operations $ 0.03 $ 0.21 $ 0.18 $ 0.21
Income from discontinued operation 0.05 0.09 0.09 0.09
----------- ----------- ----------- -----------
Diluted net income per share $ 0.08 $ 0.30 $ 0.27 $ 0.30
=========== =========== =========== ===========
Range of stock prices $ 34.625 - 53.375 $34.750 - 45.500 $ 16.875 - 41.938 $ 16.000 - 25.031
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 272,546 $ 297,947 $ 315,558 $ 335,725
Income from operations 30,565 30,250 32,152 36,422
Income from continuing operations 21,139 19,921 20,105 24,478
Income from discontinued operation,
net of taxes 75 497 1,880 474
Net income $ 21,214 $ 20,418 $ 21,985 $ 24,952
=========== =========== =========== ===========
Basic net income per share:
Income from continuing operations $ 0.20 $ 0.19 $ 0.19 $ 0.23
Income from discontinued operation 0.00 0.00 0.02 0.00
----------- ----------- ----------- -----------
Basic net income per share $ 0.20 $ 0.20 $ 0.21 $ 0.24
=========== =========== =========== ===========
Diluted net income per share:
Income from continuing operations $ 0.19 $ 0.18 $ 0.18 $ 0.22
Income from discontinued operation 0.00 0.00 0.02 0.00
----------- ----------- ----------- -----------
Diluted net income per share $ 0.19 $ 0.18 $ 0.20 $ 0.22
=========== =========== =========== ===========
Range of stock prices $ 34.000 - 52.428 $ 42.250 - 53.500 $ 33.375 - 52.000 $ 41.000 - 56.875
</TABLE>
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<PAGE> 64
17. SUBSEQUENT EVENTS
On January 26, 2000, the Company announced the adoption of a
restructuring plan. In connection with this plan, the Company anticipates
recognizing a restructuring charge of approximately $55 million during the first
quarter of 2000. The restructuring charge will consist primarily of severance
costs related to a worldwide workforce reduction of approximately 800 positions
and lease termination costs related to the consolidation of offices.
On February 3, 2000, the Board of Directors authorized the Company to
repurchase up to $200 million of the Company's Common Stock from time to time
over the next 12 months in open market, block or negotiated transactions.
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<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quintiles Transnational Corp.:
We have audited the accompanying consolidated balance sheets of Quintiles
Transnational Corp. (a North Carolina corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the December 31, 1998
consolidated financial statements of ENVOY Corporation, a company acquired
during 1999 in a transaction accounted for as a pooling of interests, as
discussed in Note 3. Such statements are included in the consolidated financial
statements of Quintiles Transnational Corp., and reflect total assets and total
net income of 11 percent and 2 percent, respectively, of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for ENVOY Corporation, is based solely upon the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Quintiles Transnational Corp. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Raleigh, North Carolina,
January 26, 2000, except
with respect to the matter
discussed in Note 17, as to
which the date is February 3, 2000.
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<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Quintiles Transnational Corp.
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Quintiles Transnational Corp. (formed as
a result of the consolidation of Quintiles Transnational Corp. and the companies
identified in Notes 3 and 4 of the consolidated financial statements) for the
year ended December 31, 1997. The consolidated financial statements give
retroactive effect to the merger of Quintiles Transnational Corp. and the
companies identified in Notes 3 and 4, which have been accounted for using the
pooling of interests method as described in the notes to the consolidated
financial statements. These financial statements are the responsibility of the
management of Quintiles Transnational Corp. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of the operations and cash flows
of Quintiles Transnational Corp. for the year ended December 31, 1997, after
giving retroactive effect to the merger of the companies identified in Notes 3
and 4 to the consolidated financial statements, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Raleigh, North Carolina
January 26, 1998,
except for Notes 3 and 4, as to which the date is
January 24, 2000.
64
<PAGE> 67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
65
<PAGE> 68
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to each of our
directors and executive officers who serve in such capacities as of the filing
date of this Form 10-K. There are no family relationships between any of our
directors or executive officers.
Name Age Position with the Company
---- --- -------------------------
James L. Bierman 47 Chief Financial Officer
Robert C. Bishop, Ph.D. 57 Director
E.G.F. Brown 56 Director
Vaughn D. Bryson 61 Director
Santo J. Costa 54 Vice Chairman and Director
Chester W. Douglass, Ph.D. 60 Director
William E. Ford 38 Director
Dennis B. Gillings, Ph.D. 56 Chairman of the Board of Directors and
Chief Executive Officer
Fred C. Goad 59 Director
Jim D. Kever 47 Director and Chief Executive Officer of ENVOY
Arthur M. Pappas 52 Director
John S. Russell 45 Senior Vice President and General Counsel
Eric J. Topol, M.D. 45 Director
Virginia V. Weldon, M.D. 64 Director
JAMES L. BIERMAN became Chief Financial Officer in February 2000 and
served as our Senior Vice President, Corporate Development since 1998.
Previously, Mr. Bierman spent 22 years with Arthur Andersen L.L.P. As a partner
of this international professional services organization, he worked with a
diversified broad-base of companies solving complex business problems. His
experience ranges from applying knowledge of complex business processes to
improve operational efficiency and effectiveness while reducing risk to
researching and developing leading-edge accounting issues. He has been a
frequent speaker at various industry trade group-sponsored symposiums on various
financial and accounting topics. He has authored several articles, the latest of
which was published in Bank Director White Paper Mergers and Acquisitions:
Strategies and Trends Shaping the Industry. The article is titled "Mergers of
Equals vs. Acquisition: Strategies for Success." Mr. Bierman received his B.A.
degree in Economics/History from Dickinson College in Carlisle, Pennsylvania,
and attended Cornell University's Johnson Graduate School of Management, where
he received his M.B.A.
ROBERT C. BISHOP, PH.D. has served as a director since April 1994.
Since June 1999, Dr. Bishop has served as Chairman of the Board for AutoImmune,
Inc., a biotechnology company. From May 1992 to December 1999, Dr. Bishop served
as President, Chief Executive Officer and director of AutoImmune, Inc. 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 serves as a director of
Millipore Corporation, a multinational company that applies its purification
technology to research and manufacturing applications in the microelectronics
and biopharmaceutical industries. Dr. Bishop received an M.B.A. from the
University of Miami and a Ph.D. in Biochemistry from the University of Southern
California.
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<PAGE> 69
E. G. F. BROWN has served as a director since January 1998. Mr. Brown
is Chairman-Mainland Europe of Tibbett & Britten Group plc. Mr. Brown was
previously an Executive Director of T.D.G. PLC, a European logistics company,
and a director of Datrontech PLC, a distributor of personal computer components.
Prior to joining TDG in 1996, Mr. Brown served as Operations Director for NFC
PLC, a supply chain logistics company. Mr. Brown was educated at Exeter and
Reading Universities and the London Business School.
VAUGHN D. BRYSON has served as a director since March 1997. Mr. Bryson
is President of Life Science Advisors, LLC, a consulting firm focused on
assisting biopharmaceutical and medical device firms in building shareholder
value. Mr. Bryson was a 32 year employee of Eli Lilly & Co. ("Lilly"), a global
research-based pharmaceutical corporation, where he served as President and
Chief Executive Officer from 1991 until June 1993; he was Executive Vice
President from 1986 until 1991. He served as a director of Lilly from 1984 until
his retirement in 1993. From April 1994 to December 1996, Mr. Bryson served as
Vice Chairman of Vector Securities International, Inc., an investment banking
firm. Mr. Bryson is a director of Ariad Pharmaceuticals, Inc., a developer of
pharmaceuticals that targets intracellular signaling pathways in order to alter
the course of disease; Chiron Corporation, a global healthcare company with
biopharmaceutical businesses; Fusion Medical Technologies, Inc., a company
developing and commercializing proprietary collagen gel-based products for use
in controlling bleeding during surgery; and Amylin Pharmaceuticals, Inc., a
developmental stage biopharmaceutical company focusing on metabolic disorders.
SANTO J. COSTA became Vice Chairman in November 1999 and has been a
director since April 1994. Mr. Costa served as our President and Chief Operating
Officer from April 1994 to November 1999. From July 1993 to March 1994, Mr.
Costa directed the affairs of his own consulting firm, Santo J. Costa &
Associates, which focused on pharmaceutical and biotechnology companies. Prior
to July 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., a pharmaceutical company engaged in the discovery and
development of small molecule drugs that address a variety of diseases. Mr.
Costa received a law degree from St. John's University.
CHESTER W. DOUGLASS, PH.D. has served as a director since 1983. Dr.
Douglass is Professor and Chairman of the Department of Oral Health Policy and
Epidemiology, Harvard University School of Dental Medicine and Professor,
Department of Epidemiology, Harvard University School of Public Health. Dr.
Douglass has served over 30 years in various academic appointments at Temple
University, the University of North Carolina at Chapel Hill and Harvard
University. Dr. Douglass received a D.M.D. from the 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.
WILLIAM E. FORD has served as a director since June 1999. He was
appointed a director of ENVOY in March 1996 and served as a director until we
acquired ENVOY in March 1999. Mr. Ford has served as a managing member of
General Atlantic Partners LLC, a private equity firm that invests globally in
information technology companies, since 1991. Mr. Ford is also a director of
Priceline.com Incorporated, a publicly traded buyer-driven e-commerce company
whose "demand collection system" enables consumers to use the Internet to save
money on a wide range of products and services; E*Trade Group, Inc., a provider
of online investing services for self-directed investors; Tickets.com, a
provider of entertainment tickets, event information and related products and
services through retail stores, telephone sales centers, interactive voice
response systems and the Internet; LHS Group, Inc., a publicly-traded
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<PAGE> 70
billing solutions software company; Eclipsys Corporation, a provider of
clinical, financial and administrative software solutions to the health care
industry; and several private software companies in which General Atlantic
Partners, LLC or one of its affiliates is an investor.
FRED C. GOAD, JR. has served as a director since June 1999. He served
as the Chairman and Co-Chief Executive Officer of ENVOY from August 1995 until
we acquired ENVOY in March 1999, and as a director from Envoy's incorporation in
August 1994 through March 1999. Prior to that time, he served as ENVOY's
President from the date of incorporation until assuming the title of Chairman
and Co-Chief Executive Officer in August 1995. Mr. Goad served as Chief
Executive Officer and a director of ENVOY Corporation, a Delaware corporation
and former parent corporation to ENVOY, from September 1985 through June 1995.
Mr. Goad is a director of Performance Food Group Company, a food distribution
company.
DENNIS B. GILLINGS, PH.D. founded Quintiles 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 Dean's
Advisory Council of the University of North Carolina School of Public Health.
Dr. Gillings has been published widely in scientific and medical journals. Dr.
Gillings serves as a director of Triangle Pharmaceuticals, Inc., a company
engaged in the development of new drug candidates primarily in the antiviral
area. Dr. Gillings received a Diploma in Mathematical Statistics from the
University of Cambridge and a Ph.D. in Mathematics from the University of
Exeter.
JIM D. KEVER has served as a director since June 1999. He has served as
Chief Executive Officer of ENVOY, since we acquired ENVOY in March 1999. Mr.
Kever served as President and Co-Chief Executive Officer of ENVOY from August
1995 until March 1999 and as a director from Envoy's incorporation in August
1994 until March 1999. Prior to such time, he served as Envoy's Executive Vice
President, Secretary and General Counsel from the date of incorporation. Mr.
Kever had served as a director and Secretary, Treasurer and General Counsel of
ENVOY's former parent corporation since 1981 and as Executive Vice President
since 1984. Mr. Kever also is a director of Transaction System Architects, Inc.,
a supplier of electronic payment software products and network integration
solutions, 3D Systems Corporation, a manufacturer of technologically advanced
solid imaging systems and prototype models, and Tyson Foods, where he also
serves on the audit and ethics committees.
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 consulting, investment and venture company that works with
life science companies, products and related technologies. Prior to founding A.
M. Pappas & Associates in 1994, Mr. Pappas was a director on the main board of
Glaxo Holdings plc with executive responsibilities for operations in Asia
Pacific, Latin America, and Canada. In this capacity, he served as Chairman and
Chief Executive of Glaxo Far East (Pte) Ltd. and Glaxo Latin America Inc., as
well as Chairman of Glaxo Canada Inc. Mr. Pappas has held various senior
executive positions with Abbott Laboratories International Ltd., Merrell Dow
Pharmaceuticals, and the Dow Chemical Company, in the United States and
internationally. Mr. Pappas is a director of Valentis Inc., a gene therapy
research company; Embrex Inc., a research and development company specializing
in poultry in-the-egg delivery systems; and KeraVision, Inc., a company
developing products for reversible vision correction surgery. He is also a
director of privately-held AtheroGenics Inc. and ArgoMed, Inc. Mr. Pappas
received a B.S. in biology from Ohio State University and an M.B.A. in finance
from Xavier University.
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<PAGE> 71
JOHN S. RUSSELL serves as Senior Vice President and General Counsel and
Head of Global Human Resources. He is also the Corporate Secretary. Mr. Russell
joined Quintiles Transnational Corp. in 1998 after 12 years in private practice
as a partner in the Raleigh office of the Moore and Van Allen law firm, where he
was head of the Corporate Practice group. Prior to that time, he was an editor
in the trade books division of Houghton Mifflin Company in New York City. Mr.
Russell has served as Director of the North Carolina Railroad Company as well as
several nonprofit concerns. He has spoken and published widely on legal and
literary topics. His novel, Favorite Sons, was published by Algonquin Books in
1992. Mr. Russell received a B.A. degree from the University of North Carolina
at Chapel Hill, his M.A. from Columbia University and a J.D. degree from Harvard
Law School.
ERIC J. TOPOL, M.D. has served as a director since November 1997. Dr.
Topol is the Chairman of the Department of Cardiology and co-director of the
Heart Center at The Cleveland Clinic Foundation. He has served as Study Chairman
for clinical trials of well over 100,000 patients over the past decade. Dr.
Topol was a faculty member of the University of Michigan from 1985 until 1991
before moving to his current post. He has authored more than 500 publications in
leading peer-review medical journals and is the editor of more than 10 books.
Dr. Topol has been elected to the American Society of Clinical Investigation and
the American Association of Physicians. He previously served as a director for
Rhone Poulenc Rorer, a leading life sciences company, specializing in
innovations in human, plant and animal health. Dr. Topol received his M.D. at
the University of Rochester and completed post-doctoral training at the
University of California, San Francisco and the Johns Hopkins Medical Center.
VIRGINIA V. WELDON, M.D. has served as a director since November, 1997.
Dr. Weldon served as Senior Vice President, Public Policy, Monsanto Company, an
agro-chemicals and biotechnology (life sciences) company, from October 1993
until her retirement in March 1998. Previously, she was Professor of Pediatrics,
Vice Chancellor for Medical Affairs and Vice President of the Medical Center at
Washington University in St. Louis. Dr. Weldon has received recognition from
numerous medical, scientific and educational organizations, among them the
Association of American Medical Colleges, of which she served as Chairman. In
1994, Dr. Weldon was one of 18 individuals appointed to the President's
Committee of Advisors on Science and Technology. More recently, she became a
member of the California Institute of Technology Board of Trustees. Dr. Weldon
received her medical degree from the State University of New York at Buffalo.
She also completed post-doctoral studies at the Johns Hopkins University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our 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, we believe that during 1999 all
filing requirements applicable to our executive officers and directors were
complied with except that each of Santo J. Costa, Greg Porter and David White
reported late to the Securities and Exchange Commission the acquisition or sale
of certain shares of our common stock.
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<PAGE> 72
ITEM 11. EXECUTIVE COMPENSATION
The following tables show annual and long-term compensation that we
paid or accrued for services rendered for the fiscal years indicated by our
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, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation 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 1999 $568,749 (1) $ -- $ (2) 169,316 (3) $ 472,070 (4)
Chairman of the Board of 1998 474,996 (5) -- (2) 25,048 (6) 349,236 (7)
Directors and Chief 1997 447,400 (8) -- 24,013 (9) 231,009 (10)
Executive Officer
Santo J. Costa 1999 $474,453 $ -- $ (2) 201,650 (11) $ 5,853 (12)
Vice Chairman 1998 450,000 -- (2) 22,553 (13) 760,552 (14)
1997 425,000 -- 43,981 (15) 119,338 (16) 2,336,090 (17)
Ludo J. Reynders 1999 $341,253 $ -- $ (2) 46,521 (18) $ 4,566 (19)
Chief Executive Officer, 1998 315,000 -- (2) 23,803 (20) 6,837 (21)
Clinical Development 1997 301,415 -- (2) 64,477 (22) 11,781 (23)
Services
Rachel R. Selisker 1999 $265,125 $ -- $ (2) 55,385 (24) $ 5,626 (25)
Senior Consultant, 1998 237,000 -- (2) 12,771 (26) 9,225 (27)
Global Shared Services 1997 225,000 -- (2) 34,378 (28) 17,620 (29)
Jim D. Kever 1999 (30) $196,500 $178,500 (31) $ (2) 127,871 (32) $ 4,053 (33)
Chief Executive Officer,
ENVOY
</TABLE>
- -------------------
(1) Includes $284,375 deferred during 1999 pursuant to our Elective
Deferred Compensation Plan.
(2) 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.
(3) Includes 12,792 shares subject to options granted pursuant to the 1999
bonus.
(4) Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in
the amount of $2,375, the estimated value of contributions made to our
ESOP on Dr. Gillings' behalf in the amount of $1,038, the present value
of the benefit to Dr. Gillings of the premiums we paid under a
split-dollar life insurance arrangement in the amount of $463,583 (see
"Employment Agreements" below for a description of this arrangement),
and other life insurance premiums that we paid in the amount of $5,074.
(5) Includes $236,348 deferred during 1998 pursuant to our Elective
Deferred Compensation Plan.
(6) Includes 6,053 shares subject to options granted pursuant to the 1998
bonus.
(7) Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in
the amount of $2,364, the estimated value of contributions made to our
ESOP on Dr. Gillings' behalf in the amount of $6,031, the present value
of the benefit to Dr. Gillings of the premiums we paid under a
split-dollar life insurance arrangement in the amount of $335,686 (see
"Employment Agreements"
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<PAGE> 73
below for a description of this arrangement), and other life insurance
premiums that we paid in the amount of $5,155.
(8) Includes $55,925 deferred during 1997 pursuant to our Elective Deferred
Compensation Plan.
(9) Includes 7,042 shares subject to options granted pursuant to the 1997
bonus.
(10) Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in
the amount of $2,237, the value of contributions made to our ESOP on
Dr. Gillings' behalf in the amount of $16,473, the present value of the
benefit to Dr. Gillings of the premiums that we paid under a
split-dollar life insurance arrangement in the amount of $207,144 (see
"Employment Agreements" below for a description of this arrangement),
and other life insurance premiums that we paid in the amount of $5,155.
(11) Includes 9,443 shares subject to options granted pursuant to the 1999
bonus.
(12) Includes $1,038, which represents the estimated value of contributions
made to our ESOP on behalf of Mr. Costa. Also includes $4,815
representing the value of life insurance premiums paid in 1999.
(13) Includes 5,299 shares subject to options granted pursuant to the 1998
bonus.
(14) Includes $749,625, which represents the appreciation of incentive stock
options exercised, and $6,031, which represents the estimated value of
the contributions made to our ESOP on behalf of Mr. Costa. Also
includes $4,896 representing the value of life insurance premiums paid
in 1998.
(15) Amount represents the value of financial planning and legal costs that
we paid on behalf of Mr. Costa.
(16) Includes 5,549 shares subject to options granted pursuant to the 1997
bonus.
(17) Includes $2,317,260, which represents the appreciation of incentive
stock options exercised, and $14,510 which represents the estimated
value of the contributions made to our ESOP on behalf of Mr. Costa.
Also includes $4,320 representing the value of life insurance premiums
paid in 1997.
(18) Includes 5,259 shares subject to options granted pursuant to the 1999
bonus.
(19) Includes $2,375 in contributions to our 401(k) Plan on behalf of Mr.
Reynders, life insurance premiums that we paid in the amount of $1,153
and $1,038 representing the estimated value of contributions made to
our ESOP on behalf of Mr. Reynders.
(20) Includes 3,514 shares subject to options granted pursuant to the 1998
bonus.
(21) Includes $806 in contributions to our 401(k) Plan on behalf of Mr.
Reynders and $6,031 representing the estimated value of contributions
made to our ESOP on behalf of Mr. Reynders.
(22) Includes 2,810 shares subject to options granted pursuant to the 1997
bonus.
(23) Amount represents the value of contributions to the Quintiles (UK)
Limited Approved Profit Sharing Scheme on behalf of Dr. Reynders.
(24) Includes 4,123 shares subject to options granted pursuant to the 1999
bonus.
(25) Includes $2,604 in contributions to our 401(k) Plan on behalf of Ms.
Selisker, life insurance premiums that we paid in the amount of $896
and $1,038 representing the estimated value of contributions made to
our ESOP on behalf of Ms. Selisker.
(26) Includes 2,482 shares subject to options granted pursuant to the 1998
bonus.
(27) Includes contributions to our 401(k) Plan on behalf of Ms. Selisker in
the amount of $2,430, the estimated value of contributions made to our
ESOP on Ms. Selisker's behalf in the amount of $5,931 and life
insurance premiums that we paid in the amount of $864.
(28) Includes 2,711 shares subject to options granted pursuant to the 1997
bonus.
(29) Includes $2,400 in contributions to our 401(k) Plan on behalf of Ms.
Selisker, life insurance premiums that we paid in the amount of $691
and $14,529 representing the estimated value of contributions made to
our ESOP on behalf of Ms. Selisker.
(30) Mr. Kever is Chief Executive Officer of ENVOY, which became our
wholly-owned subsidiary following our acquisition of ENVOY in March
1999. After completion of our pending agreement to sell ENVOY, Mr.
Kever will no longer be one of our executive officers.
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<PAGE> 74
(31) Amount represents payments made in 2000 pursuant to Mr. Kever's current
employment contract with ENVOY.
(32) Includes 64,271 shares subject to options granted pursuant to the 1999
bonus.
(33) Includes $1,875 representing the value of contributions made to our
401(k) Plan on behalf of Mr. Kever in 1999 and $2,345 which represents
the value of life insurance premiums paid for Mr. Kever in 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table reflects the stock options granted during the past
fiscal year to the named executive officers pursuant to our Equity Compensation
Plan and Nonqualified Stock Option Plan. No stock appreciation rights were
granted to the named executive officers during 1999. Unless otherwise noted, all
options expire 10 years from the date of grant or, if sooner, three months after
termination of employment, unless employment is terminated because of (1) death
or disability in which case the options expire one year after the date of such
termination, (2) retirement as determined by the administrator of the Plan, in
which case the options expire ten years after such termination, if the holder
has agreed to a non-compete, otherwise, the options expire one year after such
termination or (3) termination as a result of a Special Program, as determined
by the administrator of the Plan, in which case the options expire three years
after the date of such termination.
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<PAGE> 75
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (1)
------------------------------------------------------------ --------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR (2) PER SHARE ($) DATE 5% ($) 10% ($)
---- ----------- --------------- ------------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Dennis B. Gillings 2,356 (3) 0.0% 42.44 06/07/2009 62,879 159,347
21,470 (4) 0.2% 42.44 06/07/2009 573,007 1,452,112
3,664 (5) 0.0% 42.44 06/07/2009 97,787 247,813
5,940 (6) 0.1% 35.88 08/15/2009 134,015 339,623
33,630 (7) 0.4% 35.88 08/15/2009 758,746 1,922,812
3,188 (8) 0.0% 22.00 11/15/2009 44,108 111,779
45,697 (9) 0.5% 22.00 11/15/2009 632,249 1,602,243
53,371(10) 0.6% 42.44 06/07/2009 1,424,403 3,609,718
Santo J. Costa 2,356 (3) 0.0% 42.44 06/07/2009 62,879 159,347
14,322(11) 0.2% 42.44 06/07/2009 382,236 968,661
2,874 (5) 0.0% 42.44 06/07/2009 76,703 194,381
4,003 (6) 0.0% 35.88 08/15/2009 90,314 228,874
23,541 (7) 0.3% 35.88 08/15/2009 531,123 1,345,969
2,566 (8) 0.0% 22.00 11/15/2009 35,502 89,970
31,988 (9) 0.4% 22.00 11/15/2009 442,576 1,121,574
90,000(10) 1.0% 42.44 06/07/2009 2,401,984 6,087,100
30,000(12) 0.3% 40.19 03/14/2009 758,211 1,921,456
Ludo J. Reynders 2,356 (3) 0.0% 42.44 06/07/2009 62,879 159,347
7,175(13) 0.1% 42.44 06/07/2009 191,492 485,277
1,700 (5) 0.0% 42.44 06/07/2009 45,371 114,979
2,228 (6) 0.0% 35.88 08/15/2009 50,267 127,387
13,452 (7) 0.1% 35.88 08/15/2009 303,499 769,125
1,331 (8) 0.0% 22.00 11/15/2009 18,415 46,668
18,297 (9) 0.2% 22.00 11/15/2009 252,902 640,904
Rachel R. Selisker 2,356 (3) 0.0% 42.44 06/07/2009 62,879 159,347
7,175(13) 0.1% 42.44 06/07/2009 191,492 485,277
1,189 (5) 0.0% 42.44 06/07/2009 31,733 80,417
1,788 (6) 0.0% 35.88 08/15/2009 40,295 102,115
13,452 (7) 0.1% 35.88 08/15/2009 303,499 769,125
1,148 (8) 0.0% 22.00 11/15/2009 15,883 40,252
18,279 (9) 0.2% 22.00 11/15/2009 252,902 640,904
10,000(14) 0.1% 50.88 02/04/2009 319,950 810,816
Jim D. Kever 64,271(15) 0.7% 18.69 12/31/2009 755,343 1,914,187
63,600(16) 0.7% 18.94 11/05/2009 757,456 1,919,543
</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 $82.87 and $131.96 per share,
respectively, for the options expiring February 4, 2009, $69.13 and
$110.07 per share, respectively, for the options expiring June 7, 2009,
$58.44 and $93.05 per share, respectively, for the options expiring
August 15,
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<PAGE> 76
2009, $35.84 and $57.06 per share, respectively, for the options
expiring November 15, 2009, $30.85 and $49.12 per share, respectively,
for the options expiring November 5, 2009, $65.46, $104.24 per share,
respectively, for the options expiring March 14, 2009, and $30.44 and
$48.47 per share, respectively, for the options expiring December 31,
2009.
(2) Options to purchase an aggregate of 9,095,779 shares were granted to
employees during 1999.
(3) Incentive stock options granted June 7, 1999. Number of options granted
as incentive stock options to extent of annual $100,000 cap; options in
excess of the cap granted as nonqualified options. Shares subject to
the options granted vest June 7, 2003.
(4) Nonqualified stock options granted June 7, 1999. Shares subject to the
options granted vest over the next four years, with 28% of such shares
vesting on June 7 of each of 2000, 2001 and 2002 and 16% vesting on
June 7, 2003.
(5) Nonqualified stock options granted June 7, 1999. Shares subject to the
options granted vest on May 15, 2000.
(6) Nonqualified stock options granted August 15, 1999. Shares subject to
the options granted vest on May 15, 2000.
(7) Nonqualified stock options granted August 15, 1999. Shares subject to
the options granted vest over the next four years, with 25% of such
shares vesting on August 15 of each year beginning August 15, 2000.
(8) Nonqualified stock options granted November 15, 1999. Shares subject to
the options granted vested on May 15, 2000.
(9) Nonqualified stock options granted November 15, 1999. Shares subject to
the options granted vest over the next four years, with 25% of such
shares vesting on November 15 of each year beginning November 15, 2000.
(10) Nonqualified stock options granted June 7, 1999. Shares subject to the
options granted vested immediately.
(11) Nonqualified stock options granted June 7, 1999. Shares subject to the
options vest over the next four years with 29% of such shares vesting
on June 7 of each of 2000, 2001 and 2002 and 13% vesting on June 7,
2003.
(12) Nonqualified stock options granted March 14, 1999. Shares subject to
the options granted vested immediately.
(13) Nonqualified stock options granted June 7, 1999. Shares subject to the
options vest over the next four years with 33% of such shares vesting
on June 7 of each of 2000, 2001 and 2002 and 1% vesting on June 7,
2003.
(14) Nonqualified stock options granted February 4, 1999. Shares subject to
the options granted vest over two years, with 50% of such shares
vesting on December 31 of each year beginning December 31, 1999.
(15) Nonqualified stock options granted December 31, 1999. 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, 2000.
In connection with our sale of ENVOY, Mr. Kever will participate in a
Special Program, which means that the shares subject to these options
vest immediately upon, and the options expire three years from, the
date of our sale of ENVOY.
(16) Nonqualified stock options granted November 5, 1999. Shares subject to
the options granted vest over the next two years, with 50% of such
shares vesting on November 5 of each year beginning November 5, 2000.
In connection with our sale of ENVOY, Mr. Kever will participate in a
Special Program, which means that the shares subject to these options
vest immediately upon, and the options expire three years from, the
date of our sale of ENVOY.
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<PAGE> 77
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, 1999.
<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 (1)
---- --------------- ------------ --------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dennis B. Gillings -- -- 183,370 143,051 775,835 --
Santo J. Costa -- -- 280,493 107,072 107,198 --
Ludo J. Reynders -- -- 112,971 70,070 315,602 --
Rachel R. Selisker -- -- 81,005 67,377 364,032 --
Jim D. Kever -- -- 635,470 139,486 6,474,078 --
</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, 1999,
$18.6875.
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. In addition, each non-officer director receives (1) an
annual retainer of $24,000, (2) $1,000 for each Board meeting attended in person
or by teleconference and (3) $500 for each committee meeting attended in person
or by teleconference, each paid quarterly in cash. Beginning in 2000, committee
chairs will also receive an extra $5,000 per year in compensation for their
additional responsibilities. We reimburse 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."
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Dr. Gillings, Mr.
Costa, Dr. Reynders, Ms. Selisker and Mr. Kever. The named executive officers
are eligible to participate in any bonus, stock option, pension, insurance,
medical, dental, 401(k), disability and other plans generally made available to
our 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 intent to terminate
prior to the expiration of the then-current term. This agreement was amended on
October 26, 1999 to provide more detailed change in control provisions. The
agreement terminates upon Dr. Gillings' death, upon notice by us if Dr. Gillings
becomes permanently disabled, upon notice by us 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 18 months
following such change in control), upon notice by Dr. Gillings in the event of
our material breach or improper termination of the employment agreement and upon
notice by Dr. Gillings if Dr. Gillings is not elected as our Chairman of the
Board and Chief Executive Officer. 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 us,
or for a change in position. In the
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<PAGE> 78
event of termination by Dr. Gillings due to permanent disability, breach or
improper termination by us or for a change in position, we 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. In the event that Dr. Gillings
terminates his employment or is terminated by us without cause within 18 months
following a change in control, we must make a severance payment equal to 2.99
times the amount of Dr. Gillings' base salary and executive compensation plan
benefits for the year of termination, continue his other benefit plans for 18
months and make a lump sum payment of any amounts held by Dr. Gillings in any
retirement plan of ours. In addition, upon a change in control, all options held
by Dr. Gillings will become fully vested and exercisable. We are 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 us in any geographic area in
which we do business and cannot solicit or interfere with our relationship with
any person or entity doing business with us, or offer employment to any person
employed by us 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 us.
We entered into split-dollar life insurance agreements as of May 16,
1996 with certain trusts created by Dr. Gillings, pursuant to which we and the
trusts will share in the premium costs of certain variable and whole life
insurance policies that pay an aggregate death benefit to the trusts upon the
death of Dr. Gillings or his 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 we pay the remaining premiums. We 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, we are entitled to repayment of an amount equal to the cumulative
premiums previously paid by us thereunder, with all remaining amounts going to
the trust. Upon any surrender of a policy, the liability of the related trust to
us is limited to the cash value of the policy. See footnotes (4), (7) and (10)
to the "Summary Compensation Table" above for additional information on premium
payments that we made under the policies.
Effective November 29, 1999, Mr. Costa ceased to be our President and
Chief Operating Officer and became our Vice Chairman. His amended and restated
employment agreement, dated November 30, 1999, extends through December 31,
2001. The agreement terminates upon the death of Mr. Costa, upon notice by us if
Mr. Costa becomes permanently disabled, upon notice by us 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 within 18 months
following such change in control) and upon notice by Mr. Costa in the event of
our material breach. The agreement provides for severance payments and
continuation of benefits in the event Mr. Costa's employment is terminated prior
to expiration of the agreement. In the event of termination by Mr. Costa for
reasons other than a change in control, we must pay Mr. Costa his full base
salary until December 31, 2001, any annual bonus, prorated to the date of
termination, and other benefits under the agreement, subject to certain
limitations and exceptions. In the event that Mr. Costa terminates his
employment or is terminated by us without cause within 18 months after a change
in control, we must make a severance payment equal to 2.99 times the annual
average amount of Mr. Costa's compensation for the two most recent fiscal years,
including executive compensation plan benefits as well as continue his other
benefit plans for eighteen months and make a lump sum payment of any amounts
held by Mr. Costa in any retirement plan of ours. In addition, upon a change in
control, all options held by Mr. Costa will become fully vested and exercisable.
We are 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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Dr. Reynders' employment agreement, which was amended and restated on
March 17, 2000, calls for Dr. Reynders to serve as Chief Executive Officer,
Quintiles CRO Service Group. The agreement automatically renews for successive
one year terms, unless either party provides 90 days notice prior to the renewal
date of intent to terminate. The agreement is terminable by us for cause. Either
party may terminate the agreement at any time by providing the other party with
90 days written notice. If Dr. Reynders terminates the employment relationship
as a result of our failure to cure a material breach of the agreement after 30
days notice of such breach, he is entitled to an amount equal to his then
current salary for 12 months. In the event that Dr. Reynders terminates his
employment or is terminated by us without cause within 18 months after a change
in control, as defined in the agreement, we must make a severance payment equal
to 2.99 times the amount of his base salary and executive compensation plan
benefits for the year of termination, continue his other benefit plans for
eighteen months and make a lump sum payment of any amounts held by Dr. Reynders
in any retirement plan of ours. In addition, upon a change in control, all
options held by Dr. Reynders will become fully vested and exercisable. The
agreement includes a one year non-compete provision following termination of
employment and prohibits disclosure of confidential information.
Ms. Selisker's employment agreement, dated January 1, 1995, extends for
successive one year intervals unless terminated by either party with 90 days
written notice. This employment agreement was amended on October 25, 1999 to
provide more detailed change in control provisions. Ms. Selisker has resigned
her position as Chief Financial Officer and will serve as a senior consultant in
the creation of our global shared services centers for finance and human
resources. Her employment agreement, however, remains in effect until superseded
by a replacement agreement. The January 1, 1995 agreement, as amended,
terminates automatically upon Ms. Selisker's attaining the age of 65, her death,
total and permanent disability, a material breach of her employment agreement
that is not cured within 30 days of written notice, acts of dishonesty,
commission of certain crimes or failure to perform her duties under the
agreement. The agreement provides for severance payments and continuation of
benefits in the event that either we voluntarily terminate the agreement by
giving notice of our intention not to renew, in the event of Ms. Selisker's
total and permanent disability or if Ms. Selisker terminates after a material
breach by us which we fail to cure within 30 days. In the event that Ms.
Selisker terminates her employment or is terminated by us without cause within
18 months following a change in control, as defined in the agreement, we must
make a severance payment equal to 2.99 times the amount of Ms. Selisker's base
salary and executive compensation plan benefits for the year of termination,
continue her other benefit plans for 18 months and make a lump sum payment of
any amounts held by Ms. Selisker in any retirement plan of ours. In addition,
upon a change in control, all options held by Ms. Selisker will become fully
vested and exercisable. The agreement includes a one year non-compete provision
and prohibits Ms. Selisker from soliciting or interfering with our relationship
with any person doing business with us or offering employment to any person
employed by us in the one year period prior to Ms. Selisker's termination of
employment.
Mr. Kever's employment agreement terminates three years from March 30,
1999. This employment agreement was amended on November 23, 1999 to provide more
detailed change in control provisions. The agreement gives us the ability to
terminate Mr. Kever's employment at any time for any reason, and Mr. Kever may
resign at any time. Upon termination by ENVOY or resignation by Mr. Kever for
any reason other than in connection with change in control, as defined in the
agreement, of Quintiles Transnational Corp., Mr. Kever is entitled to receive
his base salary and cash bonus, as defined in the agreement, for the remainder
of the term of the agreement, payable in the same amounts and at the same times
as if the employment had not terminated. In the event that Mr. Kever terminates
his employment or is terminated by us without cause within 18 months following a
change in control we must make a severance payment equal to 2.99 times the
amount of Mr. Kever's base salary and executive
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compensation plan benefits for the year of termination, continue his other
benefit plans for 18 months and make a lump sum payment of any amounts held by
Mr. Kever in any retirement plan of ours. In addition, upon a change in control,
all options held by Mr. Kever will become fully vested and exercisable. The
agreement includes a non-compete that extends from the later of (1) the last day
of the employment agreement's three year term or (2) 18 months following Mr.
Kever's termination or resignation. This non-compete provision prohibits Mr.
Kever from competing against us in any geographical area in which we do business
or soliciting or hiring any of our employees. Mr. Kever's employment agreement
prohibits disclosure of any confidential information acquired in the course of
his employment.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SHARE OWNERSHIP OF MANAGEMENT
The following table provides information, as of February 29, 2000,
regarding shares of our common stock owned of record or known to us to be owned
beneficially by each director, each executive officer named in the Summary
Compensation Table in Item 11 and all current 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.
Shares
Beneficially Percent
Name Owned(1) of Class
---- ------------ --------
Dennis B. Gillings, Ph.D. (2) 6,112,530 5.3%
Santo J. Costa (3) 308,612 *
Ludo Reynders (4) 227,085 *
Rachel R. Selisker (5) 171,382 *
William E. Ford (6) 2,818,421 2.4%
Fred C. Goad (7) 963,447 *
Jim D. Kever (8) 1,018,226 *
Robert C. Bishop, Ph.D. (9) 36,345 *
Chester W. Douglass, Ph.D. (10) 367,693 *
Arthur M. Pappas (11) 79,943 *
Vaughn D. Bryson (12) 15,585 *
Virginia V. Weldon, M.D. (13) 9,601 *
Eric J. Topol, M.D. (14) 8,727 *
E.G.F. Brown (15) 14,493 *
All current directors and executive officers as a 11,776,174 10.0%
group (14 persons) (16)
- -------------------------
*Less than one percent
(1) Pursuant to the rules of the Securities and Exchange Commission,
certain shares of our 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. Such shares are described below as being subject to
presently exercisable stock options. A beneficial owner of shares held
in our ESOP or Approved Profit Sharing Scheme has sole voting power
over the shares held in his or her account, but shares investment power
over the shares with the Trustee.
(2) Includes 183,370 shares subject to presently exercisable stock options
and 161,219 shares held by our ESOP for Dr. Gillings' account. Includes
6,739 shares owned by Dr. Gillings' daughter, 180,000 shares owned by
the Gillings Family Limited Partnership, of which Dr. Gillings and his
wife are the general partners, 7,200 shares held by the GFEF Limited
Partnership, of which Dr. Gillings is the general partner, 198,618
shares owned by Dr. Gillings' wife and 834,766 shares owned by a
Grantor Retained Annuity Trust under which Dr. Gillings is the
beneficiary.
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<PAGE> 82
Dr. Gillings shares voting power over 392,557 shares and shares
investment power over 1,388,542 shares. Dr. Gillings disclaims
beneficial ownership of all shares owned by his wife and daughter, all
shares in the Gillings Family Limited Partnership, all shares owned by
the GFEF Limited Partnership and all shares in the GRAT, except to the
extent of his interest therein.
(3) Includes 281,917 shares subject to presently exercisable stock options
and 3,645 shares held by our ESOP for Mr. Costa's account.
(4) Includes 112,971 shares subject to presently exercisable stock options,
702 shares held by Quintiles (UK) Limited Approved Profit Sharing
Scheme for Dr. Reynders' account and 166 shares held by our ESOP for
Dr. Reynders' account.
(5) Includes 81,949 shares subject to presently exercisable stock options
and 44,069 shares held by our ESOP for Ms. Selisker's account.
(6) Includes 8,622 shares subject to presently exercisable stock options.
(7) Includes 658,790 shares subject to presently exercisable stock options.
(8) Includes 635,470 shares subject to presently exercisable stock options
and 63,960 shares in a trust for the benefit of Mr. Kever's minor
children.
(9) Includes 33,845 shares subject to presently exercisable stock options.
(10) Includes 36,593 shares subject to presently exercisable stock options.
Includes 93,600 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.
(11) Includes 33,843 shares subject to presently exercisable stock options.
(12) Includes 12,585 shares subject to presently exercisable stock options.
(13) Includes 8,601 shares subject to presently exercisable stock options.
(14) Includes 8,727 shares subject to presently exercisable stock options.
(15) Includes 6,493 shares subject to presently exercisable stock options.
(16) Does not include shares beneficially owned by named executive officers
who are not executive officers as of the date of this report. Includes
1,930,550 shares subject to presently exercisable stock options and
165,198 shares held by our ESOP for the accounts of individual
executive officers.
80
<PAGE> 83
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table provides information regarding shares of our common
stock known to be beneficially owned by persons holding more than five percent
of our outstanding common stock (other than directors and executive officers
shown in the preceding table) as of February 29, 2000.
SHARES BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- ------------------------------------ ----- -----
Capital Group International, Inc. (1) 22,264,870 19.4%
Capital Guardian Trust Company
11100 Santa Monica Blvd
Los Angeles, California 90025
Capital Research and Management Company (2) 9,292,560 8.1%
333 South Hope Street
Los Angeles, California 90071
- ---------------------
(1) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2000. Capital Group International, a holding
company, reports sole dispositive power over the shares held by its
subsidiaries. Capital Guardian Trust Company, a bank subsidiary of
Capital Group International, reports sole voting power over 10,541,450
shares and sole dispositive power over 13,375,100 shares. Both Capital
Group International and Capital Guardian Trust disclaim beneficial
ownership of the shares.
(2) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2000. Capital Research and Management
Company has sole dispositive power over the shares, but does not have
voting power over the shares and disclaims beneficial ownership of the
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 30, 1999, we acquired all of the outstanding shares of ENVOY
in exchange for approximately 28,465,160 shares of our common stock. Fred C.
Goad, Jim D. Kever and William E. Ford served as directors of ENVOY prior to the
share exchange and currently serve as our directors. In addition, Mr. Goad
served as ENVOY's Chairman and Co-Chief Executive Officer and Mr. Kever served
as ENVOY's President and Co-Chief Executive Officer. As a result of the share
exchange, Mr. Goad received 209,715 shares of our common stock and fully vested
stock options covering 711,260 shares of our common stock. In addition, a trust
of which Mr. Goad is the trustee and a sole beneficiary received 89,432 shares
of our common stock and Mr. Goad's wife received 15,304 shares of our common
stock. Mr. Kever received 468,181 shares of our common stock and fully vested
stock options covering 635,470 shares of our common stock. In addition, a trust
of which Mr. Kever is the trustee and the sole beneficiary received 69,960
shares of our common stock. GAP 25, whose general partner is GAP LLC, of which
Mr. Ford is a managing member, received 2,818,421 shares of our common stock and
GAPCO, of which Mr. Ford is a general partner, received 446,378 shares of our
common stock. Mr. Ford received fully vested stock options covering 4,464 shares
of our common stock. All of the stock options received in the share exchange by
Messrs. Goad, Kever and Ford became exercisable immediately.
81
<PAGE> 84
In connection with the ENVOY share exchange, Mr. Goad resigned as
ENVOY's Chairman and Co-Chief Executive Officer which entitled him to receive
certain payments under the terms of his Amended and Restated Employment
Agreement with ENVOY dated January 1, 1994. Pursuant to that agreement, ENVOY
paid Mr. Goad a lump sum payment of $1,132,463. Mr. Goad is also entitled to
receive reimbursement for certain expenses and benefits, including reimbursement
for excise taxes, if any, that may be incurred by Mr. Goad in connection with
the lump sum payment or acceleration of stock options under that agreement. Mr.
Goad remains subject to non-competition restrictions contained in that
agreement.
Effective March 15, 1995, A.M. Pappas & Associates, LLC, or AMP&A,
entered into a consulting agreement with us. The 1995 Consulting Agreement
superseded the July 11, 1994 consulting agreement. In compliance with the terms
of the 1995 Consulting Agreement, we granted Mr. Pappas stock options on March
15, 1995 covering 40,000 shares of our common stock at an exercise price of
$8.75 per share which vested 50% on March 15, 1995, 75% on March 15, 1996 and
100% on March 15, 1997. Fifty percent of the fees invoiced 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.
Between the expiration of the 1995 consulting agreement in March 1998 and the
execution of a replacement agreement on January 1, 2000, AMP&A continued to
provide us with consulting services substantially in accordance with the terms
of the 1995 agreement. In 1999, we paid consulting fees of $195,385 in cash. On
January 1, 2000, we entered into a new consulting agreement with AMP&A. The 2000
consulting agreement calls for a minimum aggregate consulting fee (exclusive of
expenses) per year of $200,000, and AMP&A has agreed not to invoice us for more
than $220,000 per year without our prior consent. We have agreed to reimburse
AMP&A for all reasonable out-of-pocket and administrative expenses incurred by
AMP&A in connection with performing its services.
We are a limited partner in TechAMP International, L.P., a fund
organized to make venture capital investments in the equity securities of
private companies in the life science sector. TechAMP is managed by its general
partner, AMP&A Management, LLC, an affiliate of AMP&A. We have committed to
invest an aggregate of $8,000,000 in TechAMP. As a limited partner, we will make
capital contributions under this commitment from time to time at the request of
the fund's general partner. In 1999, we made capital contributions of $2,424,000
to TechAMP.
In November 1997, we signed a preferred provider agreement with The
Cleveland Clinic Foundation, pursuant to which The Cleveland Clinic will work
with us as a preferred provider for investigator services in certain therapeutic
areas, including cardiology, AIDS, cancer and molecular genetics, and we will
work with The Cleveland Clinic as a preferred provider for contract drug
development services. Dr. Topol is Chairman of the Department of Cardiology and
a co-director of the Heart Center at The Cleveland Clinic. In 1999, pursuant to
the 1997 preferred provider agreement, we incurred fees of $192,604, all of
which were paid in 1999.
82
<PAGE> 85
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following financial statements and
supplementary data are included in Item 8 of this report.
Financial Statements Form 10-K Page
-------------------- --------------
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Report of Independent Auditors
(a)(2) Financial Statement Schedules. All applicable financial statement
schedules required under Regulation S-X have been included in the Notes to the
Consolidated Financial Statements.
(a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K are listed
below.
83
<PAGE> 86
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.01(1) Amended and Restated Articles of Incorporation, as amended
3.02(2) Amended and Restated Bylaws, as amended
4.01(3) Indenture, dated as of May 17, 1996, between Quintiles
Transnational Corp. and Marine Midland Bank, as Trustee, with
respect to our 4.25% Convertible Subordinated Notes due May 31,
2000
4.02 Amended and Restated Articles of Incorporation, as amended (see
Exhibit 3.01)
4.03 Amended and Restated Bylaws, as amended (see Exhibit 3.02)
4.04(4) Specimen certificate for Common Stock, $0.01 par value per share
4.05(5) Form of 4.25% Convertible Subordinated Notes in Unrestricted
Global Form
4.06(5) Form of 4.25% Convertible Subordinated Notes in Certificated Form
4.07(6) Rights Agreement, dated as of November 5, 1999 between Quintiles
Transnational Corp. and First Union National Bank, including form
of Articles of Amendment of Amended and Restated Articles of
Incorporation, form of Rights Certificate and the Summary of
Rights to Purchase Preferred Stock
10.01(4)(7) Employment Agreement, dated February 22, 1994, by and between Dr.
Dennis B. Gillings and Quintiles Transnational Corp.
10.02(7) Amendment to Contract of Employment, dated October 26, 1999, by
and between Dr. Dennis B. Gillings and Quintiles Transnational
Corp.
10.03(7) Amended and Restated Executive Employment Agreement, dated
November 30, 1999, by and between Santo J. Costa and Quintiles
Transnational Corp.
10.04(7)(8) Employment Agreement, dated January 1, 1995, by and between
Rachel R. Selisker and Quintiles Transnational Corp.
10.05(7) Amendment to Contract of Employment, dated October 25, 1999 by
and between Rachel R. Selisker and Quintiles Transnational Corp.
10.06(7) Amended and Restated Executive Employment Agreement, dated March
17, 2000, by and between Dr. Ludo Reynders and Quintiles, Inc.
10.07(7) Amended and Restated Employment Agreement, dated March 30, 1999
by and between Jim D. Kever and Envoy Corporation
84
<PAGE> 87
Exhibit Description
- ------- -----------
10.08(7) Amendment to Executive Employment Agreement, dated November 23,
1999, by and between Jim D. Kever and Envoy Corporation
10.09(7) Executive Employment Agreement, dated June 16, 1998, by and
between James L. Bierman and Quintiles Transnational Corp.
10.10(7) Executive Employment Agreement, dated December 3, 1998, by and
between John S. Russell and Quintiles Transnational Corp.
10.11(7) Amendment to Executive Employment Agreement, dated October 26,
1999, by and between John S. Russell and Quintiles Transnational
Corp.
10.12(4)(7) Quintiles Transnational Corp. Non-Qualified Employee Incentive
Stock Option Plan
10.13(7) Quintiles Transnational Corp. Equity Compensation Plan, as
amended and restated on November 4, 1999
10.14(7) Quintiles Transnational Corp. Elective Deferred Compensation
Plan, as amended and restated
10.15(7) Quintiles Transnational Corp. Nonqualified Stock Option Plan
10.16(7) Amended and Restated Envoy Corporation 1995 Employee Stock
Incentive Plan
10.17(9) Sublease, dated January 18, 1996, by and between Legent
Corporation and Innovex, Inc.
10.18(10) Underlease, dated November 28, 1997, by and between PDFM Limited
and Quintiles (UK) Limited and guaranteed by the Company
10.19 Consulting Agreement dated as of January 1, 2000 between
Quintiles Transnational Corp. and A.M. Pappas & Associates, LLC
[Note: Certain confidential portions of this exhibit have been
omitted, as indicated in the exhibit with an asterisk (*), and
filed separately with the Securities and Exchange Commission.]
10.20(11) Agreement for the Provision of Research Services and Lease of
Business Assets dated as of March 3, 1995, between Syntex
Pharmaceuticals Limited, Quintiles Scotland Limited, Quintiles
(UK) Limited, and Roche Products Limited
10.21(12) Merger Agreement, dated as of December 14, 1998, among Quintiles
Transnational Corp., QTRN Acquisition Corp., and Pharmaceutical
Marketing Services Inc.
10.22(13) Amended and Restated Agreement and Plan of Merger, dated December
15, 1998, among Quintiles Transnational Corp., QELS Corp., and
ENVOY Corporation
10.23(14) Credit Agreement dated as of August 7, 1998
85
<PAGE> 88
Exhibit Description
- ------- -----------
10.24(15) Agreement for the Provision of Research Services and Purchase of
Business Assets, dated as of January 1, 1999, between Hoescht
Marion Roussel, Inc. and Quintiles, Inc.
10.25(16) Agreement and Plan of Merger, dated as of January 22, 2000, among
Quintiles Transnational Corp., Healtheon/WebMD Corporation, Pine
Merger Corp., Envoy Corp. and Qfinance, Inc.
21 Subsidiaries
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Ernst & Young LLP
23.03 Consent of Ernst & Young LLP
24.01 Power of Attorney (included on the signature page hereto)
27.01 Restated Financial Data Schedule year ended 12/31/97 (for SEC use
only)
27.02 Restated Financial Data Schedule 3 months ended 3/31/98 (for SEC
use only)
27.03 Restated Financial Data Schedule 6 months ended 6/30/98 (for SEC
use only)
27.04 Restated Financial Data Schedule 9 months ended 9/30/98 (for SEC
use only)
27.05 Restated Financial Data Schedule year ended 12/31/98 (for SEC use
only)
27.06 Restated Financial Data Schedule 3 months ended 3/31/99 (for SEC
use only)
27.07 Restated Financial Data Schedule 6 months ended 6/30/99 (for SEC
use only)
27.08 Restated Financial Data Schedule 9 months ended 9/30/99 (for SEC
use only)
27.09 Financial Data Schedule year ended 12/31/99 (for SEC use only)
99.01 Report of Independent Auditors
- -------------------------
(1) Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, as filed with the Securities and
Exchange Commission, on November 15, 1999, and incorporated
herein by reference.
(2) Exhibit to our Current Report on Form 8-K dated November 5,
1999, as filed with the Securities and Exchange Commission on
November 5, 1999 and incorporated herein by reference.
86
<PAGE> 89
(3) Exhibit to our Quarterly Report on Form 10-Q, as filed with
the Securities and Exchange Commission on August 14, 1996, and
incorporated herein by reference.
(4) Exhibit to our Registration Statement on Form S-1, as amended,
as filed with the Securities and Exchange Commission (File No.
33-75766) effective April 20, 1994, and incorporated herein by
reference.
(5) Exhibit to our Registration Statement on Form S-3, as amended,
as filed with the Securities and Exchange Commission (File No.
333-19009) effective February 1, 1997, and incorporated
herein by reference.
(6) Exhibit to our Registration Statement on Form 8-A, as filed
with the Securities and Exchange Commission on November 5,
1999, and incorporated herein by reference.
(7) Executive compensation plans and arrangements.
(8) Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, as filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.
(9) Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as filed with the Securities and
Exchange Commission on March 25, 1997, and incorporated herein
by reference.
(10) Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Securities and
Exchange Commission on March 30, 1998, and incorporated herein
by reference.
(11) Exhibit to our Current Report on Form 8-K dated March 6, 1995,
as filed with the Securities and Exchange Commission on March
20, 1995, and incorporated herein by reference.
(12) Exhibit to our Current Report on Form 8-K dated December 16,
1998, as filed with the Securities and Exchange Commission on
December 16, 1998, and incorporated herein by reference.
(13) Exhibit to our Current Report on Form 8-K dated December 16,
1998, as filed with the Securities and Exchange Commission on
December 17, 1998, and incorporated herein by reference.
(14) Exhibit to our Quarterly Report on Form 10-Q dated November
16, 1998, as filed with the Securities and Exchange Commission
on November 16, 1998, and incorporated herein by reference.
(15) Exhibit to our Current Report on Form 8-K dated March 3, 1999,
as filed with the Securities and Exchange Commission on March
3, 1999, and incorporated herein by reference.
87
<PAGE> 90
(16) Exhibit to our Current Report on Form 8-K, dated January 25,
2000, as filed with the Securities and Exchange Commission on
January 25, 2000, and incorporated herein by reference.
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K dated October 5, 1999, reporting
the filing of a class action lawsuit against us on September 30, 1999 in the
United States District Court for the Middle District of North Carolina.
We filed a Current Report on Form 8-K dated October 20, 1999, including
as an exhibit a press release regarding our financial results for the three
month period ended September 30, 1999.
We filed a Current Report on Form 8-K dated November 5, 1999 (1)
reporting the distribution of one preferred stock purchase right for each
outstanding share of our common stock pursuant to a Rights Agreement that we
entered into with First Union National Bank, as rights agent, and (2) attaching
as exhibits (a) the Rights Agreement, dated November 5, 1999 and (b) our Amended
and Restated Bylaws, as amended March 13, 1996 and November 4, 1999.
88
<PAGE> 91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Durham, North Carolina,
on the 30th day of March, 2000.
QUINTILES TRANSNATIONAL CORP.
By: /s/Dennis B. Gillings
--------------------------------------
Dennis B. Gillings, Ph.D.
Chairman of the Board of Directors and
Chief Executive Officer
89
<PAGE> 92
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dennis B. Gillings and James L. Bierman
and each of them, each with full power to act without the other, his true and
lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Dennis B. Gillings Chairman of the Board of March 30, 2000
- ---------------------------- Directors and Chief
Dennis B. Gillings, Ph.D. Executive Officer
/s/ James L. Bierman Chief Financial Officer March 30, 2000
- ----------------------------
James L. Bierman
/s/ Robert C. Bishop Director March 30, 2000
- ----------------------------
Robert C. Bishop, Ph.D.
/s/ E. G. F. Brown Director March 30, 2000
- ----------------------------
E. G. F. Brown
/s/ Vaughn D. Bryson Director March 30, 2000
- ----------------------------
Vaughn D. Bryson
Vice-Chairman and Director March __, 2000
- ----------------------------
Santo J. Costa
/s/ Chester W. Douglass Director March 30, 2000
- ----------------------------
Chester W. Douglass, Ph.D.
/s/ William E. Ford Director March 30, 2000
- ----------------------------
William E. Ford
/s/ Fred C. Goad Director March 30, 2000
- ----------------------------
Fred C. Goad
/s/ Jim D. Kever Director and Chief Executive March 30, 2000
- ---------------------------- Officer of ENVOY
Jim D. Kever
/s/ Arthur M. Pappas Director March 30, 2000
- ----------------------------
Arthur M. Pappas
/s/ Eric J. Topol Director March 30, 2000
- ----------------------------
Eric J. Topol, M.D.
/s/ Virginia V. Weldon Director March 30, 2000
- ----------------------------
Virginia V. Weldon, M.D.
90
<PAGE> 93
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.01(1) Amended and Restated Articles of Incorporation, as amended
3.02(2) Amended and Restated Bylaws, as amended
4.01(3) Indenture, dated as of May 17, 1996, between Quintiles
Transnational Corp. and Marine Midland Bank, as Trustee, with
respect to our 4.25% Convertible Subordinated Notes due May 31,
2000
4.02 Amended and Restated Articles of Incorporation, as amended (see
Exhibit 3.01)
4.03 Amended and Restated Bylaws, as amended (see Exhibit 3.02)
4.04(4) Specimen certificate for Common Stock, $0.01 par value per share
4.05(5) Form of 4.25% Convertible Subordinated Notes in Unrestricted
Global Form
4.06(5) Form of 4.25% Convertible Subordinated Notes in Certificated Form
4.07(6) Rights Agreement, dated as of November 5, 1999 between Quintiles
Transnational Corp. and First Union National Bank, including form
of Articles of Amendment of Amended and Restated Articles of
Incorporation, form of Rights Certificate and the Summary of
Rights to Purchase Preferred Stock
10.01(4)(7) Employment Agreement, dated February 22, 1994, by and between Dr.
Dennis B. Gillings and Quintiles Transnational Corp.
10.02(7) Amendment to Contract of Employment, dated October 26, 1999, by
and between Dr. Dennis B. Gillings and Quintiles Transnational
Corp.
10.03(7) Amended and Restated Executive Employment Agreement, dated
November 30, 1999, by and between Santo J. Costa and Quintiles
Transnational Corp.
10.04(7)(8) Employment Agreement, dated January 1, 1995, by and between
Rachel R. Selisker and Quintiles Transnational Corp.
10.05(7) Amendment to Contract of Employment, dated October 25, 1999 by
and between Rachel R. Selisker and Quintiles Transnational Corp.
10.06(7) Amended and Restated Executive Employment Agreement, dated March
17, 2000, by and between Dr. Ludo Reynders and Quintiles, Inc.
10.07(7) Amended and Restated Employment Agreement, dated March 30, 1999
by and between Jim D. Kever and Envoy Corporation
<PAGE> 94
Exhibit Description
- ------- -----------
10.08(7) Amendment to Executive Employment Agreement, dated November 23,
1999, by and between Jim D. Kever and Envoy Corporation
10.09(7) Executive Employment Agreement, dated June 16, 1998, by and
between James L. Bierman and Quintiles Transnational Corp.
10.10(7) Executive Employment Agreement, dated December 3, 1998, by and
between John S. Russell and Quintiles Transnational Corp.
10.11(7) Amendment to Executive Employment Agreement, dated October 26,
1999, by and between John S. Russell and Quintiles Transnational
Corp.
10.12(4)(7) Quintiles Transnational Corp. Non-Qualified Employee Incentive
Stock Option Plan
10.13(7) Quintiles Transnational Corp. Equity Compensation Plan, as
amended and restated on November 4, 1999
10.14(7) Quintiles Transnational Corp. Elective Deferred Compensation
Plan, as amended and restated
10.15(7) Quintiles Transnational Corp. Nonqualified Stock Option Plan
10.16(7) Amended and Restated Envoy Corporation 1995 Employee Stock
Incentive Plan
10.17(9) Sublease, dated January 18, 1996, by and between Legent
Corporation and Innovex, Inc.
10.18(10) Underlease, dated November 28, 1997, by and between PDFM Limited
and Quintiles (UK) Limited and guaranteed by the Company
10.19 Consulting Agreement dated as of January 1, 2000 between
Quintiles Transnational Corp. and A.M. Pappas & Associates, LLC
[Note: Certain confidential portions of this exhibit have been
omitted, as indicated in the exhibit with an asterisk (*), and
filed separately with the Securities and Exchange Commission.]
10.20(11) Agreement for the Provision of Research Services and Lease of
Business Assets dated as of March 3, 1995, between Syntex
Pharmaceuticals Limited, Quintiles Scotland Limited, Quintiles
(UK) Limited, and Roche Products Limited
10.21(12) Merger Agreement, dated as of December 14, 1998, among Quintiles
Transnational Corp., QTRN Acquisition Corp., and Pharmaceutical
Marketing Services Inc.
10.22(13) Amended and Restated Agreement and Plan of Merger, dated December
15, 1998, among Quintiles Transnational Corp., QELS Corp., and
ENVOY Corporation
10.23(14) Credit Agreement dated as of August 7, 1998
<PAGE> 95
Exhibit Description
- ------- -----------
10.24(15) Agreement for the Provision of Research Services and Purchase of
Business Assets, dated as of January 1, 1999, between Hoescht
Marion Roussel, Inc. and Quintiles, Inc.
10.25(16) Agreement and Plan of Merger, dated as of January 22, 2000, among
Quintiles Transnational Corp., Healtheon/WebMD Corporation, Pine
Merger Corp., Envoy Corp. and Qfinance, Inc.
21 Subsidiaries
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Ernst & Young LLP
23.03 Consent of Ernst & Young LLP
24.01 Power of Attorney (included on the signature page hereto)
27.01 Restated Financial Data Schedule year ended 12/31/97 (for SEC use
only)
27.02 Restated Financial Data Schedule 3 months ended 3/31/98 (for SEC
use only)
27.03 Restated Financial Data Schedule 6 months ended 6/30/98 (for SEC
use only)
27.04 Restated Financial Data Schedule 9 months ended 9/30/98 (for SEC
use only)
27.05 Restated Financial Data Schedule year ended 12/31/98 (for SEC use
only)
27.06 Restated Financial Data Schedule 3 months ended 3/31/99 (for SEC
use only)
27.07 Restated Financial Data Schedule 6 months ended 6/30/99 (for SEC
use only)
27.08 Restated Financial Data Schedule 9 months ended 9/30/99 (for SEC
use only)
27.09 Financial Data Schedule (for SEC use only)
99.01 Report of Independent Auditors
- -------------------------
(1) Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, as filed with the Securities and
Exchange Commission, on November 15, 1999, and incorporated
herein by reference.
(2) Exhibit to our Current Report on Form 8-K dated November 5,
1999, as filed with the Securities and Exchange Commission on
November 5, 1999 and incorporated herein by reference.
<PAGE> 96
(3) Exhibit to our Quarterly Report on Form 10-Q, as filed with
the Securities and Exchange Commission on August 14, 1996, and
incorporated herein by reference.
(4) Exhibit to our Registration Statement on Form S-1, as amended,
as filed with the Securities and Exchange Commission (File No.
33-75766) effective April 20, 1994, and incorporated herein by
reference.
(5) Exhibit to our Registration Statement on Form S-3, as amended,
as filed with the Securities and Exchange Commission (File No.
333-19009) effective February 1, 1997, and incorporated
herein by reference.
(6) Exhibit to our Registration Statement on Form 8-A, as filed
with the Securities and Exchange Commission on November 5,
1999, and incorporated herein by reference.
(7) Executive compensation plans and arrangements.
(8) Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, as filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.
(9) Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as filed with the Securities and
Exchange Commission on March 25, 1997, and incorporated herein
by reference.
(10) Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Securities and
Exchange Commission on March 30, 1998, and incorporated herein
by reference.
(11) Exhibit to our Current Report on Form 8-K dated March 6, 1995,
as filed with the Securities and Exchange Commission on March
20, 1995, and incorporated herein by reference.
(12) Exhibit to our Current Report on Form 8-K dated December 16,
1998, as filed with the Securities and Exchange Commission on
December 16, 1998, and incorporated herein by reference.
(13) Exhibit to our Current Report on Form 8-K dated December 16,
1998, as filed with the Securities and Exchange Commission on
December 17, 1998, and incorporated herein by reference.
(14) Exhibit to our Quarterly Report on Form 10-Q dated November
16, 1998, as filed with the Securities and Exchange Commission
on November 16, 1998, and incorporated herein by reference.
(15) Exhibit to our Current Report on Form 8-K dated March 3, 1999,
as filed with the Securities and Exchange Commission on March
3, 1999, and incorporated herein by reference.
<PAGE> 97
(16) Exhibit to our Current Report on Form 8-K, dated January 25,
2000, as filed with the Securities and Exchange Commission on
January 25, 2000, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.02
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement ("Amendment") is made
and entered into this the 26th day of October, 1999, by and between QUINTILES
TRANSNATIONAL CORP., a North Carolina Corporation (hereinafter the "Company"),
and DENNIS B. GILLINGS, PH.D. (hereinafter the "Executive").
WHEREAS, the Company and Executive are parties to an Executive
Employment Agreement dated February 22, 1994 (the "Employment Agreement"), a
copy of which is attached hereto as Exhibit A and incorporated herein; and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree to amend the Employment Agreement as follows:
1. The Employment Agreement is amended by deleting Section 4(d) of the
Employment Agreement and adding new Section 14 to the end thereof:
14. CHANGE IN CONTROL.
14.1 For purposes of this Amendment, a "Change in Control" shall mean
the occurrence of any one of the following:
(A) An acquisition (other than directly from the Company) of
any voting securities of the Company by any "Person" (as such term is used in
Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the Securities Exchange Act of 1934,
as amended (the "Act")), after which such Person, together with its "affiliates"
and "associates" (as such terms are defined in Rule 12b-2 under the Act),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of more than one-third (33.33%) of the total
voting power of the Company's then outstanding voting securities, but excluding
any such acquisition by the Company, any Person of which a majority of its
voting power or its voting equity securities or equity interests is owned,
directly or indirectly, by the Company (for purposes hereof, a "Subsidiary"),
any employee benefit plan of the Company or any of its Subsidiaries (including
any Person acting as trustee or other fiduciary for any such plan), or Dennis B.
Gillings;
<PAGE> 2
(B) The shareholders of the Company approve a merger, share
exchange, consolidation or reorganization involving the Company and any other
corporation or other entity that is not controlled by the Company, as a result
of which less than two-thirds (66.66%) of the total voting power of the
outstanding voting securities of the Company or of the successor corporation or
entity after such transaction are held in the aggregate by the holders of the
Company's voting securities immediately prior to such transaction;
(C) The shareholders of the Company approve a liquidation or
dissolution of the Company, or approve the sale or other disposition by the
Company of all or substantially all of the Company's assets to any Person (other
than a transfer to a Subsidiary of the Company);
(D) During any period of twenty-four (24) consecutive months,
the individuals who constitute the Board of Directors of the Company at the
beginning of such period (the "Incumbent Directors") cease for any reason to
constitute at least two-thirds (66.66%) of the Board of Directors; provided,
however, that a director who is not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director is elected or
recommended for election by at least two-thirds (66.66%) of the directors who
are then Incumbent Directors.
14.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the occurrence of a
Change in Control, Executive shall be entitled to receive payments and benefits
pursuant to this Agreement if, at the time of the Change in Control, (i)
Executive is in ECP Levels 1 to 2 and his employment is terminated pursuant to
Sections 14.2(A), (B), or (C) below, or (ii) Executive is in ECP Levels 2.5 to 4
and his employment is terminated pursuant to Sections 14.2(B) or (C) below.
(A) Within eighteen (18) months following a Change in Control,
Executive terminates his employment with Company by giving written notice of
such termination to Company.
(B) Within eighteen (18) months following a Change in Control,
Company terminates Executive's employment for reasons other than "Cause" as such
term is defined in Section 4(c) of the Employment Agreement.
2
<PAGE> 3
(C) Within eighteen (18) months following a Change in Control,
Executive terminates his employment with the Company for "Good Reason." For
purposes of this Amendment, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in Executive's status, title, position
or responsibilities (including reporting responsibilities) which, in Executive's
reasonable judgment, represents an adverse change from his status, title,
position or responsibilities in effect immediately prior thereto; the assignment
to Executive of any duties or responsibilities which in Executive's reasonable
judgment, are inconsistent with his status, title, position or responsibilities;
or any removal of Executive from or failure to reappoint or reelect him to any
of such positions, status, or title except in connection with the termination of
his employment for Cause or by Executive other than for Good Reason,
(ii) a reduction in Executive's base salary;
(iii) the Company's requiring Executive to be based
at any place outside a thirty (30) mile radius from Executive's principal place
of residence, except for reasonably required travel on Company's business which
is not greater than such travel requirements prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Executive is participating at
the time of a Change in Control, including benefits pursuant to the Executive
Compensation Plan or similar plans, without substituting plans providing
Executive with substantially similar or greater benefits, or the taking of any
action by the Company which would adversely affect Executive's participation in
or materially reduce Executive's benefits under any such plans or deprive
Executive of any material fringe benefit enjoyed by Executive at the time of the
Change in Control;
(v) any purported termination of Executive's
employment for Cause without grounds therefor;
(vi) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the Company;
3
<PAGE> 4
(vii) any material breach by the Company of any
provision of the Employment Agreement after Executive has given the Company
notice of the material breach and at least thirty (30) days to cure the breach
(or such longer period as may be reasonably required to cure the breach as long
as the Company is making good faith efforts to do so.); or
(viii) the failure of the Company to obtain an
+agreement, satisfactory to Executive, from any successor or assign of the
Company to assume and agree to perform the Employment Agreement, including this
Amendment.
14.3 SEVERANCE PAY AND BENEFITS. If Executive's employment with the
Company terminates under circumstances as described in Section 14.2. above,
Executive shall be entitled to receive all of the following:
(A) all accrued compensation through the termination date,
plus any Bonus for which the Executive otherwise would be eligible in the year
of termination, prorated through the termination date, payable in cash. For
purposes of Sections 14.3(A) and 14.3(B), "Bonus" shall be defined as any
benefits for which Executive would be eligible under the Executive Compensation
Plan described in Section 3.2 of the Employment Agreement. The amount of such
Bonus shall be paid in cash and, for purposes of Sections 14.3(A) and 14.3(B),
shall be calculated as if Executive had achieved 100% of Executive's performance
goals for that year.
(B) a severance payment equal to two and nine-tenths (2.9)
times the amount of Executive's most recent annual compensation, including the
amount of his most recent annual Bonus. The severance amount shall be paid (i)
in cash in thirty-four (34) equal monthly installments commencing one month
after the termination date, or (ii) in a lump sum, within one month after the
termination date, at the sole option of the Executive.
(C) the Company shall maintain in full force and effect, for
eighteen (18) months after the termination date, all life insurance, health,
accidental death and dismemberment, disability plans and other benefit programs
in which Executive is entitled to participate immediately prior to the
termination date, provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. Executive's
continued participation in such plans and programs shall be at no greater cost
to Executive than the cost he bore for such participation immediately prior
4
<PAGE> 5
to the termination date. If Executive's participation in any such plan or
program is barred, Company shall arrange upon comparable terms, and at no
greater cost to Executive than the cost he bore for such plans and programs
prior to the termination date, to provide Executive with benefits substantially
similar to, or greater than, those which he is entitled to receive under any
such plan or program; and
(D) a lump sum payment (or otherwise as specified by Executive
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Executive is entitled
to under the terms of any such plan through the date of termination.
14.4 STOCK OPTIONS.
(A) Upon a Change in Control, all options ("Options") to
purchase Common Stock of the Company held by Executive as of the date of the
Change in Control shall become fully vested and exercisable.
(B) If Executive's employment with the Company terminates
pursuant to Section 14.4, then the Options shall remain exercisable until the
later of:
(i) the expiration of the applicable period for
exercise following termination of employment set forth in the Option agreements
(or in any other agreement between Executive and the Company that supersedes the
Option agreements); or
(ii) three (3) years after the date of termination
(to the extent of the terms of the Options); provided, however, that any
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), that are exercised more than
ninety (90) days after the date of termination pursuant Section 14.2 shall be
treated for tax purposes as nonqualified stock options.
14.5 EXCISE TAX PAYMENTS.
(A) If any payment or benefit (within the meaning of Section
280G(b)(2) of the Code), to Executive or for his benefit pursuant to this
Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the amount of the Payment net of all taxes
other than the Excise Tax (the
5
<PAGE> 6
"Net Amount") shall be calculated. Executive shall then receive, in addition to
the Payment, an additional payment (the "Gross-Up Payment"), which shall be an
amount such that, after payment of all taxes (including the Excise Tax) on the
Payment and the Gross-Up Payment, Executive shall retain an amount equal to the
Net Amount.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Amendment and the amount of such Gross-Up Payment
shall be made at Company's expense by an accounting firm selected by Company and
reasonably acceptable to Executive which is designated as one of the five
largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to Company and Executive
within ten (10) days of the date Executive's employment terminates if
applicable, or such other time as requested by Company or by Executive (provided
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable
by Executive with respect to a Payment, it shall furnish Executive with an
opinion reasonably acceptable to Executive that no Excise Tax will be imposed
with respect to any such Payment. Within ten (10) days of the delivery of the
Determination to Executive, Executive shall have the right to dispute the
Determination (the "Dispute"). The Gross-Up Payment, if any, as determined
pursuant to this Section 14.5 shall be paid by Company to Executive within five
(5) days of the receipt of the Accounting Firm's determination. The existence of
the Dispute shall not in any way affect Executive's right to receive the
Gross-Up Payment in accordance with the Determination. Upon the final resolution
of a Dispute, Company shall promptly pay to Executive any additional amount
required by such resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon Company and Executive subject to the
application of Section (C) below.
(C) Notwithstanding anything in this Amendment to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment, Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment and the Gross-Up Payment, as
applicable.
(D) If Executive is subject to taxation under a non-United
States taxing authority and an excise tax similar to the Excise Tax is imposed
on any Payment by such non-United States taxing authority, then Executive shall
be entitled to
6
<PAGE> 7
receive a Gross-Up Payment as calculated pursuant to Section 14.5(A) above,
based upon the lesser of such non-United States excise tax imposed and the
Excise Tax that would have been imposed had the Payment been subject to United
States taxation.
2. Except as herein set forth, the Employment Agreement is not modified
or amended and the parties hereto reaffirm and agree to all of the terms and
provisions of the Employment Agreement, as herein amended, in all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Executive Employment Agreement as of the day and year first written above.
QUINTILES TRANSNATIONAL CORP.
By: /s/ Rachel R. Selisker
-----------------------------------
Name: Rachel R. Selisker
Title: CFO
/s/ Dennis B. Gillings
---------------------------------------
DENNIS B. GILLINGS
7
<PAGE> 1
EXHIBIT 10.03
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the
"Agreement") is entered into and made effective this 30th day of November, 1999
between Santo J. Costa ("Costa") and Quintiles Transnational Corp.
(the "Company").
WHEREAS, the Company and Costa are parties to an Executive Employment
Agreement dated February 22, 1994, amended by a First Amendment to Executive
Employment Agreement dated November 4, 1994 and by an Amendment to Contract of
Employment dated October 7, 1999; and
WHEREAS, the Company and Costa desire and intend by this Agreement to
amend and restate the existing Employment Agreement as amended and to specify
the terms and conditions of Costa's continuing employment relationship with the
Company; and
WHEREAS, Costa agrees to the terms of employment as set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. EMPLOYMENT.
The Company employs Costa as Vice Chairman of the Company.
Costa shall have such duties, responsibilities, and powers as the Board of
Directors of the Company (the "Board") may direct from time to time. Costa shall
faithfully and diligently discharge his duties and responsibilities hereunder,
shall use his best efforts to implement the policies established by the Board,
and shall devote substantially all of his business time and attention to the
affairs of the Company except as otherwise agreed by the Board. During the term
of this Agreement, Costa shall report directly to the Chairman or Chief
Executive Officer of the Company, or as he may otherwise be directed by the
Board.
2. TERM.
The term of this Agreement shall be for the period commencing
as of the date entered above, November 30, 1999, and ending on December 31,
2001. Notwithstanding the expiration of the term of this Agreement, the
obligations of the Company under Section 5 of this Agreement and the obligations
of Costa under Section 6 of this Agreement shall continue until all obligations
thereunder have been satisfied.
3. COMPENSATION AND BENEFITS.
The Company shall pay or provide to Costa the following items
as compensation for his services:
<PAGE> 2
(i) a base salary of $482,600 per year, which base
salary may be increased from time to time in accordance with normal business
practices of the Company, payable as follows: (a) the sum of $482,600, less all
applicable withholdings, shall be paid in January 2000; and (b) the sum of
$482,600, less all applicable withholdings, shall be paid in twenty-four (24)
equal monthly installments beginning in January 2000; and
(ii) Costa shall participate as a Level 1.5 employee
in the Executive Compensation Plan (or successor plans) ("ECP") which may be
made available from time to time to Company executives at Costa's level;
provided, however, that Costa's participation is subject to the applicable
terms, conditions and eligibility requirements of the plan documents, some of
which are within the plan administrator's discretion, as they may exist from
time to time; and
(iii) Participation in all general Company benefit
programs as may be adopted and maintained by the Company from time to time,
including the Company's Flexible Benefits Plan, which includes medical, dental,
life and general and long term disability insurance; an automobile allowance;
the Company's Employee Stock Ownership Plan (ESOP), 401(k) and any pension and
profit sharing plans, as may be adopted and maintained by the Company from time
to time for the employees generally or for a smaller group that includes senior
management employees; and
(iv) Four weeks paid personal leave on an annual
basis, or such greater period of leave consistent with Company policy. For any
calendar year during which Costa is employed for only a portion of the year,
personal leave days shall be adjusted pro rata. Personal leave shall not
cumulate and must be taken during the year in which it accrues, and is not
convertible into cash. Costa shall arrange personal leave in consultation with
the Company so as not to conflict with the reasonable needs of the Company.
Costa shall be entitled to the same holidays as other employees of the Company;
and
(v) Reimbursement of ordinary and necessary expenses,
in reasonable amounts, which Costa incurs in performing his duties under this
Agreement, including, but not limited to, travel, entertainment, professional
dues and subscriptions, and all dues, fees and expenses associated with
membership in various professional, business and civic associations and
societies of which Costa's participation is in the best interest of the Company;
and
(vi) Tax return preparation and reasonable financial
planning, consultation and advice by the Company's accounting firm and/or legal
counsel and/or financial consultants as may be provided by the Company for
senior management of the Company.
The above-stated items of compensation shall not be deemed all-inclusive, and
Costa may receive other compensation, as may from time to time be determined by
the Board.
2
<PAGE> 3
4. TERMINATION.
Costa's employment under this Agreement shall terminate:
(a) Death. Upon the death of Costa; or
(b) Disability. Upon notice from the Company to Costa if Costa
becomes "permanently disabled." For purposes of this Agreement, Costa shall be
deemed "permanently disabled" six (6) months after the first date that he has
become disabled by bodily or mental illness, disease, or injury, to the extent
that, in the opinion of the Board, he is prevented from performing his material
and substantial duties of employment, and such disability has continued
uninterrupted for six (6) months. If requested by the Company, Costa shall
submit to an examination by a physician selected by the Company for the purpose
of determining or confirming the existence or extent of any disability; or
(c) Cause. Upon notice from the Company to Costa for cause.
For purposes of this Agreement, "cause" shall be defined as (i) a material
breach by Costa of his fiduciary duties of loyalty or care to the Company, or
(ii) a willful violation by Costa of any provision of this Agreement, or (iii) a
conviction of, or the entering of a plea of nolo contendere by Costa for, any
felony or any crime involving fraud or dishonesty.
Any notice of termination of Costa's employment with the
Company for cause shall set forth in reasonable detail the facts and
circumstances claimed to provide the basis for termination of his employment
under the provisions contained herein and the date of termination ("Termination
Date"). If the cause alleged by the Company shall be other than Section
4(c)(iii) set forth above, Costa shall be given the opportunity to explain and,
if possible, to cease or correct the performance (or nonperformance) giving rise
to such notice within a reasonable period of time from receipt of notice, but in
no event to exceed thirty (30) days; and, upon failure, in the reasonable
judgment of the Board, of Costa to cease or correct such performance (or
nonperformance) within such thirty (30) day period, Costa's employment by the
Company shall automatically be terminated; or
(d) Breach. Upon notice from Costa to the Company of the
Company's failure to comply with any material provision of this Agreement,
provided that the Company shall have thirty (30) days from the receipt of such
notice to cure any default under this Agreement. If such default shall be cured
or if the Company shall have taken steps to cure the default and reasonably
expects to cure such default within the thirty (30) day period, Costa shall have
no right to terminate his employment under the provisions of this Section 4(d).
3
<PAGE> 4
5. COMPENSATION AND BENEFITS PAYABLE UPON TERMINATION.
If Costa's employment with the Company is terminated pursuant
to Section 4 hereof prior to December 31, 2001 and in the absence of a Change in
Control regardless of the circumstances of the termination, then Costa shall be
entitled to: (i) his base salary until December 31, 2001; (ii) any annual bonus
to which he may be entitled, prorated to the date of termination; and (iii)
continued participation until December 31, 2001, in all Company benefit plans
and programs in which Costa was entitled to participate immediately prior to the
termination of his employment at no greater cost to Costa than the cost he bore
for such participation immediately prior to the termination. If Costa's
participation in any such plans and programs is barred, then the Company shall
arrange upon comparable terms, and at no greater cost to Costa than the cost he
bore for such plans and programs prior to the termination date, to provide Costa
with benefits substantially similar to, or greater than, those which he is
entitled to receive under any such plan or program. Except in the event of
termination for cause pursuant to Section 4(c), any termination of Costa's
employment will be deemed to be a retirement (including specifically for
purposes of any stock option plan pursuant to which options have been issued to
Costa).
In addition, after December 31, 2001, the Company shall pay
for medical insurance for Costa until such time as he becomes eligible for
Medicare coverage and shall pay for medical insurance for his spouse until such
time as she becomes eligible for Medicare coverage. Said medical insurance
coverage shall be comparable to that coverage provided to Costa and his spouse
during the time he was employed by the Company. Costa shall be required to
contribute to the cost of such medical insurance at the same premium rates as
are paid by other management level employees of the Company for comparable
coverage.
In the event the Company breaches its obligations under this
Agreement, Costa has no obligation to mitigate damages.
6. NON-COMPETITION AND CONFIDENTIALITY.
In consideration of the Company's commitments to Costa
hereunder, and other good and valuable consideration, the receipt and adequacy
of which are acknowledged by Costa, Costa expressly covenants and agrees:
(a) That during the term of this Agreement and for a
period of one (1) year after termination of employment (irrespective of the
time, manner or cause of such termination, including expiration of the term
hereof) without the previous consent of the Company in writing, duly authorized
by resolution of the Board, Costa will not, directly or indirectly, as an
officer, director, stockholder, partner, associate, owner, employee, consultant
or otherwise, become or be interested in or associated with any other contract
research organization, corporation, firm or business engaged in the same or a
competitive business with the Company's business or with the business of any
subsidiary of the Company in a capacity connected with such entities'
competitive activities in the following geographical areas: (i) within a 60-mile
radius of the Company's office at 4709 Creekside Drive, Durham, North Carolina
27703-8411; (ii) any
4
<PAGE> 5
city, metropolitan area, county (or similar political subdivision in foreign
countries) in which Costa's substantial services were provided, or for which
Costa had substantial responsibility, or in which Costa performed substantial
work on Company and/or Affiliates' projects, while employed by the Company;
(iii) any city, metropolitan area, county (or similar political subdivisions in
foreign countries) in which the Company or its Affiliates is located or does or,
during Costa's employment with Company, did business (the "Covenant Not To
Compete"). As used in this Agreement, "Affiliates" shall mean: (i) any Company's
parent, subsidiary or related entity; and/or (ii) any entity directly or
indirectly controlled or beneficially owned in whole or in part by the Company
or Company's parent, subsidiary or related entity. It is agreed that ownership,
directly or indirectly, of not more than one (1%) percent of the issued and
outstanding stock of a Corporation, the shares of which are regularly traded on
a national securities exchange or in the over-the-counter market shall not be
deemed to be in violation of the preceding sentence.
(b) Costa shall not, at any time during the term of
employment by the Company, and for the period of the Covenant Not To Compete
contained in Section 6(a) above, directly or indirectly, solicit, or interfere
with the Company's or its subsidiaries' relationship with, or entice away from
Company or any of its subsidiaries, any customer, supplier, person, firm, or
corporation who has at any time during the one (1) year immediately preceding
termination of employment of Costa, done business with the Company, or any of
its subsidiaries or offer employment to or procure employment for any person who
has at any time during the one (1) year immediately preceding the termination of
employment of Costa, been employed by Company, or any of its subsidiaries.
(c) Costa shall not, at any time during the term of
employment by the Company, or at any time thereafter, use for any purpose other
than in the performance of his work for Company, or knowingly divulge, directly
or indirectly, to any entity or person any material information acquired by
Costa concerning the Company's, or its subsidiaries' formulae, computer
programming techniques, documentation, software source codes, object codes,
documentation, "know-how", processes, methods, research, development or
marketing techniques, programs, materials or plans, client lists or any other of
its or their trade secrets, confidential information, price lists, or pricing
policies, except information which is (i) in the public domain, or (ii) becomes
public knowledge through no fault of Costa, or (iii) is required to be disclosed
by court order or other government process or the disclosure of which is
necessary to enable Costa to comply with applicable law or defend against
claims. If Costa shall be required to make disclosure pursuant to the provisions
of Clause (iii) of the preceding sentence, Costa shall properly notify the
Company and take, at the expense of the Company, all reasonably necessary steps
requested by the Company to defend against the enforcement of such court order
or other government process; and permit the Company to participate with counsel
of its choice in any proceeding relating to the enforcement thereof.
5
<PAGE> 6
(d) Costa agrees that the restrictive covenants
contained above in Section 6 of this Agreement are reasonably necessary to
protect the Company's legitimate business interests, are reasonable with respect
to time and territory and scope of activities prohibited, and do not interfere
with public interest or public policy. Costa further agrees that the
descriptions of the restrictive covenants contained above in Section 6 are
sufficiently accurate and definite and Costa understands the scope and meaning
of the covenants.
(e) Costa agrees that a breach or violation of any of
the restrictive covenants contained above in Section 6 of this Agreement will
result in immediate and irreparable harm to the Company in an amount which may
be impossible to ascertain at the time of any breach or violation, and that an
award of monetary damages will not be adequate relief to the Company for such
harm. Therefore, Costa agrees that his failure to perform or comply with any or
all of the restrictive covenants shall give rise to a right for the Company to
obtain judicial enforcement of any or all of the restrictive covenants by a
decree of specific performance or other injunctive relief. Costa agrees such
remedy, however, shall be cumulative and in addition to any other remedy the
Company may have. Costa agrees that the period of time of protection required by
the restrictive covenants shall not be reduced by any period of time during
which he is in breach or violation of any such covenants. In any action by the
Company to enforce the provisions of this Section 6 or to recover damages
hereunder, the party prevailing in such action shall have the right to recover
from the other party it's reasonable attorneys' fees incurred in prosecuting
such action.
7. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company regardless
of whether such occurrence constitutes a Change in Control, and the Company
shall require any such successor to assume expressly and agree to perform this
Agreement. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
(b) This Agreement shall inure to the benefit of and be
enforceable by Costa's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If Costa
should die while any amount would still be payable hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Costa's devisee, legatee or other designee or, if there is no
such designee, to Costa's estate.
8. CHANGE IN CONTROL.
8.1 For purposes of this Amendment, a "Change in Control"
shall mean the occurrence of any one of the following:
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<PAGE> 7
(a) An acquisition (other than directly from the
Company) of any voting securities of the Company by any "Person" (as such term
is used in Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the Securities Exchange
Act of 1934, as amended (the "Act")), after which such Person, together with its
"affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the
Act), becomes the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of more than one-third (33.33%) of the
total voting power of the Company's then outstanding voting securities, but
excluding any such acquisition by the Company, any Person of which a majority of
its voting power or its voting equity securities or equity interests is owned,
directly or indirectly, by the Company (for purposes hereof, a "Subsidiary"),
any employee benefit plan of the Company or any of its Subsidiaries (including
any Person acting as trustee or other fiduciary for any such plan), or Dennis B.
Gillings;
(b) The shareholders of the Company approve a merger,
share exchange, consolidation or reorganization involving the Company and any
other corporation or other entity that is not controlled by the Company, as a
result of which less than two-thirds (66.66%) of the total voting power of the
outstanding voting securities of the Company or of the successor corporation or
entity after such transaction are held in the aggregate by the holders of the
Company's voting securities immediately prior to such transaction;
(c) The shareholders of the Company approve a
liquidation or dissolution of the Company, or approve the sale or other
disposition by the Company of all or substantially all of the Company's assets
to any Person (other than a transfer to a Subsidiary of the Company);
(d) During any period of 24 consecutive months, the
individuals who constitute the Board of Directors of the Company at the
beginning of such period (the "Incumbent Directors") cease for any reason to
constitute at least two-thirds of the Board of Directors; provided, however,
that a director who is not a director at the beginning of such period shall be
deemed to be an Incumbent Director if such director is elected or recommended
for election by at least two-thirds (66.66%) of the directors who are then
Incumbent Directors.
8.2 Termination Following Change in Control. After the
occurrence of a Change in Control, Costa shall be entitled to receive payments
and benefits pursuant to this Agreement if Costa's employment is terminated
pursuant to Sections 8.2(a), (b), or (c) below:
(a) Within eighteen (18) months following a Change in
Control, Costa terminates his employment with Company by giving written notice
of such termination to Company.
(b) Within eighteen (18) months following a Change in
Control, Company terminates Costa's employment for reasons other than "Cause" as
such term is defined in Section 4(c) of this Agreement.
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<PAGE> 8
(c) Within eighteen (18) months following a Change in
Control, Costa terminates his employment with the Company for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in Costa's status, title,
position or responsibilities (including reporting responsibilities) which, in
Costa's reasonable judgment, represents an adverse change from his status,
title, position or responsibilities in effect immediately prior thereto; the
assignment to Costa of any duties or responsibilities which in Costa's
reasonable judgment, are inconsistent with his status, title, position or
responsibilities; or any removal of Costa from or failure to reappoint or
reelect him to any of such positions, status, or title except in connection with
the termination of his employment for Cause or by Costa other than for Good
Reason;
(ii) a reduction in Costa's base salary;
(iii) the Company's requiring Costa to be
based at any place outside a thirty (30) mile radius from Costa's principal
place of residence, except for reasonably required travel on Company's business
which is not greater than such travel requirements prior to the Change in
Control;
(iv) the failure by the Company to continue
in effect any compensation, welfare or benefit plan in which Costa is
participating at the time of a Change in Control, including benefits pursuant to
the Executive Compensation Plan or similar plans, without substituting plans
providing Costa with substantially similar or greater benefits, or the taking of
any action by the Company which would adversely affect Costa's participation in
or materially reduce Costa's benefits under any such plans or deprive Costa of
any material fringe benefit enjoyed by Costa at the time of the Change in
Control;
(v) any purported termination of Costa's
employment for Cause without grounds therefor;
(vi) the insolvency or the filing (by any
party including the Company) of a petition for bankruptcy of the Company;
(vii) any material breach by the Company of
any provision of this Agreement after Costa has given the Company notice of the
material breach and at least thirty (30) days to cure the breach (or such longer
period as may be reasonably required to cure the breach as long as the Company
is making good faith efforts to do so.); or
(viii) the failure of the Company to obtain
an agreement, satisfactory to Costa, from any successor or assign of the Company
to assume and agree to perform this Agreement.
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<PAGE> 9
8.3 Severance Pay and Benefits. If Costa's employment with
the Company terminates under circumstances as described in Section 8.2 above,
Costa shall be entitled to receive all of the following:
(a) all accrued compensation through the termination
date, plus any Bonus for which the Costa otherwise would be eligible in the year
of termination, prorated through the termination date, payable in cash. For
purposes of Sections 8.3(a) and 8.3(b), "Bonus" shall be defined as any benefits
for which Costa would be eligible under the Executive Compensation Plan. The
amount of such Bonus shall be paid in cash and, for purposes of Sections 8.3(a)
and 8.3(b), shall be calculated as if Costa had achieved 100% of Costa's
performance goals for that year.
(b) a severance payment equal to two and ninety-nine
one-hundredths (2.99) times the annual average of Costa's compensation for the
most recent two (2) years, including the amount of his Bonus for the most recent
two (2) years. The severance amount shall be paid (i) in cash in thirty-four
(34) equal monthly installments commencing one month after the termination date,
or (ii) in a lump sum, within one month after the termination date, at the sole
option of Costa.
(c) the Company shall maintain in full force and
effect, for eighteen (18) months after the termination date, all life insurance,
health, accidental death and dismemberment, disability plans and other benefit
programs in which Costa is entitled to participate immediately prior to the
termination date, provided that Costa's continued participation is possible
under the general terms and provisions of such plans and programs. Costa's
continued participation in such plans and programs shall be at no greater cost
to Costa than the cost he bore for such participation immediately prior to the
termination date. If Costa's participation in any such plan or program is
barred, Company shall arrange upon comparable terms, and at no greater cost to
Costa than the cost he bore for such plans and programs prior to the termination
date, to provide Costa with benefits substantially similar to, or greater than,
those which he is entitled to receive under any such plan or program; and
(d) a lump sum payment (or otherwise as specified by
Costa to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Costa is entitled to
under the terms of any such plan through the date of termination.
8.4 Stock Options.
(a) Upon a Change in Control, all options ("Options")
to purchase Common Stock of the Company held by Costa as of the date of the
Change in Control shall become fully vested and exercisable.
(b) If Costa's employment with the Company terminates
pursuant to Section 8.2, then the Options shall remain exercisable until the
later of
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<PAGE> 10
(i) the expiration of the applicable period
for exercise following termination of employment set forth in the option
agreements (or in any other agreement between Costa and the Company that
supersedes the option agreements); or
(ii) three (3) years after the date of
termination (to the extent of the terms of the Options); provided, however, that
any "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), that are exercised more than
ninety (90) days after the date of termination pursuant Section 8.2 shall be
treated for tax purposes as nonqualified stock options.
8.5 Excise Tax Payments.
(a) If any payment or benefit (within the meaning of
Section 280G(b)(2) of the Code), to Costa or for his benefit pursuant to this
Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the amount of the Payment net of all taxes
other than the Excise Tax (the "Net Amount") shall be calculated. Costa shall
then receive, in addition to the Payment, an additional payment (the "Gross-Up
Payment"), which shall be an amount such that, after payment of all taxes
(including the Excise Tax) on the Payment and the Gross-Up Payment, Costa shall
retain an amount equal to the Net Amount.
(b) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount of such Gross-Up
Payment shall be made at Company's expense by an accounting firm selected by
Company and reasonably acceptable to Costa which is designated as one of the
five largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to Company and Costa
within ten (10) days of the date Costa's employment terminates if applicable, or
such other time as requested by Company or by Costa (provided Costa reasonably
believes that any of the Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by Costa with respect
to a Payment, it shall furnish Costa with an opinion reasonably acceptable to
Costa that no Excise Tax will be imposed with respect to any such Payment.
Within ten (10) days of the delivery of the Determination to Costa, Costa shall
have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 8.5 shall be paid by
Company to Costa within five (5) days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect Costa's
right to receive the Gross-Up Payment in accordance with the Determination. Upon
the final resolution of a Dispute, Company shall promptly pay to Costa any
additional amount required by such resolution. If there is no Dispute, the
Determination shall be binding, final and conclusive upon Company and Costa
subject to the application of Section (C) below.
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<PAGE> 11
(c) Notwithstanding anything in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment, Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment and the Gross-Up Payment, as
applicable.
(d) Costa is subject to taxation under a non-United
States taxing authority and an excise tax similar to the Excise Tax is imposed
on any Payment by such non-United States taxing authority, then Costa shall be
entitled to receive a Gross-Up Payment as calculated pursuant to Section 8.5(a)
above, based upon the lesser of such non-United States excise tax imposed and
the Excise Tax that would have been imposed had the Payment been subject to
United States taxation.
9. STOCK OPTIONS.
The Company and Costa specifically agree and acknowledge that
the following delineated stock options are the only such currently outstanding
options between the Company and Costa:
OPTION NUMBER SHARES
------------- ------
000174 19,200 (exercised 13,542;
5,658 remaining)
000407 10,620
000543 2,000
000665 8,000
001441 8,090
001442 2,910
001443 2,750
001620 3,996
002785 100,000
004905 5,549
005149 2,846
005150 10,943
009925 5,299
009931 3,451
009945 1,873
009946 11,930
017636 30,000
018324 90,000
018489 2,874
018490 2,356
018491 14,322
018492 4,003
11
<PAGE> 12
OPTION NUMBER SHARES
------------- ------
018493 23,541
018496 2,566
018497 31,988
The option agreements between the Company and Costa, including amendments
thereto, covering the above-listed options speak for themselves and are
incorporated herein by reference. Notwithstanding any provision in this
Agreement or any option agreement to the contrary, in the event of a termination
of Costa's employment for any reason other than for cause, all of the
above-listed options shall become fully vested and exerciseable as of the date
of such termination of employment.
10. MISCELLANEOUS.
(a) All notices required or permitted hereunder shall be given
in writing by actual delivery or by registered or certified mail (postage
prepaid) or by telecopy at the following addresses or at such other places as
shall be designated in writing:
Costa: Santo J. Costa
108 Martinique Place
Cary, North Carolina 27511
Company: Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Durham, North Carolina 27703-8411
Attn: General Counsel
(b) If any provision of this Agreement shall be determined to
be void by any court of competent jurisdiction, then such determination shall
not affect any other provision of this Agreement, all of which shall remain in
full force and effect.
(c) The failure of the parties to complain of any act or
omission on the part of either party, no matter how long the same may continue,
shall not be deemed to be a waiver of any of its rights hereunder.
(d) This Agreement contains the entire agreement of the
parties. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. It may be changed or terminated only by
a writing signed by the party against whom enforcement of any waiver, change,
modification, extension, discharge or termination is sought.
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(e) The recitals contained in this Agreement are expressly
made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Executive Employment Agreement as of the date and year first written above.
EMPLOYEE:
/s/ Santo J. Costa
--------------------------------------------
Santo J. Costa
QUINTILES TRANSNATIONAL CORP.
By: /s/ Dennis B. Gillings
--------------------------------------------
Dennis B. Gillings, Chairman
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<PAGE> 1
EXHIBIT 10.05
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement ("Amendment") is made
and entered into this the 25th day of October, 1999, by and between QUINTILES
TRANSNATIONAL CORP., a North Carolina Corporation (hereinafter the "Company"),
and RACHEL R. SELISKER (hereinafter the "Executive").
WHEREAS, the Company and Executive are parties to an Executive
Employment Agreement dated January 1, 1995 (the "Employment Agreement"), a copy
of which is attached hereto as Exhibit A and incorporated herein; and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree to amend the Employment Agreement as follows:
1. The Employment Agreement is amended by adding the following
section:
13. CHANGE IN CONTROL.
13.1 For purposes of this Amendment, a "Change in Control" shall mean
the occurrence of any one of the following:
(A) An acquisition (other than directly from the Company) of
any voting securities of the Company by any "Person" (as such term is used in
Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the Securities Exchange Act of 1934,
as amended (the "Act")), after which such Person, together with its "affiliates"
and "associates" (as such terms are defined in Rule 12b-2 under the Act),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of more than one-third (33.33%) of the total
voting power of the Company's then outstanding voting securities, but excluding
any such acquisition by the Company, any Person of which a majority of its
voting power or its voting equity securities or equity interests is owned,
directly or indirectly, by the Company (for purposes hereof, a "Subsidiary"),
any employee benefit plan of the Company or any of its Subsidiaries (including
any Person acting as trustee or other fiduciary for any such plan), or Dennis B.
Gillings;
<PAGE> 2
(B) The shareholders of the Company approve a merger, share
exchange, consolidation or reorganization involving the Company and any other
corporation or other entity that is not controlled by the Company, as a result
of which less than two-thirds (66.66%) of the total voting power of the
outstanding voting securities of the Company or of the successor corporation or
entity after such transaction are held in the aggregate by the holders of the
Company's voting securities immediately prior to such transaction;
(C) The shareholders of the Company approve a liquidation or
dissolution of the Company, or approve the sale or other disposition by the
Company of all or substantially all of the Company's assets to any Person (other
than a transfer to a Subsidiary of the Company);
(D) During any period of twenty-four (24) consecutive months,
the individuals who constitute the Board of Directors of the Company at the
beginning of such period (the "Incumbent Directors") cease for any reason to
constitute at least two-thirds (66.66%) of the Board of Directors; provided,
however, that a director who is not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director is elected or
recommended for election by at least two-thirds (66.66%) of the directors who
are then Incumbent Directors.
13.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the occurrence of a
Change in Control, Executive shall be entitled to receive payments and benefits
pursuant to this Amendment if, at the time of the Change in Control, (i)
Executive is in ECP Levels 1 to 2 and her employment is terminated pursuant to
Sections 13.2(A), (B), or (C) below, or (ii) Executive is in ECP Levels 2.5 to 4
and her employment is terminated pursuant to Sections 13.2(B) or (C) below.
(A) Within eighteen (18) months following a Change in Control,
Executive terminates her employment with Company by giving written notice of
such termination to Company.
(B) Within eighteen (18) months following a Change in Control,
Company terminates Executive's employment for reasons other than "Cause" as such
term is defined in Section 5 of the Employment Agreement.
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<PAGE> 3
(C) Within eighteen (18) months following a Change in Control,
Executive terminates her employment with the Company for "Good Reason." For
purposes of this Amendment, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in Executive's status, title, position
or responsibilities (including reporting responsibilities) which, in Executive's
reasonable judgment, represents an adverse change from her status, title,
position or responsibilities in effect immediately prior thereto; the assignment
to Executive of any duties or responsibilities which in Executive's reasonable
judgment, are inconsistent with her status, title, position or responsibilities;
or any removal of Executive from or failure to reappoint or reelect her to any
of such positions, status, or title except in connection with the termination of
her employment for Cause or by Executive other than for Good Reason,
(ii) a reduction in Executive's base salary;
(iii) the Company's requiring Executive to be based
at any place outside a thirty (30) mile radius from Executive's principal place
of residence, except for reasonably required travel on Company's business which
is not greater than such travel requirements prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Executive is participating at
the time of a Change in Control, including benefits pursuant to the Executive
Compensation Plan or similar plans, without substituting plans providing
Executive with substantially similar or greater benefits, or the taking of any
action by the Company which would adversely affect Executive's participation in
or materially reduce Executive's benefits under any such plans or deprive
Executive of any material fringe benefit enjoyed by Executive at the time of the
Change in Control;
(v) any purported termination of Executive's
employment for Cause without grounds therefor;
(vi) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the Company;
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<PAGE> 4
(vii) any material breach by the Company of any
provision of the Employment Agreement after Executive has given the Company
notice of the material breach and at least thirty (30) days to cure the breach
(or such longer period as may be reasonably required to cure the breach as long
as the Company is making good faith efforts to do so.); or
(viii) the failure of the Company to obtain an
agreement, satisfactory to Executive, from any successor or assign of the
Company to assume and agree to perform the Employment Agreement, including this
Amendment.
13.3 SEVERANCE PAY AND BENEFITS. If Executive's employment with the
Company terminates under circumstances as described in Section 13.2. above,
Executive shall be entitled to receive all of the following:
(A) all accrued compensation through the termination date,
plus any Bonus for which the Executive otherwise would be eligible in the year
of termination, prorated through the termination date, payable in cash. For
purposes of Sections 13.3(A) and 13.3(B), "Bonus" shall be defined as any
benefits for which Executive would be eligible under the Executive Compensation
Plan. The amount of such Bonus shall be paid in cash and, for purposes of
Sections 13.3(A) and 13.3(B), shall be calculated as if Executive had achieved
100% of Executive's performance goals for that year.
(B) a severance payment equal to two and nine-tenths (2.9)
times the amount of Executive's most recent annual compensation, including the
amount of her most recent annual Bonus. The severance amount shall be paid (i)
in cash in thirty-four (34) equal monthly installments commencing one month
after the termination date; or (ii) in a lump sum, within one month after the
termination date, at the sole option of the Executive.
(C) the Company shall maintain in full force and effect, for
eighteen (18) months after the termination date, all life insurance, health,
accidental death and dismemberment, disability plans and other benefit programs
in which Executive is entitled to participate immediately prior to the
termination date, provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. Executive's
continued participation in such plans and programs shall be at no greater cost
to Executive than the cost she bore for such participation immediately
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<PAGE> 5
prior to the termination date. If Executive's participation in any such plan or
program is barred, Company shall arrange upon comparable terms, and at no
greater cost to Executive than the cost she bore for such plans and programs
prior to the termination date, to provide Executive with benefits substantially
similar to, or greater than, those which she is entitled to receive under any
such plan or program; and
(D) a lump sum payment (or otherwise as specified by Executive
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Executive is entitled
to under the terms of any such plan through the date of termination.
13.4 STOCK OPTIONS.
(A) Upon a Change in Control, all options ("Options") to
purchase Common Stock of the Company held by Executive as of the date of the
Change in Control shall become fully vested and exercisable.
(B) If Executive's employment with the Company terminates
pursuant to Section 13.2, then the Options shall remain exercisable until the
later of:
(i) the expiration of the applicable period for
exercise following termination of employment set forth in the Option agreements
(or in any other agreement between Executive and the Company that supersedes the
Option agreements); or
(ii) three (3) years after the date of termination
(to the extent of the terms of the Options); provided, however, that any
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), that are exercised more than
ninety (90) days after the date of termination pursuant Section 13.2 shall be
treated for tax purposes as nonqualified stock options.
13.5 EXCISE TAX PAYMENTS.
(A) If any payment or benefit (within the meaning of Section
280G(b)(2) of the Code), to Executive or for her benefit pursuant to this
Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the amount of the Payment net of all taxes
other than the Excise Tax (the
5
<PAGE> 6
"Net Amount") shall be calculated. Executive shall then receive, in addition to
the Payment, an additional payment (the "Gross-Up Payment"), which shall be an
amount such that, after payment of all taxes (including the Excise Tax) on the
Payment and the Gross-Up Payment, Executive shall retain an amount equal to the
Net Amount.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Amendment and the amount of such Gross-Up Payment
shall be made at Company's expense by an accounting firm selected by Company and
reasonably acceptable to Executive which is designated as one of the five
largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to Company and Executive
within ten (10) days of the date Executive's employment terminates if
applicable, or such other time as requested by Company or by Executive (provided
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable
by Executive with respect to a Payment, it shall furnish Executive with an
opinion reasonably acceptable to Executive that no Excise Tax will be imposed
with respect to any such Payment. Within ten (10) days of the delivery of the
Determination to Executive, Executive shall have the right to dispute the
Determination (the "Dispute"). The Gross-Up Payment, if any, as determined
pursuant to this Section 13.5 shall be paid by Company to Executive within five
(5) days of the receipt of the Accounting Firm's determination. The existence of
the Dispute shall not in any way affect Executive's right to receive the
Gross-Up Payment in accordance with the Determination. Upon the final resolution
of a Dispute, Company shall promptly pay to Executive any additional amount
required by such resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon Company and Executive subject to the
application of Section (C) below.
(C) Notwithstanding anything in this Amendment to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment, Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment and the Gross-Up Payment, as
applicable.
(D) If Executive is subject to taxation under a non-United
States taxing authority and an excise tax similar to the Excise Tax is imposed
on any Payment by such non-United States taxing authority, then Executive shall
be entitled to
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<PAGE> 7
receive a Gross-Up Payment as calculated pursuant to Section 13.5(A) above,
based upon the lesser of such non-United States excise tax imposed and the
Excise Tax that would have been imposed had the Payment been subject to United
States taxation.
2. Except as herein set forth, the Employment Agreement is not modified
or amended and the parties hereto reaffirm and agree to all of the terms and
provisions of the Employment Agreement, as herein amended, in all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Executive Employment Agreement as of the day and year first written above.
QUINTILES TRANSNATIONAL CORP.
By: /s/ Dennis B. Gillings
--------------------------------
Name: Dennis Gillings
Title: Chairman and CEO
/s/ Rachel R. Selisker
---------------------------------------
RACHEL R. SELISKER
7
<PAGE> 1
EXHIBIT 10.06
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement ("Amended
Agreement"), dated as of March 17, 2000, is made and entered into by QUINTILES,
INC., a North Carolina corporation (hereinafter the "Company") and LUDO REYNDERS
(hereinafter the "Executive"). The Company desires to amend Executive's
Employment Agreement dated January 15, 1988 ("Employment Agreement"), and
Executive desires to continue employment with the Company pursuant to the terms
set forth below.
In consideration of the mutual promises set forth below and other good
and valuable new consideration, the receipt and sufficiency of which the parties
acknowledge, the Company and Executive agree as follows:
1. EMPLOYMENT. The Company employs Executive and Executive accepts
employment on the terms and conditions set forth in this Amended Agreement. This
Amended Agreement shall supersede the Employment Agreement.
2. NATURE OF EMPLOYMENT. Executive shall continue to serve as Chief
Executive Officer, Quintiles CRO Service Group, and have such responsibilities
and authority as the Company may assign from time to time. Additionally,
Executive agrees to perform such other duties consonant with those of an
executive at his level as the Company may set from time to time.
2.1 Executive shall perform all duties and exercise all
authority in accordance with, and shall otherwise comply with, all Company
policies, procedures, practices and directions.
2.2 Executive shall devote all working time, best efforts,
knowledge and experience to perform successfully his duties and advance the
Company's and/or its Affiliates' interests. During his employment, Executive
shall not engage in any other business activities of any nature whatsoever
(including board memberships) for which he receives compensation without the
Company's prior written consent; provided, however,
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this provision does not prohibit him from personally owning and trading in
stocks, bonds, securities, real estate, commodities or other investment
properties for his own benefit, which do not create actual or potential
conflicts of interest with the Company and/or its Affiliates. As used in this
Amended Agreement, "Affiliates" shall mean: (i) any Company's parent, subsidiary
or related entity; and/or (ii) any entity directly or indirectly controlled or
beneficially owned in whole or part by the Company or Company's parent,
subsidiary or related entity.
2.3 Executive's base of operation shall be Durham, North
Carolina, subject to business travel as may be necessary in the performance of
Executive's duties.
3. COMPENSATION.
3.1 BASE SALARY. Executive's monthly salary for all services
rendered shall be $29,166.66 (less applicable withholdings), payable in
accordance with the Company's policies, procedures and practices as they may
exist from time to time. Executive's salary shall be reviewed in accordance with
the Company's policies, procedures and practices as they may exist from time to
time.
3.2 EXECUTIVE COMPENSATION PLAN. Executive may participate as
a LEVEL 2 employee in the Executive Compensation Plan (or successor plans)
("ECP") which may be made available from time to time to Company executives at
Executive's level; provided, however, that Executive's participation is subject
to the applicable terms, conditions and eligibility requirements of the plan
documents, some of which are within the plan administrator's discretion, as they
may exist from time to time.
3.3 TAX RETURNS. Executive shall be entitled to tax return
preparation and reasonable financial planning, consultation and advice by the
Company's accounting firm and/or legal counsel and/or financial consultants as
the Company may provide from time to time to Company executives at Executive's
level.
3.4 OTHER BENEFITS. Executive may participate in all medical,
dental and disability insurance, 401(k), pension, personal leave, car allowance
and other employee benefit plans and programs, except Executive may not receive
severance payments other than specified in this Amended Agreement; provided,
however, that Executive's participation in benefit plans and programs is subject
to the applicable terms,
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conditions and eligibility requirements of these plans and programs, some of
which are within the plan administrator's discretion, as they may exist from
time to time.
3.5 BUSINESS EXPENSES. Executive shall be reimbursed for
reasonable and necessary expenses actually incurred by him in performing
services under this Amended Agreement in accordance with and subject to the
terms and conditions of the applicable Company reimbursement policies,
procedures and practices as they may exist from time to time. Expenses covered
by this provision include but are not limited to travel, entertainment,
professional dues, subscriptions and dues, fees and expenses associated with
membership in various professional, and business and civic associations of which
Executive's participation is in the Company's best interest.
3.6 Nothing in this Amended Agreement shall require the
Company to create, continue or refrain from amending, modifying, revising or
revoking any of the plans, programs or benefits set forth in Sections 3.2
through 3.5. Any amendments, modifications, revisions and revocations of these
plans, programs and benefits shall apply to Executive.
3.7 If, at any time during which Executive is receiving salary
or post-termination payments from the Company, he receives payments on account
of mental or physical disability from any Company-provided plan, then the
Company, at its discretion, may reduce his salary or post-termination payments
by the amount of such disability payments.
4. TERM OF EMPLOYMENT. The original term of employment shall be for a
one (1) year period commencing on March ____, 2000, and terminating on March
___, 2001, subject to the following provisions:
4.1 Upon the expiration of the original or any renewal term of
employment, Executive's employment shall be automatically renewed for an
additional one (1) year period unless, at least ninety (90) days prior to the
renewal date, either party gives the other party written notice of its intent
not to continue the employment relationship. During any renewal term of
employment, the terms, conditions and provisions set forth in this Amended
Agreement shall remain in effect unless modified in accordance with Section 15.
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4.2 Either party may terminate the employment relationship
without cause at any time upon giving the other party ninety (90) days written
notice.
4.3 The Company may terminate the Executive's employment
relationship immediately without notice at any time for the following reasons
which shall constitute "Cause": (i) Executive's death; (ii) Executive's physical
or mental inability to perform the essential functions of his duties
satisfactorily for a period of 180 consecutive days or 180 days in total within
a 365-day period as determined by the Company in its reasonable discretion and
in accordance with applicable law; (iii) any act or omission of Executive
constituting willful misconduct (including willful violation of the Company's
policies), gross negligence, fraud, misappropriation, embezzlement, criminal
behavior, conflict of interest or competitive business activities which, as
determined by the Company in its reasonable discretion, shall cause material
harm, or any other actions that are materially detrimental to the Company or any
Affiliates' interest; (iv) any other reason recognized as "cause" under
applicable law; or (v) Executive's material breach of this Amended Agreement.
4.4 Executive may terminate Executive's employment with the
Company as a result of the Company's failure to cure its material breach of this
Amended Agreement after Executive has given the Company notice of the material
breach and at least thirty (30) days to cure the breach (or such longer period
as may be reasonably required to cure the breach as long as the Company is
making good faith efforts to do so).
4.5 This Amended Agreement shall terminate upon the
termination of the employment relationship with the following exceptions:
Section 6 (Trade Secrets, Confidential Information, Company Property and
Competitive Business Activities), 7 (Intellectual Property Ownership), 8
(License), 9 (Release), and 12 (Change in Control) shall survive the termination
of Executive's employment and/or the expiration or termination of this Amended
Agreement, regardless of the reasons for such expiration or termination.
5. COMPENSATION AND BENEFITS UPON TERMINATION.
5.1 The Company's obligation to compensate Executive ceases on
the effective termination date except as to: (i) amounts due at that time; (ii)
any amount
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subsequently due pursuant to the plan described in Section 3.2; and (iii) any
compensation and/or benefits to which he may be entitled to receive pursuant to
Sections 5.2, 5.3, 5.4 or 5.5.
5.2 If the Company terminates Executive's employment pursuant
to Sections 4.1 (notice of non-renewal) or 4.2 (without cause), then the
Company's sole obligation shall be to pay Executive: (i) amounts due on the
effective termination date; (ii) any amounts subsequently due pursuant to the
plan described in Section 3.2; and (iii) subject to Executive's compliance with
Sections 6,7,8 and 9 and subject to Sections 3.7 and 5.6, an amount equal to his
then current monthly salary (less applicable withholdings) for the twelve (12)
month non-competition period set forth in Section 6.3, payable in equal monthly
installments.
5.3 During the period during which Executive receives
post-termination payments pursuant to Section 5.2, he may continue to
participate, to the extent permitted by the applicable plans and subject to
their terms, conditions and eligibility requirements, in all employee welfare
benefits plans (as defined by the Employee Retirement Income Security Act of
1974, as amended) in which Executive participated on his effective termination
date. The Company will pay or, at the Company's discretion, reimburse Executive
for the premiums actually paid, to continue coverage under such plans during the
period. Notwithstanding the Company's payment of or reimbursement for the
premiums, any coverage under such plans shall be subject to the terms,
conditions and eligibility requirements of such plans, and nothing in this
Section shall constitute any guaranty of coverage.
5.4 If the Company terminates Executive's employment as
provided in Sections 4.3 (i) (death), (ii) (physical or mental inability to
perform), (iii) (materially harmful acts or omissions), (iv) (other reasons
recognized as "cause") or (v) (Executive's material breach) or if the Executive
terminates his employment pursuant to Section 4.1 (notice of non-renewal) or
Section 4.2 (without cause), then the Company's sole obligation shall be to pay
Executive: (i) amounts due on the effective termination date and (ii) any
amounts subsequently due pursuant to the plan described in Section 3.2.
Executive, except when employment terminates pursuant to Section 4.3(i) (death),
shall comply with Sections 6,7,8 and 9 of this Amended Agreement upon expiration
or termination of this Amended Agreement.
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5.5 If Executive terminates the employment relationship as a
result of the Company's failure to cure its material breach of this Amended
Agreement after he has given the Company notice of the material breach and 30
days in which to cure the breach (or such longer period as may be reasonably
required to cure the breach as long as the Company is making good faith efforts
to do so), pursuant to Section 4.4 of this Amended Agreement, then the Company's
sole obligation to Executive in lieu of any other damages or other relief to
which he otherwise may be entitled shall be (i) an amount equal to amounts due
at the time of his termination; and (ii) subject to Executive's compliance with
Sections 6, 7, 8 and 9 and subject to Sections 3.7 and 5.6, liquidated damages
in an amount equal to his then current monthly salary (less applicable
withholdings) for the twelve (12) month non-competition period set forth in
Section 6.3, payable in equal monthly installments.
5.6 The Company's obligation to provide the payments under
Sections 5.2 and 5.5 is conditioned upon Executive's execution of an enforceable
release of all claims and his compliance with Sections 6, 7, 8 and 9 of this
Amended Agreement. If Executive chooses not to execute such a release or fails
to comply with these sections, then the Company's obligation to compensate him
ceases on the effective termination date except as to amounts due at that time
and any amount subsequently due pursuant to the plan described in Section 3.2.
5.7 Executive is not entitled to receive any compensation or
benefits upon his termination except as: (i) set forth in this Amended
Agreement; (ii) otherwise required by law; or (iii) otherwise required by any
employee benefit plan in which he participates. Nothing in this Amended
Agreement, however, is intended to waive or supplant any death, disability,
retirement, 401(k) or pension benefits to which he may be entitled under
employee benefit plans in which he participates.
5.8 The Company will pay the cost of relocating you and your
family from the United States back to Belgium at the time your position with the
Company terminates. All reimbursements are subject to the prior approval of the
Human Resources Department of all quantities and costs involved.
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6. TRADE SECRETS, CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND
COMPETITIVE BUSINESS ACTIVITIES. Executive acknowledges that: (i) the Company
and its Affiliates have worldwide business operations, a worldwide customer
base, and are engaged in the business of contract research, sales and marketing,
healthcare policy consulting and health information management services to the
worldwide pharmaceutical, biotechnology, medical device and healthcare
industries; (ii) by virtue of his employment by and upper-level position with
the Company, he has or will have access to Trade Secrets and Confidential
Information (as defined in Sections 6.1(5) and 6.1(6)) of the Company and its
Affiliates, including valuable information about their worldwide business
operations and entities with whom they do business in various locations
throughout the world, and has developed or will develop relationships with their
customers and others with whom they do business in various locations throughout
the world; and (iii) the Trade Secret, Confidential Information and Competitive
Business Activities' provisions set forth in this Amended Agreement are
reasonably necessary to protect the Company's and its Affiliates' legitimate
business interests, are reasonable as to the time, territory and scope of
activities which are restricted, do not interfere with public policy or public
interest and are described with sufficient accuracy and definiteness to enable
him to understand the scope of the restrictions imposed on him.
6.1 TRADE SECRETS AND CONFIDENTIAL INFORMATION. Executive
acknowledges that: (i) the Company and/or its Affiliates will disclose to him
certain Trade Secrets and Confidential Information; (ii) Trade Secrets and
Confidential Information are the sole and exclusive property of the Company
and/or its Affiliates (or a third party providing such information to the
Company and/or its Affiliates) and the Company and/or its Affiliates or such
third party owns all worldwide rights therein under patent, copyright,
trademarks, trade secret, confidential information or other property right; and
(iii) the disclosure of Trade Secrets and Confidential Information to Executive
does not confer upon him any license, interest or rights of any kind in or to
the Trade Secrets or Confidential Information.
6.1(1) Executive may use the Trade Secrets and
Confidential Information only while he is employed or otherwise retained by the
Company and only then in accordance with applicable Company policies and
procedures and solely for the Company's benefit. Except as authorized in the
performance of services for the Company, Executive will hold in confidence and
will not, either or indirectly, in any
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form, by any means, or for any purpose, disclose, reproduce, distribute,
transmit, reverse engineer, decompile, disassemble, or transfer Trade Secrets or
Confidential Information or any portion thereof. Upon the Company's request,
Executive shall return Trade Secrets and Confidential Information and all
related materials.
6.1(2) If Executive is required to disclose Trade
Secrets or Confidential Information pursuant to a court order, subpoena or other
government process or such disclosure is necessary to comply with applicable law
or defend against claims, he shall: (i) notify the Company promptly before any
such disclosure is made; (ii) at the Company's request and expense take all
reasonably necessary steps to defend against such disclosure, including
defending against the enforcement of the court order, other government process
or claims; and (iii) permit the Company to participate with counsel of its
choice in any proceeding relating to any such court order, subpoena, other
government process or claims.
6.1(3) Executive's obligations with regard to Trade
Secrets shall remain in effect for as long as such information shall remain a
trade secret under applicable law.
6.1(4) Executive's obligations with regard to
Confidential Information shall remain in effect while he is employed or
otherwise retained by the Company and/or its Affiliates and for fifteen (15)
years thereafter.
6.1(5) As used in this Amended Agreement, "Trade
Secrets" means information of the Company, its Affiliates and its and/or their
licensors, suppliers, customers, or prospective licensors or customers,
including, but not limited to, data, formulas, patterns, compilations, programs,
devices, methods, techniques, processes, financial data, financial plans,
product plans, or lists of actual or potential customers or suppliers, which:
(i) derives independent actual or potential commercial value, from not being
generally known to or readily ascertainable through independent development or
reverse engineering by persons or entities who can obtain economic value from
its disclosure or use; and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
6.1(6) As used in this Amended Agreement,
"Confidential Information" means information other than Trade Secrets, that is
of value to its owner
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and is treated as confidential, including, but not limited to, future business
plans, licensing strategies, advertising campaigns, information regarding
executives and employees, and the terms and conditions of this Amended
Agreement; provided, however, Confidential Information shall not include
information which is in the public domain or becomes public knowledge through no
fault of Executive.
6.2 COMPANY PROPERTY. Upon termination of his employment,
Executive shall: (i) deliver to the Company all records, memoranda, data,
documents and other property of any description which refer or relate in any way
to Trade Secrets or Confidential Information, including all copies thereof,
which are in his possession, custody or control; (ii) deliver to the Company all
Company and/or Affiliates property (including, but not limited to, keys, credit
cards, client files, contracts, proposals, work in process, manuals, forms,
computer stored work in process and other computer data, research materials,
other items of business information concerning any Company and/or Affiliates
client, or Company and/or Affiliates business or business methods, including all
copies thereof) which is in his possession, custody or control; (iii) bring all
such records, files and other materials up to date before returning them; and
(iv) fully cooperate with the Company in winding up his work and transferring
that work to other individuals designated by the Company.
6.3 COMPETITIVE BUSINESS ACTIVITIES. During his employment and
the one (1) year following his effective termination date (regardless of the
reason for the termination), Executive will not engage in the following
activities:
(A) on Executive's own or another's behalf, whether
as an officer, director, stockholder, partner, associate, owner, employee,
consultant or otherwise, directly or indirectly:
(i) compete with the Company or its
Affiliates within the geographical areas set forth in Section 6.3(1); except
that Executive, without violating this provision, may become employed by any
company which is engaged in the integrated development, discovery, manufacture,
marketing and sale of pharmaceutical drugs that does not engage in contract
sales and/or research;
(ii) within the geographical areas set forth
in Section 6.3(1), solicit or do business which is the same, similar to or
otherwise in competition
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with the business engaged in by the Company or its Affiliates, from or with
persons or entities: (A) who are customers of the Company or its Affiliates; (B)
who Executive or someone for whom he was responsible solicited, negotiated,
contracted or serviced on the Company's or its Affiliates' behalf; or (C) who
were customers of the Company or its Affiliates at any time during the last year
of Executive's employment with the Company;
(iii) offer employment to or otherwise
solicit for employment any employee or other person who had been employed by the
Company or its Affiliates during the last year of Executive's employment with
the Company; or
(B) directly or indirectly take any action which is
materially detrimental or otherwise intended to be adverse to the Company's
and/or Affiliates' goodwill, name, business relations, prospects and operations.
6.3(1) The restrictions set forth in Section 6.3
apply to the following geographical areas; (i) within a 60-mile radius of the
Company and/or its Affiliates where the Executive had an office during the
Executive's employment with the Company and/or its Affiliates; (ii) any city,
metropolitan area, county (or similar political subdivision in foreign
countries) in which Executive's substantial services were provided, or for which
Executive had substantial responsibility, or in which Executive performed
substantial work on Company and/or Affiliates' projects, while employed by the
Company; and (iii) any city, metropolitan area, county (or similar political
subdivisions in foreign countries) in which the Company or its Affiliates is
located or does or, during Executive's employment with Company, did business.
6.3(2) Notwithstanding the foregoing, Executive's
ownership, directly or indirectly, of not more than one percent of the issued
and outstanding stock of a corporation the shares of which are regularly traded
on a national securities exchange or in the over-the-counter market shall not
violate Section 6.3.
6.4 REMEDIES. Executive acknowledges that his failure to abide
by the Trade Secrets, Confidential Information, Company Property or Competitive
Business Activities provisions of this Amended Agreement would cause irreparable
harm to the Company and/or its Affiliates for which legal remedies would be
inadequate. Therefore, in addition to any legal or other relief to which the
Company and/or its Affiliates may be entitled by virtue of Executive's failure
to abide by these provisions: (i) the Company
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will be released of its obligations under this Amended Agreement to make any
post-termination payments, including but not limited to those otherwise
available pursuant to Sections 5.2, 5.3, 5.4, 5.5; (ii) the Company may seek
legal and equitable relief, including but not limited to preliminary and
permanent injunctive relief, for Executive's actual or threatened failure to
abide by these provisions; (iii) Executive will return all post-termination
payments received pursuant to this Amended Agreement, including but not limited
to those received pursuant to Sections 5.2, 5.3, 5.4, 5.5; (iv) Executive will
indemnify the Company and/or its Affiliates for all expenses including
attorneys' fees in seeking to enforce these provisions; and (v) if, as a result
of Executive's failure to abide by the Trade Secrets, Confidential Information,
Company Property or Competitive Business Activities provisions, any commission
or fee becomes payable to Executive or to any person, corporation or other
entity with which Executive has become employed or otherwise associated,
Executive shall pay the Company or cause the person, corporation or other entity
with whom he has become employed or otherwise associated to pay the Company an
amount equal to such commission or fee. In the event that the Company exercises
its right to discontinue payments under this provision and/or Executive returns
all post-termination payments received pursuant to this Amended Agreement,
Executive shall remain obligated to abide by the Trade Secrets, Confidential
Information, Company Property and Competitive Business Activities provisions set
forth in this Amended Agreement.
6.5 TOLLING. The period during which Executive must refrain
from the activities set forth in Sections 6.1 and 6.3 shall be tolled during any
period in which he fails to abide by these provisions.
6.6 OTHER AGREEMENTS. Nothing in this Amended Agreement shall
terminate, revoke or diminish Executive's obligations or the Company's and/or
its Affiliates' rights and remedies under law or any agreements relating to
trade secrets, confidential information, non-competition or intellectual
property which Executive has executed in the past or may execute in the future
or contemporaneously with this Amended Agreement.
7. INTELLECTUAL PROPERTY OWNERSHIP.
7.1 As used in this Amended Agreement, "Work Product" shall
mean the data, materials, documentation, computer programs, inventions (whether
or not
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patentable), improvements, modifications, discoveries, methods, developments,
picture, audio, video, artistic works and all works of authorship, including all
worldwide rights therein under patent, copyright, trademark, trade secret,
confidential information or other property right, created or developed in whole
or in part by Executive, while employed by the Company (whether developed during
work hours or not), whether prior or subsequent to the date of this Agreement.
7.2 All Work Product shall be considered work made for hire by
Executive and owned by the Company. If any of the Work Product may not, by
operation of law be considered work made for hire by Executive for the Company,
or if ownership of all right, title, and interest of the intellectual property
rights therein shall not otherwise vest exclusively in the Company, Executive
hereby assigns to the Company, and upon the future creation thereof
automatically assigns to the Company, without further consideration, the
ownership of all Work Product. The Company shall have the right to obtain and
hold in its own name copyrights, registrations and any other protection
available in the Work Product. Executive agrees to perform, during or after his
employment, such further acts which the Company requests as may be necessary or
desirable to transfer, perfect and defend its ownership of the Work Product.
7.3 Notwithstanding the foregoing, this Amended Agreement
shall not require assignment of any invention that: (i) Executive developed
entirely on his own time without using the Company's equipment, supplies,
facilities, Trade Secrets or Confidential Information; and (ii) does not relate
to the Company's business or actual or anticipated research or development or
result from any work performed by Executive for the Company.
7.4 Executive shall promptly disclose to the Company in
writing all Work Product conceived, developed or made by him, individually or
jointly.
8. LICENSE. To the extent that any preexisting materials are contained
in Work Product which Executive delivers to the Company or its customers,
Executive grants to the Company an irrevocable, nonexclusive, worldwide,
royalty-free license to: (i) use and distribute (internally or externally)
copies of, and prepare derivative works based upon, such preexisting materials
and derivative works thereof; and (ii) authorize others to do any of the
foregoing.
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9. RELEASE. Executive acknowledges that: (i) as a part of his services,
he may provide his image, likeness, voice or other characteristics; and (ii) the
Company may use his image, likeness, voice or other characteristics and
expressly releases the Company, its Affiliates and its and/or their agents,
employees, licensees and assigns from and against any and all claims which he
has or may have for invasion of privacy, right of privacy, defamation, copyright
infringement or any other causes of action arising out of the use, adaptation,
reproduction, distribution, broadcast or exhibition of such characteristics.
10. EMPLOYEE REPRESENTATION. Executive represents and warrants that his
employment and obligations under this Amended Agreement will not (i) breach any
duty or obligation he owes to another or (ii) violate any law, recognized ethics
standard or recognized business custom.
11. OFFICERS AND DIRECTORS INDEMNIFICATION PROVISIONS. To the extent
Executive serves as a Company and/or Affiliate officer or director, Executive
shall be entitled to insurance under Company's directors and officers'
indemnification policies comparable to any such insurance covering executives of
the applicable entity serving in similar capacities. Further, the Company's
bylaws shall contain provisions granting to Executive the maximum indemnity
protection allowed under applicable law and the Company hereby agrees to
indemnify and hold harmless Executive in accordance with such maximum indemnity
protection allowed under applicable law.
12. CHANGE IN CONTROL.
12.1 For purposes of this Amended Agreement, a "Change in
Control" shall mean the occurrence of any one of the following:
(A) An acquisition (other than directly from
Quintiles Transnational Corp. ("QTRN")) of any voting securities of QTRN by any
"Person" (as such term is used in Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the
Securities Exchange Act of 1934, as amended (the "Act")), after which such
Person, together with its "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act), becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly, of more
than one-third (33.33%) of the total voting power of
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QTRN's then outstanding voting securities, but excluding any such acquisition by
QTRN, any Person of which a majority of its voting power or its voting equity
securities or equity interests is owned, directly or indirectly, by QTRN (for
purposes hereof, a "Subsidiary"), any employee benefit plan of QTRN or any of
its Subsidiaries (including any Person acting as trustee or other fiduciary for
any such plan), or Dennis B. Gillings;
(B) The shareholders of QTRN approve a merger, share
exchange, consolidation or reorganization involving QTRN and any other
corporation or other entity that is not controlled by QTRN, as a result of which
less than two-thirds (66.66%) of the total voting power of the outstanding
voting securities of QTRN or of the successor corporation or entity after such
transaction is held in the aggregate by the holders of QTRN's voting securities
immediately prior to such transaction;
(C) The shareholders of QTRN approve a liquidation or
dissolution of QTRN, or approve the sale or other disposition by QTRN of all or
substantially all of QTRN's assets to any Person (other than a transfer to a
Subsidiary of QTRN);
(D) During any period of 24 consecutive months, the
individuals who constitute the Board of Directors of QTRN at the beginning of
such period (the "Incumbent Directors") cease for any reason to constitute at
least two-thirds of the Board of Directors; provided, however, that a director
who is not a director at the beginning of such period shall be deemed to be an
Incumbent Director if such director is elected or recommended for election by at
least two-thirds (66.66%) of the directors who are then Incumbent Directors.
12.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the
occurrence of a Change in Control, Executive shall be entitled to receive
payments and benefits pursuant to this Amended Agreement if, at the time of the
Change in Control, (i) Executive is in ECP Levels 1 to 2 and his employment is
terminated pursuant to Sections 12.2(A), (B), or (C) below, or (ii) Executive is
in ECP Levels 2.5 to 4 and his employment is terminated pursuant to Sections
12.2(B) or (C) below.
(A) Within eighteen (18) months following a Change in
Control, Executive terminates his employment with Company by giving written
notice of such termination to Company.
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(B) Within eighteen (18) months following a Change in
Control, Company terminates Executive's employment for reasons other than
"Cause" as such term is defined in Section 4.3 hereof.
(C) Within eighteen (18) months following a Change in
Control, Executive terminates his employment with the Company for "Good Reason."
For purposes of this Amended Agreement, "Good Reason" shall mean the occurrence
after a Change in Control of any of the following events or conditions:
(i) a change in Executive's status, title,
position or responsibilities (including reporting responsibilities) which, in
Executive's reasonable judgment, represents an adverse change from his status,
title, position or responsibilities in effect immediately prior thereto; the
assignment to Executive of any duties or responsibilities which in Executive's
reasonable judgment, are inconsistent with his status, title, position or
responsibilities; or any removal of Executive from or failure to reappoint or
reelect him to any such positions, status, or title except in connection with
the termination of his employment for Cause or by Executive other than for Good
Reason,
(ii) a reduction in Executive's base salary;
(iii) the Company's requiring Executive to
be based at any place outside a thirty (30) mile radius from Executive's
principal place of residence, except for reasonably required travel on Company's
business which is not greater than such travel requirements prior to the Change
in Control;
(iv) the failure by the Company to continue
in effect any compensation, welfare or benefit plan in which Executive is
participating at the time of a Change in Control, including benefits pursuant to
the Executive Compensation Plan or similar plans, without substituting plans
providing Executive with substantially similar or greater benefits, or the
taking of any action by the Company which would adversely affect Executive's
participation in or materially reduce Executive's benefits under any such plans
or deprive Executive of any material fringe benefit enjoyed by Executive at the
time of the Change in Control;
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(v) any purported termination of Executive's
employment for Cause without grounds therefor;
(vi) the insolvency or the filing (by any
party including the Company) of a petition for bankruptcy of the Company;
(vii) any material breach by the Company of
any provision of this Amended Agreement after Executive has given the Company
notice of the material breach and at least thirty (30) days to cure the breach
(or such longer period as may be reasonably required to cure the breach as long
as the Company is making good faith efforts to do so.); or
(viii) the failure of the Company to obtain
an agreement, satisfactory to Executive, from any successor or assign of the
Company to assume and agree to perform this Amended Agreement.
12.3 SEVERANCE PAY AND BENEFITS. If Executive's employment
with the Company terminates under circumstances as described in Section 12.2.
above, Executive shall be entitled to receive all of the following:
(A) all accrued compensation through the termination
date, plus any Bonus for which the Executive otherwise would be eligible in the
year of termination, prorated through the termination date, payable in cash. For
purposes of Sections 12.3(A) and 12.3(B), "Bonus" shall be defined as any
benefits for which Executive would be eligible under the Executive Compensation
Plan described in Section 3.2 of this Amended Agreement. The amount of such
Bonus shall be paid in cash and, for purposes of Sections 12.3(A) and 12.3(B),
shall be calculated as if Executive had achieved 100% of Executive's performance
goals for that year.
(B) a severance payment equal to two and ninety-nine
hundredths (2.99) times the amount of Executive's most recent annual
compensation, including the amount of his most recent annual Bonus. The
severance amount shall be paid (i) in cash in thirty-four (34) equal monthly
installments commencing one month after the termination date, or (ii) in a lump
sum, within one month after the termination date, at the sole option of the
Executive.
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(C) the Company shall maintain in full force and
effect, for eighteen (18) months after the termination date, all life insurance,
health, accidental death and dismemberment, disability plans and other benefit
programs in which Executive is entitled to participate immediately prior to the
termination date, provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. Executive's
continued participation in such plans and programs shall be at no greater cost
to Executive than the cost he bore for such participation immediately prior to
the termination date. If Executive's participation in any such plan or program
is barred, Company shall arrange upon comparable terms, and at no greater cost
to Executive than the cost he bore for such plans and programs prior to the
termination date, to provide Executive with benefits substantially similar to,
or greater than, those which he is entitled to receive under any such plan or
program; and
(D) a lump sum payment (or otherwise as specified by
Executive to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Executive is entitled
to under the terms of any such plan through the date of termination.
12.4 STOCK OPTIONS.
(A) Upon a Change in Control, all options ("Options")
to purchase Common Stock of QTRN held by Executive as of the date of the Change
in Control shall become fully vested and exercisable.
(B) If Executive's employment with the Company
terminates pursuant to Section 12.2, then the Options shall remain exercisable
until the later of:
(i) the expiration of the applicable period
for exercise following termination of employment set forth in the Option
agreements (or in any other agreement between Executive and the Company and/or
QTRN that supersedes the Option agreements); or
(ii) three (3) years after the date of
termination (to the extent of the terms of the Options); provided, however, that
any "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended
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(the "Code"), that are exercised more than ninety (90) days after the date of
termination pursuant Section 12.2 shall be treated for tax purposes as
nonqualified stock options.
12.5 EXCISE TAX PAYMENTS.
(A) If any payment or benefit (within the meaning of
Section 280G(b)(2) of the Code), to Executive or for his benefit pursuant to
this Amended Agreement (a "Payment") is subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), then the amount of the Payment net
of all taxes other than the Excise Tax (the "Net Amount") shall be calculated.
Executive shall then receive, in addition to the Payment, an additional payment
(the "Gross-Up Payment"), which shall be an amount such that, after payment of
all taxes (including the Excise Tax) on the Payment and the Gross-Up Payment,
Executive shall retain an amount equal to the Net Amount.
(B) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Amended Agreement and the amount of such
Gross-Up Payment shall be made at Company's expense by an accounting firm
selected by Company and reasonably acceptable to Executive which is designated
as one of the five largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to Company and Executive within ten days of the date Executive's
employment terminates if applicable, or such other time as requested by Company
or by Executive (provided Executive reasonably believes that any of the Payments
may be subject to the Excise Tax) and if the Accounting Firm determines that no
Excise Tax is payable by Executive with respect to a Payment, it shall furnish
Executive with an opinion reasonably acceptable to Executive that no Excise Tax
will be imposed with respect to any such Payment. Within ten days of the
delivery of the Determination to Executive, Executive shall have the right to
dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Section 12.5 shall be paid by Company to Executive
within five days of the receipt of the Accounting Firm's determination. The
existence of the Dispute shall not in any way affect Executive's right to
receive the Gross-Up Payment in accordance with the Determination. Upon the
final resolution of a Dispute, Company shall promptly pay to Executive any
additional amount required by such resolution. If there is no Dispute, the
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Determination shall be binding, final and conclusive upon Company and Executive
subject to the application of Section (C) below.
(C) Notwithstanding anything in this Amended
Agreement to the contrary, in the event that, according to the Determination, an
Excise Tax will be imposed on any Payment, Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment and the
Gross-Up Payment, as applicable.
(D) If Executive is subject to taxation under a
non-United States taxing authority and an excise tax similar to the Excise Tax
is imposed on any Payment by such non-United States taxing authority, then
Executive shall be entitled to receive a Gross-Up Payment as calculated pursuant
to Section 12.5(a) above, based upon the lesser of such non-United States excise
tax imposed and the Excise Tax that would have been imposed had the Payment been
subject to United States taxation.
13. NOTICES. All notices, requests, demands and other communications
required or permitted to be given in writing pursuant to this Amended Agreement
shall be deemed given and received: (A) upon delivery if delivered personally;
(B) on the fifth (5th) day after being deposited with the U.S. Postal Service if
mailed by first class mail, postage prepaid, registered or certified with return
receipt requested, at the addresses set forth below; (C) on the next day after
being deposited with a reliable overnight delivery service; or (D) upon receipt
of an answer back confirmation, if transmitted by telefax, addressed to the
below indicated telefax number. Notice given in another manner shall be
effective only if and when received by the addressee. For purposes of notice,
the addresses and telefax number (if any) of the parties shall be as follows:
If to the Executive, to: Dr. Ludo Reynders
105 Bronzewood Court
Cary, North Carolina 27511
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If to the Company, to: Quintiles, Inc.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Durham, North Carolina 27703-8411
Attn: General Counsel
provided that: (A) each party shall have the right to change its address for
notice, and the person who is to receive notice, by the giving of fifteen (15)
days' prior written notice to the other party in the manner set forth above; and
(B) notices shall be effective if given to the other party in the manner set
forth above regardless of whether a copy was received by the additional
addressee specified above.
14. WAIVER OF BREACH. The Company's or Executive's waiver of any breach
of a provision of this Amended Agreement shall not waive any subsequent breach
by the other party.
15. ENTIRE AGREEMENT. Except as expressly provided in this Amended
Agreement, this Amended Agreement: (i) supersedes all other understandings and
agreements, oral or written, between the parties with respect to the subject
matter of this Amended Agreement; and (ii) constitutes the sole agreement
between the parties with respect to this subject matter. Each party acknowledges
that: (i) no representations, inducements, promises or agreements, oral or
written, have been made by any party or by anyone acting on behalf of any party,
which are not embodied in this Agreement; and (ii) no agreement, statement or
promise not contained in this Amended Agreement shall be valid. No change or
modification of this Amended Agreement shall be valid or binding upon the
parties unless such change or modification is in writing and is signed by the
parties.
16. SEVERABILITY. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Amended Agreement is invalid,
illegal or unenforceable, that invalidity, illegality or unenforceability shall
not affect any other provision in this Amended Agreement. Additionally, if any
of the provisions, clauses or phrases in the Trade Secrets, Confidential
Information or Competitive Business Activities provisions set forth in this
Amended Agreement are held unenforceable by a court of competent jurisdiction,
then the parties desire that they be "blue-penciled' or rewritten by the court
to the extent necessary to render them enforceable.
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17. PARTIES BOUND. The terms, provisions, covenants and agreements
contained in this Amended Agreement shall apply to, be binding upon and inure to
the benefit of the Company's successors and assigns. The Company, at its
discretion, may assign this Amended Agreement to Affiliates. Because this
Amended Agreement is personal to Executive, Executive may not assign this
Amended Agreement.
18. GOVERNING LAW. This Amended Agreement and the employment
relationship created by it shall be governed by North Carolina law without
giving effect to North Carolina choice of law provisions. The parties hereby
consent to jurisdiction in North Carolina for the purpose of any litigation
relating to this Amended Agreement and agree that any litigation by or involving
them relating to this Amended Agreement shall be conducted in the courts of Wake
County, North Carolina or the federal courts of the United States for the
Eastern District of North Carolina.
IN WITNESS WHEREOF, the parties have entered into this Amended
Agreement on the day and year first written above.
/s/ Ludo Reynders
----------------------------------------
LUDO REYNDERS
QUINTILES, INC.
By: /s/ Beverly Rubin
---------------------------------
Title: VP & Assoc. General Counsel
---------------------------------
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<PAGE> 1
EXHIBIT 10.07
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
OF
JIM D. KEVER
This Amended and Restated Employment Agreement ("Agreement") is entered
into between ENVOY Corporation, a Tennessee corporation ("Company"), and Jim D.
Kever, a resident of Nashville, Davidson County, Tennessee ("Executive"),
effective as of March 30, 1999. The Company and the Executive are sometimes
referred to herein as the "Parties."
1. Introduction: The Company and Quintiles Transnational Corp. ("Quintiles")
entered into an Amended and Restated Agreement and Plan of Merger among
Quintiles Transnational Corp., QELS Corp. and ENVOY Corporation dated as of
December 15, 1998 (the "Merger Agreement") pursuant to which, among other
things, Quintiles has agreed to acquire ENVOY through the merger of QELS Corp.
with and into ENVOY, as provided therein, with ENVOY continuing as the surviving
corporation and a wholly-owned subsidiary of Quintiles. The Company and
Executive are parties to an Amended and Restated Employment Agreement dated
January 1, 1994, amended by an Addendum effective as of January 1, 1994. The
Company believes that the assurance of the Executive's continued employment by
the Company and the benefit of his business experience are of material
importance. Therefore, the Company and the Executive intend by this Agreement to
amend the existing employment agreement and to specify the terms and conditions
of the Executive's continuing employment relationship with the Company.
2. Employment: The Company hereby employs the Executive and the Executive hereby
accepts continuing employment with the Company upon the terms and conditions set
forth herein.
3. Duties and Responsibilities:
3.1 Extent of Service: The Executive shall, during the term of this
Agreement, devote such of his entire time, attention, energies and business
efforts to his duties as an executive of the Company as are reasonably necessary
to carry out his duties specified in Paragraph 3.2 below. The Executive shall
not, during the term of this Agreement, engage in any other business activity
(whether or not such business activity is pursued for gain, profit or other
pecuniary advantage) if such business activity would impair the Executive's
ability to carry out his duties hereunder. This Paragraph 3.1, however, shall
not be construed to prevent the Executive from investing his personal assets as
a passive investor.
3.2 Position and Duties: Subject to the power of the Board of Directors
of the Company to elect and remove officers and the power of the stockholders to
remove directors, the Executive shall serve the Company as Chief Executive
Officer; and shall perform, faithfully and diligently, the services and
functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the Board of Directors of the
Company; provided that all such services and functions shall be reasonable and
within the Executive's area
<PAGE> 2
of expertise; and provided further that the Executive shall be physically
capable of performing the same.
During the Term (as defined below), the Executive has the sole
authority within the Company to terminate the employment of any Continuing
Employee (defined in Section 6.17(a) of the Merger Agreement) at any time,
subject only to the superior authority of the Quintiles Board of Directors or
the Compensation Committee of the Quintiles Board of Directors to initiate by
its own determination of facts such a termination, or to overrule a termination
planned or announced by the Executive.
3.3 Place of Employment: During the term of this Agreement, the Company
shall maintain its principal executive offices in the Nashville, Tennessee area,
and the Executive's primary place of employment shall be at such principal
executive offices. During the term of this Agreement, the Company will provide
the Executive with a private office, an executive secretary and other customary
staff support services, all as are commensurate with the services and functions
to be performed by him hereunder.
4. Salary and Other Benefits: Subject to the terms and conditions of this
Agreement;
4.1 Salary: As compensation for his services hereunder and during the
term of his employment under this Agreement, the Executive shall be paid an
annual salary of not less than $262,000, payable in accordance with the then
current payroll policies of the Company. Such salary shall be reviewed annually
by the Board of Directors of the Company (or the appropriate committee thereof).
The annual salary payable from time to time by the Company to the Executive
pursuant to this Paragraph 4.1 is herein sometimes referred to as his "Base
Salary."
4.2 Other Benefits: As long as the Executive is employed by the
Company, the Executive shall be entitled to receive the following benefits in
addition to his Base Salary:
(a) Except to the extent the Parties may agree otherwise
subsequent to the date hereof, for each of the years 1999, 2000, and
2001, the Executive shall be entitled to receive: (1) a guaranteed cash
bonus of $238,000 ("Cash Bonus") to be paid on or about March 31st of
the year following the year Executive earned such Cash Bonus; and (2)
an option ("Option") to purchase common stock of the Company, which
Option shall have a Black-Scholes value of $450,000, based on the
closing price of the Company's common stock on the Date of Grant, which
shall be December 31 of the applicable year. The exercise price of the
Option will be equal to the closing price of the Company's common stock
on the Date of Grant. On each of the first four anniversaries of the
Date of Grant, respectively, 25 percent (25%) of the Option shall vest,
such that the Option shall be 100 percent (100%) vested on the fourth
anniversary of the Date of Grant for each Option. The vested portion of
the Option will be exercisable up to ten (10) years from the Date of
Grant, provided the Executive remains actively employed by the Company
during that period.
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The Executive shall be deemed to participate in the Quintiles
Executive Compensation Plan ("ECP") at a level equivalent to 2.5, and,
for each of the years 1999, 2000, and 2001, the Cash Bonus and Option
shall constitute the bonus and long-term incentive components,
respectively, of the ECP.
(b) The Executive shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension), all in accordance with the Company's regular practices with
respect to its senior officers.
(c) The Executive shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by him in the
course of the performance of his duties hereunder.
(d) The Executive shall receive an automobile allowance of
$10,000 per year, to be reviewed consistent with Quintiles ECP Level
2.5 incentives.
(e) In order to promote the interests of the Company, the
Company shall, to the extent consistent with Quintiles' policies
regarding ECP Level 2.5 executives, reimburse the Executive for the
initiation fees and all dues and assessments incurred by him in
connection with his membership in such luncheon clubs and country clubs
as may be chosen by the Executive (and, again to the extent consistent
with Quintiles' policy regarding ECP Level 2.5 executives, the Company
agrees to post any bond required by such clubs and each such bond will
remain the property of the Company).
(f) The Executive shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are consistent with the
Company's other officers. Executive shall be entitled to twenty-eight
(28) days of paid vacation each year. This vacation allowance shall be
cumulative from year to year, but shall be limited to three (3) years
accumulation. Executive recognizes the essential nature of his duties
and hereby agrees the maximum amount of vacation time to be taken shall
not exceed twenty-eight (28) consecutive days.
5. Term: The term of this Agreement shall be for three (3) years from the
Closing Date as defined in the Merger Agreement ("Term"). After expiration of
this Term, if the Company and the Executive agree to continue the Executive's
employment, the Executive agrees to execute an Executive Employment Agreement in
the form as is generally entered into by executives at the same ECP level.
Notwithstanding the foregoing, the indemnification provisions of this Agreement
contained in Paragraph 10 shall survive until the expiration of the statute of
limitations for assessment of any excise tax under Section 4999 of the Code with
regard to an Excess Parachute Payment on account of a Change of Control.
6. Termination and Resignation: The Company shall have the right to terminate
the Executive's employment hereunder at any time and for any reason, and upon
any such termination the Executive shall be entitled to receive from the Company
prompt payment of the
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<PAGE> 4
amount determined pursuant to the applicable subparagraph of Paragraph 7 below.
The Executive shall have the right to terminate his employment hereunder at any
time by resignation, and he shall thereupon be entitled to receive from the
Company payment of the amount determined pursuant to the applicable subparagraph
of Paragraph 7 below.
7. Payments Upon Termination and Resignation:
7.1 Contract Term Payments: Subject to the provisions of Paragraph 7.2,
if during the three (3) year term of this Agreement, the Company terminates
Executive's employment with the Company for any reason or Executive resigns for
any reason, then Executive shall be entitled to receive his Base Salary and Cash
Bonus for the remainder of the unexpired term of this Agreement, payable in the
same amounts and at the same times as if the Executive's employment had not
terminated.
7.2 Multiple Base Salary Payment: In lieu of the payment provided for
in Paragraph 7.1, if after the occurrence of an Initial Change in Control Event
of the Company, other than any Initial Change in Control Event arising out of
the transaction contemplated by the Merger Agreement, the Company terminates the
Executive's employment hereunder (a) because of a Discharge Event, or (b)
without Cause and without any Discharge Event, then in either case the Company
will pay to the Executive a lump sum termination payment equal to 2.99 times the
sum of his Base Salary and his Cash Bonus (collectively, the "Lump Sum
Payment"). In lieu of the payment provided in Paragraph 7.1, if after the
occurrence of a Change in Control of the Company, other than the Change in
Control effected by the transaction contemplated by the Merger Agreement, (a)
the Company terminates the Executive's employment hereunder for any reason other
than for Cause (other than his death or disability), or (b) the Executive
voluntarily resigns his employment hereunder for any reason (other than his
death or disability), then in each case the Company will pay to the Executive
the Lump Sum Payment. Notwithstanding the foregoing, the Company shall not pay
any Lump Sum Payment or other termination payment to Executive pursuant to this
Paragraph 7.3 if, after termination of employment with the Company, the
Executive is employed by a newly created subsidiary formed to continue the
health care services business of the Company, the stock of which subsidiary is
distributed to the shareholders of Quintiles, and this newly created subsidiary
assumes all obligations of the Company under this Agreement. Further,
notwithstanding the foregoing, Executive specifically agrees that, should his
employment hereunder terminate for any reason, he has no, and will claim no,
entitlement to the Lump Sum Payment by virtue of the Change in Control effected
by the transaction contemplated by the Merger Agreement.
7.3 Certain Definitions:
(a) Termination by the Company of the Executive's employment
for "Cause" shall mean termination upon the willful misappropriation of
funds or properties of the Company or the willful contravention of the
standards referred to in the last sentence of Paragraph 11 below. For
purposes of this definition, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or
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omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Board
of Directors of Quintiles ("Board") at a meeting of the Board duly
called and held (after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel, to be heard
before the Board) finding that in the good faith opinion of the Board
the Executive was guilty of the conduct set forth above and specifying
the particulars thereof in detail.
(b) "Cash Bonus" shall mean the $238,000 cash payment referred
to in Paragraph 4.2(a).
(c) A "Change in Control" shall be conclusively deemed to have
occurred if (and only if) any of the following shall have taken place:
(i) a change in control is reported by Quintiles in response to either
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or Item I
of Form 8-K promulgated under the Exchange Act; (ii) any person (as
such term is used in Sections 13 (d) and 14 (d) (2) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule l3d-3 under
the Exchange Act) directly or indirectly, of securities of Quintiles
representing forty percent or more of the combined voting power of
Quintiles then outstanding securities; (iii) the Company shall cease to
be a subsidiary (as defined under the Exchange Act) of Quintiles; or
(iv) following the election or removal of directors, a majority of the
Board consists of individuals who were not members of the Board two
years before such election or removal, unless the election of each
director who was not a director at the beginning of such two-year
period has been approved in advance by directors representing at least
a majority of the directors then in office who were directors at the
beginning of the two-year period.
(d) The "Code" shall refer to the Internal Revenue Code of
1986, as amended.
(e) A "Discharge Event" shall have occurred if the Executive
shall have received a copy of a resolution duly adopted by the
affirmative vote of a majority of the members of the Compensation
Committee of the Board finding that, upon the recommendation of and for
the reasons cited by the Chairman of the Company, the Executive is no
longer discharging his duties in a manner consistent with the effective
administration of the affairs of the Company and hence the continued
employment of the Executive is no longer in the best interest of the
Company.
(f) An "Initial Change in Control Event" shall be conclusively
deemed to have occurred when any individual, group, partnership,
corporation, trust or other entity ("Person") initiates a course of
action or conduct that, in the good faith judgment of the Board, might
reasonably be expected to lead to a Change in Control of Quintiles. For
example and without limiting the scope of the foregoing, an Initial
Change in Control Event would include the public announcement or other
disclosure by a Person of its
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<PAGE> 6
intention (i) to acquire by private or open market purchase, tender
offer, exchange offer, or otherwise forty percent or more of the
combined voting power of Quintiles' outstanding securities, or (ii) to
solicit proxies or consents for the removal of at least three incumbent
directors or the election of at least three persons to serve as
directors of Quintiles in opposition to nominees proposed by the Board
of Directors of Quintiles.
8. Acceleration of Options: Contemporaneously with the occurrence of a Change in
Control of the Company (including without limitation, the Change in Control
contemplated by the Merger Agreement) or Quintiles, the Board of Directors of
the Company or Quintiles (or the appropriate committee thereof) will accelerate
all outstanding options previously granted to the Executive under any then
existing Company or Quintiles stock option plan that are not otherwise
exercisable by the Executive at the time the Change in Control of the Company or
Quintiles occurs.
9. Tax Reimbursement Payment.
9.1 Notwithstanding anything to the contrary contained in this
Agreement, in any plan of the Company or Quintiles, or in any other agreement or
understanding, the Company will pay to the Executive, at the times herein
specified, an amount (the "Additional Amount") equal to the excise tax under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), if
any, incurred or to be incurred by the Executive by reason of the payments under
this Agreement, acceleration of vesting of stock options, stock appreciation
rights or restricted stock granted to Executive, or payments under any other
plan, agreement or understanding between the Executive and the Company or
Quintiles, constituting Excess Parachute Payments (as defined below), plus all
excise taxes and federal, state and local income taxes incurred or to be
incurred by the Executive with respect to receipt of the Additional Amount. For
purposes of this Agreement, the term "Excess Parachute Payment" shall mean any
payment or any portion thereof which would be an "excess parachute payment"
within the meaning of Section 280G(b) of the Code, and which would result in the
imposition of an excise tax on the Executive under Section 4999 of the Code.
Attached hereto as Exhibit A is an example illustrating the computation of the
Additional Amount.
9.2 All determinations required to be made regarding the Additional
Amount, including whether payment of any Additional Amount is required and the
amount of any Additional Amount, shall be made by the independent accounting
firm which is advising the Company (the "Accounting Firm"), which shall provide
detailed support calculations to the Company and the Executive on or before the
last day of the calendar year during which occurs the Change of Control (the
"Change of Control Year"). In computing taxes, the Accounting Firm shall use the
highest marginal federal, state and local income tax rates applicable to single
taxpayers for the year in which the Additional Amount is to be paid (unless,
within 30 days after the occurrence of the Change in Control the Executive
specifies in writing to the Company his marginal tax rate) and shall assume the
full deductibility of state and local income taxes for purposes of computing
federal income tax liability. The portion of the Additional Amount based on the
excise tax as determined by the Accounting Firm to be due for the Change of
Control Year shall be paid to the Executive no later than March 1 immediately
following the end of the Change
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of Control Year. The portion of the Additional Amount based on the excise tax as
determined by the Accounting Firm to be due for each calendar year following the
Change of Control Year shall be paid to the Executive on or before March 1
immediately following the end of each such calendar year. If the Company
determines that the excise tax for any year will be different from the amount
originally calculated in the report of the Accounting Firm delivered at the end
of the Change of Control Year, then the Company shall provide to the Executive
detailed support calculations by the Accounting Firm specifying the basis for
the change in the Additional Amount.
10. Indemnification.
10.1 If the Executive shall have to institute litigation brought in
good faith to enforce any of his rights under the Agreement, the Company shall
indemnify the Executive for his reasonable attorney's fees and disbursements
incurred in any such litigation.
10.2 In the event that an excise tax is ever assessed by the Internal
Revenue Service against the Executive (or if the Company and the Executive
mutually agree that an excise tax is payable) by reason of the payment under
this Agreement, acceleration of vesting of stock options, stock appreciation
rights or restricted stock granted to Executive, or payments under any other
plan, agreement or understanding between the Executive and the Company or
Quintiles, as the case may be, constituting Excess Parachute Payments, and if
such excise tax was not included in the determination by the Accounting Firm of
the Additional Amount that has been actually paid to the Executive, the Company
agrees to indemnify the Executive by paying to the Executive the amount of such
excise tax, together with any interest and penalties, including reasonable legal
and accounting fees and other out-of-pocket expenses incurred by the Executive,
attributable to the failure to pay such excise tax by the date it was originally
due, plus all federal, state and local income taxes incurred with respect to
payment of the excise tax calculated in a manner analogous to Exhibit A. Upon
Executive's receipt from the Internal Revenue Service ("IRS ") of any deficiency
notice, notice of assessment or any other written communication relating to the
excise tax on Excess Parachute Payment, Executive shall give notice thereof to
the Company within ten business days of receipt thereof. In the event of any
dispute concerning the potential excise tax (including any administrative
proceedings within the IRS or court proceedings), the Company, as the
indemnifying party, shall be entitled to assume the defense of such a dispute or
proceeding, no compromise or settlement of such claim may be effected without
the Company's and Executive's mutual consent (which consents shall not be
unreasonably withheld) and the Company shall have no liability with respect to
any compromise or settlement of such claims effected without its consent. In
addition, in the event the Company assumes defense of any proceeding, the
Executive shall not be entitled to indemnification for outside legal fees and
expenses independently incurred by Executive. This indemnification obligation
shall survive the termination of the Agreement and shall apply to all such
excise taxes on Excess Parachute Payments, whether due before or after
termination of employment.
10.3 If the excise tax for any year which is actually imposed on the
Executive is finally determined to be less than the amount taken into account in
the calculation of the Additional Amount that was paid to the Executive pursuant
to Paragraph 9, then the Executive shall repay to
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the Company, at the time that the amount of such reduction in excise tax is
finally determined, the portion of the Additional Amount attributable to such
reduction (including the portion of the Additional Amount attributable to the
excise tax and federal and state income taxes imposed on the Additional Amount
being repaid by the Executive, to the extent that such repayment results in a
reduction in such excise tax, federal or state income tax), plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code.
11. Preservation of Business, Fiduciary Responsibility: The Executive shall use
his best efforts to preserve the business and organization of the Company, to
keep available to the Company the services of present employees and to preserve
the business relations of the Company with suppliers, distributors, customers
and others. The Executive shall not commit any act, or in any way assist others
to commit any act, which would injure the Company. So long as the Executive is
employed by the Company, the Executive shall observe and fulfill proper
standards of fiduciary responsibility attendant upon his service and office.
12. Restrictive Covenants:
12.1 Covenants Against Competition: Executive acknowledges that (a) the
business of the Company and its affiliates, including Quintiles, is as described
in the most recent annual reports on Form 10-K as filed with the Securities and
Exchange Commission by both the Company and by Quintiles and, thereafter, as
described in each successive annual report on Form 10-K filed by Quintiles (the
"Company Business"); and (b) Executive's work for the Company will bring him
into close contact with many confidential matters not readily available to the
public.
12.2 Non-Compete: For a period of time (the "Restricted Period")
commencing on the date of this Agreement and continuing until the later of: (i)
the last day of the three (3) year term of this Agreement; or (ii) the date,
eighteen (18) months from the date of termination of Executive's employment for
whatever reason, including without limitation, the expiration of this Agreement,
but only so long as payments are made pursuant to Paragraph 7.1 or, to the
extent that the Restricted Period extends beyond the date of the last payment
made pursuant to Paragraph 7.1, so long as additional payments of the same
amounts and frequency continue to be made for the remainder of the Restricted
Period, Executive covenants and agrees that he will not, without the express
approval of the Board of Directors, directly or indirectly anywhere in the
Restricted Territory, as defined below:
(a) engage in any business for his own account;
(b) enter into employment for, or render any services to any
person engaged in any business; or
(c) become interested in any person engaged in any business
directly or indirectly, as an individual, partner, shareholder,
officer, director, principal, agent, employee, trustee, consultant or
in any other relationship or capacity;
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<PAGE> 9
if such business is competitive directly or indirectly, with the Company
Business and substantially injurious to the Company's or Quintiles' financial
interests; provided, however, that Executive may own, directly or indirectly,
solely as an investment, securities of any entity if Executive (a) is not a
controlling person with respect to such entity and (b) does not, directly or
indirectly, own five percent or more of any class of the securities of such
entity.
For purposes of this Agreement, "Restricted Territory" shall mean: (i)
any city, metropolitan area, country (or similar political subdivisions in
foreign countries) in which the Company is located or does, or, during
Executive's employment with the Company, did business; (ii) any city,
metropolitan area, county (or similar political subdivisions in foreign
countries) in which the Executive's substantial services were provided, or for
which Executive had substantial responsibility, or in which Executive performed
substantial work on Company, or the Company's affiliates', including Quintiles',
projects while employed by the Company.
12.3 Trade Secrets: Confidential Information: Executive covenants and
agrees that at all times during and after the Restricted Period, he shall keep
secret and not disclose to others or appropriate to his own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company or any of its
affiliates, including Quintiles, including without limitation trade know-how,
trade secrets, consultant contracts, customer lists, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel acquisition
plans, technical processes, designs and design projects, inventions and research
projects; provided, however, that the following shall not constitute a breach or
violation of this Paragraph: any disclosure made by the Executive in the course
of his employment by the Company as provided in this Agreement, or any
disclosure reasonably believed by Executive to be compelled by law or legal
process. Information shall not be deemed confidential or secret for purposes of
this Agreement if it is generally known in the industry.
12.4 Employees of the Company. During the Restricted Period, Executive
shall not directly or indirectly hire away or solicit to hire away from the
Company or any of its affiliates, including Quintiles, any employee of the
Company or its affiliates, including Quintiles.
12.5 Property of the Company: All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Executive or made
available to Executive during his employment by the Company concerning the
business or affairs of the Company or any of its affiliates, including
Quintiles, other than any of such which may also pertain personally to
Executive, shall be the exclusive property of the Company and shall be delivered
to the Company promptly upon the termination of Executive's employment with the
Company or at any other time on request by the Board of Directors of the Company
or such affiliates.
12.6 Rights and Remedies Upon Breach: If Executive breaches, or
threatens to commit a breach of, any of the provisions of Paragraphs 12.2
through 12.5 of this Agreement (collectively, the "Restrictive Covenants") the
Company shall have the following rights and remedies, each of which shall be
independent of the other and severally enforceable, and all of
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which shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company: (a) the right and remedy to have any of the
Restrictive Covenants specifically enforced by any court having jurisdiction and
in Tennessee by an arbitration panel as provided in Paragraph 15 of this
Agreement (with respect to Paragraph 12.2, at any time during the eighteen (18)
month period following termination, but not thereafter; provided, however,
Executive recognizes that, if he should breach any of the provisions of
Paragraph 12.2, following such eighteen (18) month period, then the Executive
shall be entitled to no further payments from the Company), it being hereby
acknowledged and agreed by Executive that any such breach or threatened breach
will cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and (b) the right and remedy to
require Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or received by
Executive as a result of any transactions constituting a breach of any of the
Restrictive Covenants, and Executive shall account for and pay over such
benefits to the Company.
12.7 Severability of Covenants: If it is determined that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the arbitration panel making such determination shall have the power
to reduce the duration, area or scope of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
13. Notice: All notices, requests, demands and other communications given under
or by reason of this Agreement shall be in writing and shall be deemed given
when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
(a) To the Company:
ENVOY Corporation
15 Century Boulevard, Suite 600
Two Lakeview Place
Nashville, Tennessee 37214
(b) To the Executive:
Jim D. Kever
75 St. Mellion
Nashville, Tennessee 37215
14. Controlling Law and Performability: The execution, validity, interpretation
and performance of this Agreement shall be governed by the law of the State of
Tennessee.
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15. Arbitration: Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration in Nashville, Tennessee. In the
proceeding the Executive shall select one arbitrator, the Company shall select
one arbitrator and the two arbitrators so selected shall select a third
arbitrator. The decision of a majority of the arbitrators shall be binding on
the Executive and the Company. Should one party fail to select an arbitrator
within five days after notice of the appointment of an arbitrator by the other
party or should the two arbitrators selected by the Executive and the Company
fail to select an arbitrator within ten days after the date of the appointment
of the last of such two arbitrators, any person sitting as Judge of the United
States District Court for the Middle District of Tennessee, Nashville Division,
upon application of the Executive or the Company shall appoint an arbitrator to
fill such space with the same force and effect as though such arbitrator had
been appointed in accordance with the first sentence of this Paragraph 15. Any
arbitration proceeding pursuant to this Paragraph 15 shall be conducted in
accordance with the rules of the American Arbitration Association. Judgment may
be entered on the arbitrators' award in any court having jurisdiction.
16. Expenses: The Company will pay or reimburse the Executive for all costs and
expenses (including arbitration and court costs and attorneys' fees) incurred by
the Executive as a result of any claim, action or proceeding arising out of, or
challenging the validity, advisability or enforceability of this Agreement or
any provision thereof.
17. No Obligation to Mitigate: The Executive shall not be required to mitigate
the amount of any payment provided for in Paragraph 7 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
Paragraph 7 be reduced by any compensation earned by the Executive as a result
of employment by another employer or otherwise.
18. Additional Instruments: The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
19. Entire Agreement and Amendments: This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof, provided, however, that nothing
herein shall affect in any respect the rights and obligations of the Company and
the Executive under any Incentive Agreements implemented prior to the date of
this Agreement and not expressly referred to herein. This Agreement may be
changed only by an agreement in writing signed by the Party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
20. Severability: If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of any arbitrator or by decree of a court of last
resort, the Parties shall promptly meet and negotiate substitute provisions for
those rendered or declared illegal or unenforceable to preserve the original
intent of this Agreement to the extent legally possible, but all other
provisions of this Agreement shall remain in full force and effect.
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<PAGE> 12
21. Assignments: The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Executive, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Executive under this Agreement are
personal to him, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
22. Effect of Agreement: Subject to the provisions of Paragraph 21 with respect
to assignments, this Agreement shall be binding upon the Executive and his
heirs, executors, administrators, legal representatives and assigns and upon the
Company and its respective successors and assigns.
23. Execution: This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
24. Waiver of Breach: The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
* * * * * *
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IN WITNESS WHEREOF, the Parties have executed this Amended and Restated
Employment Agreement as of March 30, 1999.
ENVOY CORPORATION
By: /s/ Fred Goad
-----------------------------------
Name: Fred C. Goad
Title: Co-Chief Executive Officer
EXECUTIVE
By: /s/ Jim D. Kever
-----------------------------------
Name: Jim D. Kever
<PAGE> 14
EXHIBIT A
1. Assumptions
(a) Employee has option to acquire 10,000 shares at $10.00 per
share on January 1, Year 5.
(b) An event occurs that accelerates the exercise of the option to
January 1, Year 4.
(c) Shares trade at $20.00 per share on January 1, Year 4.
(d) 120% of the applicable federal rate is 6.00% (compounded
semiannually).
(e) All payments are subject to the excise tax of 20%.
(f) In addition to an accelerated option, Employee receives a
termination payment of $32,259 on January 1, Year 4.
2. Computation of Excise Parachute Payment Subject to Excise Tax
(a) Accelerated payment ($10.00 spread x 10,000 shares) = $100,000
(b) Amount by which the accelerated payment exceeds the
present value of the payment absent acceleration
($100,000 - $94,259) = $5,741
(c) 1% of accelerated payment multiplied by the number of
full months between the date of acceleration and the
date the employee would have received payment absent
acceleration
(.01 x $100,000 x 12) = $12,000
(d) Portion of accelerated payment subject to Excise Tax = $17,741
(e) Termination payment subject to Excise Tax = $32,259
3. Excess Parachute Payment Subject to Excise Tax = $50,000
4. Excise Tax on Item 3 @ 20% = $10,000
5. Total Additional Amount Under Agreement = $24,752
<PAGE> 15
EXHIBIT A CONT.
6. Verification of Total Additional Amount
(a) Excise Tax on additional $24,752 @ 20% $4,950
(b) Federal Income Tax on $24,752
(i) Additional Income $24,752
(ii) (State Income Tax Deduction 0
-------
(iii) Net Additional Federal Taxable Income $24,752
(iv) Federal Income Tax @ 39.65 $9,802
(c) Total Taxes on Additional Amount $14,752
(d) Net Amount Available to Key Employee to Pay
Excise Tax in #2 $10,000
The formula used to compute the Additional Amount is to divide the Excise Tax
amount on the excess parachute payment by a percentage equal to 100% less the
sum of the Excise Tax percentage plus (the state income tax percentage) plus the
federal tax percentage less a percentage determined by multiplying the federal
tax percentage times the state tax percentage. Thus, in the example above, the
following percentages should be subtracted from 100%:
1) Excise Tax Percentage 20.00%
2) Assumed State Tax Percentage - 0.00%
3) Federal Income Tax Percentage - 39.60%
------
Total 59.60%
Less 39.6% Times 0% - 0.00%
------
59.60%
The resulting percentage of 100%-59.60%=40.40% should be divided into
$10,000=$24,752.
<PAGE> 1
EXHIBIT 10.08
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement ("Amendment") is made
and entered into this the 23rd day of November, 1999, by and between ENVOY
CORPORATION, a Tennessee Corporation (hereinafter the "Company"), and JIM D.
KEVER (hereinafter the "Executive").
WHEREAS, the Company and Executive are parties to an Amended and
Restated Employment Agreement of Jim D. Kever dated March 30, 1999 (the
"Employment Agreement"), a copy of which is attached hereto as Exhibit A and
incorporated herein; and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree to amend the Employment Agreement as follows:
1. The Employment Agreement is hereby amended by deleting Sections 7.2,
7.3(c), 7.3(f) and 8 thereof and by adding the following new Section 25 to the
end thereof:
25. CHANGE IN CONTROL.
25.1 For purposes of this Amendment, a "Change in Control" shall mean
the occurrence of any one of the following:
(A) An acquisition (other than directly from Quintiles
Transnational Corp. ("QTRN")) of any voting securities of QTRN by any "Person"
(as such term is used in Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the
Securities Exchange Act of 1934, as amended (the "Act")), after which such
Person, together with its "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act), becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly, of more
than one-third (33.33%) of the total voting power of the QTRN's then outstanding
voting securities, but excluding any such acquisition by QTRN, any Person of
which a majority of its voting power or its voting equity securities or equity
interests is owned, directly or indirectly, by QTRN (for purposes hereof, a
<PAGE> 2
"Subsidiary"), any employee benefit plan of QTRN or any of its Subsidiaries
(including any Person acting as trustee or other fiduciary for any such plan),
or Dennis B. Gillings;
(B) The shareholders of QTRN approve a merger, share exchange,
consolidation or reorganization involving QTRN and any other corporation or
other entity that is not controlled by QTRN, as a result of which less than
two-thirds (66.66%) of the total voting power of the outstanding voting
securities of QTRN or of the successor corporation or entity after such
transaction are held in the aggregate by the holders of QTRN's voting securities
immediately prior to such transaction;
(C) The shareholders of QTRN approve a liquidation or
dissolution of QTRN, or approve the sale or other disposition by QTRN of all or
substantially all of QTRN's assets to any Person (other than a transfer to a
Subsidiary of QTRN);
(D) During any period of twenty-four (24) consecutive months,
the individuals who constitute the Board of Directors of QTRN at the beginning
of such period (the "Incumbent Directors") cease for any reason to constitute at
least two-thirds (66.66%) of the Board of Directors; provided, however, that a
director who is not a director at the beginning of such period shall be deemed
to be an Incumbent Director if such director is elected or recommended for
election by at least two-thirds (66.66%) of the directors who are then Incumbent
Directors.
25.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the occurrence of a
Change in Control, Executive shall be entitled to receive payments and benefits
pursuant to this Agreement if, at the time of the Change in Control, (i)
Executive is in ECP Levels 1 to 2 and his/her employment is terminated pursuant
to Sections 25.2(A), (B), or (C) below, or (ii) Executive is in ECP Levels 2.5
to 4 and his/her employment is terminated pursuant to Sections 25.2(B) or (C)
below:
(A) Within eighteen (18) months following a Change in Control,
Executive terminates his employment with Company by giving written notice of
such termination to Company.
(B) Within eighteen (18) months following a Change in Control,
Company terminates Executive's employment for reasons other than "Cause" as such
term is defined in Section 7.3(a) of the Employment Agreement.
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(C) Within eighteen (18) months following a Change in Control,
Executive terminates his/her employment with the Company for "Good Reason." For
purposes of this Amendment, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in Executive's
reasonable judgment, represents an adverse change from his/her status, title,
position or responsibilities in effect immediately prior thereto; the assignment
to Executive of any duties or responsibilities which in Executive's reasonable
judgment, are inconsistent with his/her status, title, position or
responsibilities; or any removal of Executive from or failure to reappoint or
reelect him/her to any of such positions, status, or title except in connection
with the termination of his/her employment for Cause or by Executive other than
for Good Reason,
(ii) a reduction in Executive's base salary;
(iii) the Company's requiring Executive to be based at
any place outside a thirty (30) mile radius from Executive's principal place of
residence, except for reasonably required travel on Company's business which is
not greater than such travel requirements prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Executive is participating at
the time of a Change in Control, including benefits pursuant to the Executive
Compensation Plan or similar plans, without substituting plans providing
Executive with substantially similar or greater benefits, or the taking of any
action by the Company which would adversely affect Executive's participation in
or materially reduce Executive's benefits under any such plans or deprive
Executive of any material fringe benefit enjoyed by Executive at the time of the
Change in Control;
(v) any purported termination of Executive's
employment for Cause without grounds therefor;
(vi) the insolvency or the filing (by any party,
including QTRN) of a petition for bankruptcy of the Company;
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(vii) any material breach by the Company of any
provision of the Employment Agreement after Executive has given the Company
notice of the material breach and at least thirty (30) days to cure the breach
(or such longer period as may be reasonably required to cure the breach as long
as the Company is making good faith efforts to do so.); or
(viii) the failure of the Company to obtain an
agreement, satisfactory to Executive, from any successor or assign of the
Company to assume and agree to perform the Employment Agreement, including this
Amendment.
25.3 SEVERANCE PAY AND BENEFITS. If Executive's employment with the
Company terminates under circumstances as described in Section 25.2. above,
Executive shall be entitled to receive all of the following:
(A) all accrued compensation through the termination date,
plus any Bonus for which the Executive otherwise would be eligible in the year
of termination, prorated through the termination date, payable in cash. For
purposes of Sections 25.3(A) and 25.3(B), "Bonus" shall be defined as any
benefits for which Executive would be eligible under the Executive Compensation
Plan described in Section 3.2 of the Employment Agreement. The amount of such
Bonus shall be paid in cash and, for purposes of Sections 25.3(A) and 25.3(B),
shall be calculated as if Executive had achieved 100% of Executive's performance
goals for that year.
(B) a severance payment equal to two and ninety-nine
hundredths (2.99) times the amount of Executive's most recent annual
compensation, including the amount of his/her most recent annual Bonus. The
severance amount shall be paid (i) in cash in thirty-four (34) equal monthly
installments commencing one month after the termination date, or (ii) in a lump
sum, within one month after the termination date, at the sole option of the
Executive.
(C) the Company shall maintain in full force and effect, for
eighteen (18) months after the termination date, all life insurance, health,
accidental death and dismemberment, disability plans and other benefit programs
in which Executive is entitled to participate immediately prior to the
termination date, provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. Executive's
continued participation in such plans and programs shall be at
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<PAGE> 5
no greater cost to Executive than the cost he/she bore for such participation
immediately prior to the termination date. If Executive's participation in any
such plan or program is barred, Company shall arrange upon comparable terms, and
at no greater cost to Executive than the cost he/she bore for such plans and
programs prior to the termination date, to provide Executive with benefits
substantially similar to, or greater than, those which he/she is entitled to
receive under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Executive
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Executive is entitled
to under the terms of any such plan through the date of termination.
25.4 STOCK OPTIONS.
(A) Upon a Change in Control, all options ("Options") to
purchase Common Stock of QTRN held by Executive as of the date of the Change in
Control shall become fully vested and exercisable.
(B) If Executive's employment with the Company terminates
pursuant to Section 25.2, then the Options shall remain exercisable until the
later of:
(i) the expiration of the applicable period for
exercise following termination of employment set forth in the Option agreements
(or in any other agreement between Executive and the Company and/or QTRN that
supersedes the Option agreements); or
(ii) three (3) years after the date of termination
(to the extent of the terms of the Options); provided, however, that any
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), that are exercised more than
ninety (90) days after the date of termination pursuant Section 25.2 shall be
treated for tax purposes as nonqualified stock options.
25.5 EXCISE TAX PAYMENTS.
(A) If any payment or benefit (within the meaning of Section
280G(b)(2) of the Code), to Executive or for his/her benefit pursuant to this
Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of
the Code (the
5
<PAGE> 6
"Excise Tax"), then the amount of the Payment net of all taxes other than the
Excise Tax (the "Net Amount") shall be calculated. Executive shall then receive,
in addition to the Payment, an additional payment (the "Gross-Up Payment"),
which shall be an amount such that, after payment of all taxes (including the
Excise Tax) on the Payment and the Gross-Up Payment, Executive shall retain an
amount equal to the Net Amount.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Amendment and the amount of such Gross-Up Payment
shall be made at Company's expense by an accounting firm selected by Company and
reasonably acceptable to Executive which is designated as one of the five
largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to Company and Executive
within ten (10) days of the date Executive's employment terminates if
applicable, or such other time as requested by Company or by Executive (provided
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable
by Executive with respect to a Payment, it shall furnish Executive with an
opinion reasonably acceptable to Executive that no Excise Tax will be imposed
with respect to any such Payment. Within ten (10) days of the delivery of the
Determination to Executive, Executive shall have the right to dispute the
Determination (the "Dispute"). The Gross-Up Payment, if any, as determined
pursuant to this Section 25.5 shall be paid by Company to Executive within five
(5) days of the receipt of the Accounting Firm's determination. The existence of
the Dispute shall not in any way affect Executive's right to receive the
Gross-Up Payment in accordance with the Determination. Upon the final resolution
of a Dispute, Company shall promptly pay to Executive any additional amount
required by such resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon Company and Executive subject to the
application of Section (C) below.
(C) Notwithstanding anything in this Amendment to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment, Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment and the Gross-Up Payment, as
applicable.
(D) If Executive is subject to taxation under a non-United
States taxing authority and an excise tax similar to the Excise Tax is imposed
on any
6
<PAGE> 7
Payment by such non-United States taxing authority, then Executive shall be
entitled to receive a Gross-Up Payment as calculated pursuant to Section 25.5(A)
above, based upon the lesser of such non-United States excise tax imposed and
the Excise Tax that would have been imposed had the Payment been subject to
United States taxation.
2. Except as herein set forth, the Employment Agreement is not modified
or amended and the parties hereto reaffirm and agree to all of the terms and
provisions of the Employment Agreement, as herein amended, in all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Executive Employment Agreement as of the day and year first written above.
ENVOY CORPORATION
By: /s/ John Russell
---------------------------------
Name: John Russell
Title: _________________________________
/s/ Jim D. Kever
---------------------------------
JIM D. KEVER
7
<PAGE> 1
EXHIBIT 10.09
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement'), dated as of June 16,
1998, ("Anniversary Date") is made and entered into by QUINTILES TRANSNATIONAL
CORP., a North Carolina corporation (hereinafter the "Company") and James L.
Bierman (hereinafter the "Executive"). The Company desires to employ and to
provide adequate assurances to Executive, and Executive desires to accept such
employment on the terms set forth below, which terms Executive agreed to in his
offer letter.
In consideration of the mutual promises set forth below and other good
and valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the Company and Executive agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive and Executive
hereby accepts such employment on the terms and conditions set forth in this
Agreement.
2. NATURE OF EMPLOYMENT. Executive shall serve as Senior Vice
President, Corporate Development and shall have such responsibilities and
authority as the Company may assign from time to time. Additionally, Executive
agrees to perform such other duties consonant with those of an executive at his
level as the Company may set from time to time.
2.1 Executive shall perform all duties and exercise all
authority in accordance with, and otherwise comply with, all Company policies,
procedures, practices and directions.
2.2 Executive shall devote substantially all working and
reasonable time and best efforts, to perform successfully his duties and advance
the Company's and/or its Affiliates' interests. During his employment, Executive
shall not render services of any nature whatsoever (including board memberships)
for which he receives compensation without the Company's prior written consent;
provided, however, this provision does not prohibit him from personally owning
and trading in stocks, bonds, securities, real estate, commodities or other
investment properties for his own benefit which do not create actual or
potential conflicts of interest with the Company and/or its Affiliates. As used
in this Agreement, "Affiliates" shall mean: (i) the Company; and/or (ii) any
entity directly or indirectly controlled or beneficially owned in whole or part
by the Company.
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2.3 Executive's base of operation shall be Durham, North
Carolina, subject to business travel as may be necessary in the performance of
Executive's duties.
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3. COMPENSATION.
3.1 BASE SALARY. Executive's annual salary for all services
rendered shall be $200,000 (less applicable withholdings), payable in monthly
installments, and in accordance with the Company's policies, procedures and
practices as they may exist from time to time. Executive's salary periodically
shall be reviewed and increased upward at the Company's discretion in accordance
with the Company's policies, procedures and practices as they may exist from
time to time.
3.2 EXECUTIVE COMPENSATION PLAN. Executive may participate as
a Level 3 employee in the Executive Compensation Plan ("ECP") (or successor
plans) which may be made available from time to time to Company executives at
Executive's level; provided, however, that Executive's participation is subject
to the applicable terms, conditions and eligibility requirements of the plan
documents, some of which are within the plan administrator's discretion, as they
may exist from time to time. Notwithstanding the foregoing, Executive shall be
credited retroactively to January 1, 1998 for purposes of calculating long-term
incentive award and bonus.
3.3 AUTOMOBILE ALLOWANCE. Executive shall receive $806.00 per
month (less applicable withholdings) as an automobile allowance.
3.4 SIGNING BONUS. Executive shall receive 15,000 signing
stock options, vesting at 5,000 per year, on the Anniversary Date.
3.5 TAX RETURNs. Executive shall be entitled to reimbursement
up to $5,000 annually for tax return preparation and reasonable financial and
estate planning, consultation and advice by accounting and/or legal counsel
and/or financial consultants.
3.6 OTHER BENEFITS. Executive may participate in all medical,
dental and disability insurance, 401(k), pension, personal leave, car allowance
and other employee benefit plans and programs which may be made available from
time to time to Company executives at Executive's level; provided, however, that
Executive's participation in benefit plans and programs is subject to the
applicable terms, conditions and eligibility requirements of these plans and
programs, some of which are within the plan administrator's discretion, as they
may exist from time to time; provided, further, that the Company shall not make
any changes in such plans or programs that would adversely affect Executive's
rights or benefits hereunder, except that such changes may be made pursuant to a
program resulting in no proportionately greater reduction in
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the rights of or benefits to Executive as compared with any other employee of
the Company at Executive's level. Additionally, no later than January 1, 1999,
Executive shall become eligible to participate in the ESSP plan.
3.7 BUSINESS EXPENSES. Executive shall be reimbursed for
reasonable and necessary expenses actually incurred by him in performing
services under this Agreement in accordance with and subject to the terms and
conditions of the applicable Company reimbursement policies, procedures and
practices, as they may exist from time to time. Expenses covered by this
provision include, but are not limited to, travel, entertainment, professional
dues, subscriptions and dues, fees and expenses associated with membership in
various professional, and business and civic associations of which Executive's
participation is in the Company's best interest.
3.8 CHANGES TO PLANS. Nothing in this Agreement shall require
the Company to create, continue or refrain from amending, modifying, revising or
revoking any of the plans, programs or benefits set forth in Sections 3.2
through 3.7. Executive acknowledges that the Company, in its sole discretion,
may amend, modify, revise or revoke any such plans, programs or benefits. Any
amendments, modifications, revisions and revocations of these plans, programs
and benefits shall apply to Executive. Nothing in this Agreement shall afford
Executive any greater rights or benefits with regard to these plans, programs
and benefits than are afforded to Executive under their applicable terms,
conditions and eligibility requirements, some of which are within the Plan
Administrator's discretion, as they may exist from time to time.
3.9 CHANGE OF CONTROL. In the event of a "Change of Control,"
Executive shall receive 2.99 times his current Base Salary, in addition to an
accelerated vesting of his stock options granted under the ECP. For purposes of
this Agreement, a "Change in Control" shall be deemed to have occurred if (i)
the Company shall become a subsidiary of, or shall be merged or consolidated
with or into, another entity, which entity is not controlled by the Company, nor
67% or more of the voting shares of which are held by shareholders who were
shareholders of the Company immediately before the transaction; or (ii)
substantially all of the assets of the Company shall be sold or transferred to a
person or entity which person or entity is not controlled by the Company, nor
67% or more of the voting shares of which are held by shareholders who were
shareholders of the Company immediately before the transaction; or (iii) any
"Person" (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), or persons acting together or in concert, is
or becomes the "beneficial owner" (as defined in Rule 13(d) of the Securities
Exchange Act of 1934, as amended) of securities of the
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Company representing 20% or more of the combined voting power of the Company's
then outstanding securities, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company.
4. TERM OF EMPLOYMENT. The initial original term of employment shall be
for a one-year period commencing on June 16, 1998, and terminating on June 16,
1999, subject to the following provisions:
4.1 RENEWAL. Upon the expiration of the initial term of
employment, Executive's employment shall continue, subject to the terms,
conditions, and provisions set forth in this Agreement, until either Executive
or the Company terminates employment upon ninety (90) days written notice to the
other.
4.2 TERMINATION WITHOUT CAUSE. Either party may terminate the
employment relationship without cause at any time upon giving the other party
ninety (90) days' written notice.
4.3 TERMINATION WITHOUT NOTICE. The Company may terminate the
Executive's employment relationship immediately without notice at any time for
the following reasons: (i) Executive's death; (ii) Executive's physical or
mental inability to perform the essential functions of his duties satisfactorily
for a period of 180 consecutive days or 180 days in total as determined by the
Company in its reasonable discretion and in accordance with applicable law;
(iii) any willful act or omission of Executive constituting gross misconduct,
gross negligence, fraud, misappropriation, embezzlement, criminal behavior,
conflict of interest or competitive business activities which is materially
detrimental to the Company or any Affiliates' interest; or (iv) Executive's
material breach of this Agreement. Prior to any termination pursuant to
Subsection (iv) of this Section 4.3, Executive shall be given written notice of
such conduct giving rise to termination and shall be given thirty (30) days from
the date of such notice in which to cure the same.
4.4 COMPANY'S BREACH. Executive may terminate Executive's
employment with the Company as a result of the Company's failure to cure its
material breach of this Agreement after Executive has given the Company notice
of the material breach and at least thirty (30) days to cure the breach (or such
longer period as may be reasonably required to cure the breach, as long as the
Company is making good forth efforts to do so).
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4.5 PROVISIONS SURVIVING TERMINATION. This Agreement shall
terminate upon the termination of the employment relationship with the following
exceptions: Sections 6 (Trade Secrets, Confidential Information, Company
Property and Competitive Business Activities), 7 (Intellectual Property
Ownership), 8 (License), and 9 (Release) shall survive the termination of
Executive's employment and/or the expiration or termination of this Agreement,
regardless of the reasons for such expiration or termination.
5. COMPENSATION AND BENEFITS UPON TERMINATION.
5.1 The Company's obligation to compensate Executive ceases on
the effective termination date except as to: (i) amounts due at that time; (ii)
any amount subsequently due pursuant to the plan described in Section 3.2; and
(iii) any compensation and/or benefits to which he may be entitled to receive
pursuant to Sections 5.2, 5.3, 5.4 or 5.5.
5.2 If the Company terminates Executive's employment pursuant
to Sections 4.1 (notice of non-renewal) or 4.2 (without cause), then the
Company's sole obligation shall be to pay Executive: (i) amounts due on the
effective termination date; (ii) any amounts subsequently due pursuant to the
plan described in Section 3.2; and (iii) Subject to Executive's compliance with
Sections 6,7,8 and 9, and subject to Sections 3.2 and 5.6, an amount equal to
his then current monthly salary (less applicable withholdings) for the twelve
(12) month non-competition period set forth in Section 6.3, payable in equal
monthly installments.
5.3 During the period during which Executive receives
post-termination payments pursuant to Section 5.2, he may continue to
participate, to the extent permitted by the applicable plans and subject to
their terms, conditions and eligibility requirements, in all employee welfare
benefits plans (as defined by the Employee Retirement Income Security Act of
1974, as amended) in which Executive participated on his effective termination
date. The Company will pay or, at the Company's discretion, reimburse Executive
for the premiums actually paid, to continue coverage under such plans during the
period. Notwithstanding the Company's payment of or reimbursement for the
premiums, any coverage under such plans shall be subject to the terms,
conditions and eligibility requirements of such plans and nothing in this
Section shall constitute any guaranty of coverage.
5.4 If the Company terminates Executive's employment as
provided in Sections 4.3 (i) (death), (ii) (physical or mental inability to
perform), (iii) (materially harmful
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acts or omissions), or (iv) (Executive's material breach), or if the Executive
terminates his employment pursuant to Section 4.1 (notice of non-renewal) or
Section 4.2 (without cause), then the Company's sole obligation shall be to pay
Executive: (i) amounts due on the effective termination date, and (ii) any
amounts subsequently due pursuant to the plan described in Section 3.2.
Executive, except when employment terminates pursuant to Section 4.3(i) (death),
shall comply with Sections 6, 7, 8 and 9 of this Agreement upon expiration or
termination of this Agreement.
5.5 If Executive terminates the employment relationship as a
result of the Company's failure to cure its material breach of this Agreement
after he has given the Company notice of the material breach and 30 days in
which to cure the breach (or such longer period as may be reasonably required to
cure the breach as long as the Company is making good faith efforts to do so),
pursuant to Section 4.4 of this Agreement, then the Company's sole obligation to
Executive in lieu of any other damages or other relief to which he otherwise may
be entitled shall be: (i) an amount equal to amounts due at the time of his
termination; and (ii) subject to Executive's compliance with Sections 6, 7, 8
and 9 and subject to Sections 3.2 and 5.6, liquidated damages in an amount equal
to his then current monthly salary (less applicable withholdings) for the twelve
(12) month non-competition period set forth in Section 6.3, payable in equal
monthly installments.
5.6 The Company's obligation to provide the payments under
Sections 5.2 and 5.5 is conditioned upon Executive's execution of an enforceable
release of all claims against the Company under this Agreement and his
compliance with Sections 6, 7, 8 and 9 of this Agreement. If Executive chooses
not to execute such a release or fails to comply with these sections, then the
Company's obligation to compensate him ceases on the effective termination date
except as to amounts due at that time and any amount subsequently due pursuant
to the plan described in Section 3.2.
5.7 Executive is not entitled to receive any compensation or
benefits upon his termination except as: (i) set forth in this Agreement; (ii)
otherwise required by law; or (iii) otherwise required by any employee benefit
plan in which he participates. Nothing in this Agreement, however, is intended
to waive or supplant any death, disability, retirement, 401(k) or pension
benefits to which he may be entitled under employee benefit plans in which he
participates.
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6. TRADE SECRETS, CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND
COMPETITIVE BUSINESS ACTIVITIES. Executive acknowledges that: (i) by virtue of
his employment by and upper-level position with the Company, he has or will have
access to Trade Secrets and Confidential Information (as defined in Sections
6.1(5) and 6.1(6)) of the Company and its Affiliates, including valuable
information about their worldwide business operations and entities with whom
they do business in various locations throughout the world, and has developed or
will develop relationships with their customers and others with whom they do
business in various locations throughout the world; and (ii) the Trade Secret,
Confidential Information and Competitive Business Activities' provisions set
forth in this Agreement are reasonably necessary to protect the Company's and
its Affiliates' legitimate business interests, are reasonable as to the time,
territory and scope of activities which are restricted, do not interfere with
public policy or public interest, and are described with sufficient accuracy and
definiteness to enable him to understand the scope of the restrictions imposed
on him.
6.1 TRADE SECRETS AND CONFIDENTIAL INFORMATION. Executive
acknowledges that: (i) the Company and/or its Affiliates will disclose to him
certain Trade Secrets and Confidential Information; (ii) Trade Secrets and
Confidential Information are the sole and exclusive property of the Company
and/or its Affiliates (or a third party providing such information to the
Company and/or its Affiliates) and the Company and/or its Affiliates or such
third party owns all worldwide rights therein under patent, copyright,
trademarks, trade secret, confidential information or other property right; and
(iii) the disclosure of Trade Secrets and Confidential Information to Executive
does not confer upon him any license, interest or rights of any kind in or to
the Trade Secrets or Confidential Information.
6.1(1) Executive may use the Trade Secrets and
Confidential Information only while he is employed or otherwise retained by the
Company, and only then in accordance with applicable Company policies and
procedures and solely for the Company's benefit. Except as authorized in the
performance of services for the Company, Executive will hold in confidence and
will not, either directly or indirectly, in any form, by any means, or for any
purpose, disclose, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer Trade Secrets or Confidential Information or any
portion thereof. Upon the Company's request, Executive shall return Trade
Secrets and Confidential Information and all related materials.
6.1(2) If Executive is required to disclose Trade
Secrets or Confidential Information pursuant to a court order, subpoena or other
government process, or such disclosure
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is necessary to comply with applicable law or defend against claims, he shall:
(i) notify the Company promptly before any such disclosure is made; (ii) at the
Company's request and expense take all reasonably necessary steps to defend
against such disclosure, including defending against the enforcement of the
court order, other government process or claims; and (iii) permit the Company to
participate with counsel of its choice in any proceeding relating to any such
court order, subpoena, other government process or claims.
6.1(3) Executive's obligations with regard to Trade
Secrets shall remain in effect for as long as such information shall remain a
trade secret under applicable law.
6.1(4) Executive's obligations with regard to
Confidential Information shall remain in effect while he is employed or
otherwise retained by the Company and/or its Affiliates and for the longer of
five (5) years thereafter or the period required by a third party providing such
information to the Company or its Affiliates.
6.1(5) As used in this Agreement, "Trade Secrets"
means information of the Company, its Affiliates and its and/or their licensors,
suppliers, customers, or prospective licensors or customers, including, but not
limited to, data, formulas, patterns, compilations, programs, devices, methods,
techniques, processes, financial data, financial plans, product plans, or lists
of actual or potential customers or suppliers, which: (i) derives independent
actual or potential commercial value, from not being generally known to or
readily ascertainable through independent development or reverse engineering by
persons or entities who can obtain economic value from its disclosure or use;
and (ii) is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy.
6.1(6) As used in this Agreement, "Confidential
Information" means information of the Company, its Affiliates, or third parties
who have entrusted such information to the Company or its Affiliates other than
Trade Secrets, that is of value to its owner and is treated as confidential,
including, but not limited to, future business plans, licensing strategies,
advertising campaigns, information regarding executives and employees, and the
terms and conditions of this Agreement; provided, however, Confidential
Information shall not include information which is in the public domain or
becomes public knowledge through no fault of Executive.
6.2 COMPANY PROPERTY. Upon termination of his employment,
Executive shall: (i) deliver to the Company all records, memoranda, data,
documents and other property of
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any description which contain any Trade Secrets or Confidential Information,
including all copies thereof, which are in his possession, custody or control;
(ii) deliver to the Company all Company and/or Affiliates property (including,
but not limited to, keys, credit cards, client files, contracts, proposals, work
in process, manuals, forms, computer stored work in process and other computer
data, research materials, other items of business information concerning any
Company and/or Affiliate client, or Company and/or Affiliate business or
business methods, including all copies thereof) which is in his possession,
custody or control; (iii) make reasonable efforts to bring all such records,
files and other materials up to date before returning them; and (iv) make
reasonable efforts to fully cooperate with the Company in winding up his work
and transferring that work to other individuals designated by the Company.
6.3 COMPETITIVE BUSINESS ACTIVITIES. During his employment and
the one (1) year following his effective termination date (regardless of the
reason for the termination), Executive will not engage in the following
activities:
(a) on Executive's own or another's behalf, whether as an
officer, director, stockholder, partner, associate, owner, employee, consultant
or otherwise, directly or indirectly:
(i) compete with the Company or its Affiliates within
the geographical areas set forth in Section 6.3(1); except that Executive,
without violating this provision, may become employed by any company which is
engaged in the integrated development, discovery, manufacture, marketing and
sale of pharmaceutical drugs that does not engage in contract sales and/or
research;
(ii) within the geographical areas set forth in
Section 6.3(1), solicit or do business which is the same, similar to or
otherwise in competition with the business engaged in by the Company or its
Affiliates, from or with persons or entities: (a) who are customers of the
Company or its Affiliates; (b) who Executive or someone for whom he was
responsible solicited, negotiated, contracted or serviced on the Company's or
its Affiliates' behalf; or (c) who were customers of the Company or its
Affiliates at any time during the last year of Executive's employment with the
Company;
(iii) offer employment to or otherwise solicit for
employment any employee or other person who had been employed by the Company or
its Affiliates during the last year of Executive's employment with the Company;
or
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(b) directly or indirectly take any action which is intended
or reasonably likely to be materially detrimental to the Company's and/or
Affiliates' goodwill, name, business relations, prospects and operations.
6.3(1) The restrictions set forth in Section 6.3
apply to the following geographical areas; (i) within a 60-mile radius of the
Company and/or its Affiliates where the Executive had an office during the
Executive's employment with the Company and/or its Affiliates; and (ii) any
city, metropolitan area, county (or similar political subdivisions in foreign
countries) in which the Company or its Affiliates is located or does or, during
Executive's employment with Company, did business.
6.3(2) Notwithstanding the foregoing, Executive's
ownership, directly or indirectly, of not more than one percent of the issued
and outstanding stock of a corporation the shares of which are regularly traded
on a national securities exchange or in the over-the-counter market, and which
do not create actual or potential conflicts of interest with the Company and/or
its Affiliates shall not violate Section 6.3.
6.4 REMEDIES. Executive acknowledges that his failure to abide
by the Trade Secrets, Confidential Information, Company Property or Competitive
Business Activities provisions of this Agreement would cause irreparable harm to
the Company and/or its Affiliates for which legal remedies would be inadequate.
Therefore, in addition to any legal or other relief to which the Company and/or
its Affiliates may be entitled by virtue of Executive's failure to abide by
these provisions: (i) the Company will be released of its obligations under this
Agreement to make any post-termination payments, including, but not limited to,
those otherwise available pursuant to Section 5.2; (ii) the Company may seek
legal and equitable relief, including but not limited to preliminary and
permanent injunctive relief, for Executive's actual or threatened failure to
abide by these provisions; (iii) Executive will return all post-termination
payments received pursuant to this Agreement, including but not limited to those
received pursuant to Section 5.2; and (iv) Executive will indemnify the Company
and/or its Affiliates for all expenses (including reasonable attorneys' fees) in
seeking to enforce these provisions. In the event that the Company exercises its
right to discontinue payments under this provision and/or Executive returns all
post-termination payments received pursuant to this Agreement, Executive shall
remain obligated to abide by the Trade Secrets, Confidential Information,
Company Property and Competitive Business Activities provisions set forth in
this Agreement.
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6.5 TOLLING. The period during which Executive must refrain
from the activities set forth in Sections 6.1 and 6.3 shall be tolled during any
period in which he fails to abide by these provisions.
6.6 OTHER AGREEMENTS. Nothing in this Agreement shall
terminate, revoke or diminish Executive's obligations or the Company's and/or
its Affiliates' rights and remedies under law or any agreements relating to
trade secrets, confidential information, non-competition and intellectual
property which Executive has executed in the past or may execute in the future
or contemporaneously with this Agreement.
7. INTELLECTUAL PROPERTY OWNERSHIP.
7.1 As used in this Agreement, "Work Product" shall mean the
data, materials, documentation, computer programs, inventions (whether or not
patentable), picture, audio, video, artistic works and all works of authorship,
including all worldwide rights therein under patent, copyright, trademark, trade
secret, confidential information or other property right, created or developed
in whole or in part by Executive, while employed by the Company (whether
developed during work hours or not), whether prior or subsequent to the date of
this Agreement.
7.2 All Work Product shall be considered work made for hire by
Executive and owned by the Company. If any of the Work Product may not, by
operation of law, be considered work made for hire by Executive for the Company,
or if ownership of all right, title, and interest of the intellectual property
rights therein shall not otherwise vest exclusively in the Company, Executive
hereby assigns to the Company, and upon the future creation thereof,
automatically assigns to the Company, without further consideration, the
ownership of all Work Product. The Company shall have the right to obtain and
hold in its own name copyrights, registrations and any other protection
available in the Work Product. Executive agrees to perform, during or after his
employment, such further acts which the Company requests as may be necessary or
desirable to transfer, perfect and defend its ownership of the Work Product.
7.3 Notwithstanding the foregoing, this Agreement shall not
require assignment of any invention that: (i) Executive developed entirely on
his own time without using the Company's equipment, supplies, facilities, Trade
Secrets or Confidential Information; and (ii) does not relate to the Company's
business or actual or anticipated research or development or result from any
work performed by Executive for the Company.
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7.4 Executive shall promptly disclose to the Company in
writing all Work Product conceived, developed or made by him, individually or
jointly.
8. LICENSE. To the extent that any preexisting materials are contained
in Work Product which Executive delivers to the Company or its customers,
Executive grants to the Company an irrevocable, nonexclusive, worldwide,
royalty-free license to: (i) use and distribute (internally or externally)
copies of, and prepare derivative works based upon, such preexisting materials
and derivative works thereof; and (ii) authorize others to do any of the
foregoing.
9. RELEASE. Executive acknowledges that: (i) as a part of his services,
he may provide his image, likeness, voice or other characteristics for use by
the Company for business purposes; and (ii) so long as the Executive remains
employed by the Company or its Affiliates, the Company may use his image,
likeness, voice or other characteristics in its products and services. Executive
consents to the use of such characteristics for such purposes and expressly
releases the Company, its Affiliates and its and/or their agents, employees,
licensees and assigns from and against any and all claims which he has or may
have for invasion of privacy, right of privacy, defamation, copyright
infringement or any other causes of action relating to the ownership or business
use of such image, likeness, voice or other characteristics arising out of the
use, adaptation, reproduction, distribution, broadcast or exhibition of such
characteristics.
10. EMPLOYEE REPRESENTATION. Executive represents and warrants that his
employment and obligations under this Agreement will not: (i) breach any duty or
obligation he owes to another; or (ii) violate any law, recognized ethics
standard or recognized business custom.
11. OFFICERS AND DIRECTORS INDEMNIFICATION PROVISIONS. To the extent
Executive serves as a Company and/or Affiliate officer or director, Executive
shall be entitled to insurance under Company's directors and officers
indemnification policies comparable to any such insurance covering executives of
the applicable entity serving in similar capacities. Further, the Company's
bylaws shall contain provisions granting to Executive the maximum indemnity
protection allowed under applicable law and the Company hereby agrees to
indemnify and hold harmless Executive in accordance with such maximum indemnity
protection allowed under applicable law.
12. NOTICES. All notices, requests, demands and other communications
required or permitted to be given in writing pursuant to this Agreement shall be
deemed given
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and received: (a) upon delivery if delivered personally; (b) on the fifth (5th)
day after being deposited with the U.S. Postal Service if mailed by first class
mail, postage prepaid, registered or certified with return receipt requested, at
the addresses set forth below; (c) on the next day after being deposited with a
reliable overnight delivery service; or (d) upon receipt of an answer back
confirmation, if transmitted by telefax, addressed to the below indicated
telefax number. Notice given in another manner shall be effective only if and
when received by the addressee. For purposes of notice, the addresses and
telefax number (if any) of the parties shall be as follows:
If to the Executive, to James L. Bierman
6931 Sardis Road
Charlotte, NC 28270
If to the Company, to: Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Durham, North Carolina 27703-8411
Attn: General Counsel
provided that: (a) each party shall have the right to change its address for
notice, and the person who is to receive notice, by the giving of fifteen (15)
days' prior written notice to the other party in the manner set forth above; and
(b) notices shall be effective if given to the other party in the manner set
forth above regardless of whether a copy was received by the additional
addressee specified above.
13. WAIVER OF BREACH. The Company's or Executive's waiver of any breach
of a provision of this Agreement shall not waive any subsequent breach by the
other party.
14. ENTIRE AGREEMENT. Except as expressly provided in this Agreement,
this Agreement: (i) supersedes all other understandings and agreements, oral or
written, between the parties with respect to the subject matter of this
Agreement; and (ii) constitutes the sole agreement between the parties with
respect to this subject matter. Each party acknowledges that: (i) no
representations, inducements, promises or agreements, oral or written, have been
made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement; and (ii) no agreement, statement or promise not
contained in this Agreement
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shall be valid. No change or modification of this Agreement shall be valid or
binding upon the parties unless such change or modification is in writing and is
signed by the parties.
15. SEVERABILITY. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases in the Trade Secrets, Confidential Information or Competitive
Business Activities provisions set forth in this Agreement are held
unenforceable by a court of competent jurisdiction, then the parties desire that
they be "blue-penciled' or rewritten by the court to the extent necessary to
render them enforceable.
16. CONSIDERATION. Executive acknowledges that he agreed to the terms
of this Agreement at the inception of employment, as evidenced by the signing of
his offer letter. Accordingly, Executive waives any and all defenses he may have
to the validity or enforceability of this Agreement based on the absence or
failure of consideration.
17. PARTIES BOUND. The terms, provisions, covenants and agreements
contained in this Agreement shall apply to, be binding upon and inure to the
benefit of the Company's successors and assigns. The Company, at its discretion,
may assign this Agreement to Affiliates. Because this Agreement is personal to
Executive, Executive may not assign this Agreement.
18. GOVERNING LAW. This Agreement and the employment relationship
created by it shall be governed by North Carolina law without giving effect to
North Carolina choice of law provisions. The parties hereby consent to
jurisdiction in North Carolina for the purpose of any litigation relating to
this Agreement and agree that any litigation by or involving them relating to
this Agreement shall be conducted in the courts of Wake County, North Carolina
or the federal courts of the United States for the Eastern District of North
Carolina.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
day and year first written above.
/s/ James L. Bierman/BLR
------------------------------------
James L. Bierman
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QUINTILES TRANSNATIONAL CORP.
By: /s/ Rachel Selisker
----------------------------
Title: CFO
----------------------------
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EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement"), dated as of December
3, 1998, is made and entered into by QUINTILES TRANSNATIONAL CORP., a North
Carolina corporation (hereinafter the "Company") and John S. Russell
(hereinafter the "Executive"). The Company desires to employ Executive as its
Senior Vice President and General Counsel and provide adequate assurances to
Executive, and Executive desires to accept such employment on the terms set
forth below, which terms Executive agreed to in his offer letter.
In consideration of the mutual promises set forth below and other good
and valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the Company and Executive agree as follows:
1. EMPLOYMENT. The Company employs Executive and Executive accepts
employment on the terms and conditions set forth in this Agreement.
2. NATURE OF EMPLOYMENT. Executive shall serve as Senior Vice President
and General Counsel and have such responsibilities and authority as the Company
may assign from time to time. Additionally, Executive agrees to perform such
other duties consonant with those of an executive at his level as the Company
may set from time to time.
2.1 Executive shall perform all duties and exercise all
authority in accordance with, and otherwise comply with, all Company policies,
procedures, practices and directions.
2.2 Executive shall devote all working time, best efforts,
knowledge and experience to perform successfully his duties and advance the
Company's and/or its Affiliates' interests. During his employment, Executive
shall not engage in any other business activities of any nature whatsoever
(including board memberships) for which he receives compensation without the
Company's prior written consent; it being understood Executive's position as
Director of the North Carolina Railroad Company has been consented to by the
Company; provided, however, this provision does not prohibit him from personally
owning and trading in stocks, bonds, securities, real estate, commodities
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or other investment properties for his own benefit which do not create actual or
potential conflicts of interest with the Company and/or its Affiliates.
Additionally, Executive may
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enter into contracts and receive payment for the publication of books and
articles that he writes, including the acceptance of speaking honoraria in
connection therewith, and, he may engage in a reasonable schedule of promotional
appearances and media events that do not interfere with the performance of his
duties hereunder. As used in this Agreement, "Affiliates" shall mean: (i) any
Company's parent, subsidiary or related entity; and/or (ii) any entity directly
or indirectly controlled or beneficially owned in whole or part by the Company
or the Company's parent, subsidiary or related entity.
2.3 Executive's base of operation shall be Durham, North
Carolina, subject to business travel as may be necessary in the performance of
Executive's duties.
3. COMPENSATION.
3.1 BASE SALARY; CAR ALLOWANCE. Executive's monthly salary for
all services rendered shall be $16,666.00 (less applicable withholdings),
payable in monthly installments and in accordance with the Company's policies,
procedures and practices as they may exist from time to time. Executive shall
also receive a car allowance of $833 per month. Executive's salary and car
allowance shall be reviewed in accordance with the Company's policies,
procedures and practices as they may exist from time to time.
3.2 EXECUTIVE COMPENSATION PLAN. Executive may participate as
a Level 3 employee in the Executive Compensation Plan ("ECP") (or successor
plans) which may be made available from time to time to Company executives at
Executive's level; provided, however, that Executive's participation is subject
to the applicable terms, conditions and eligibility requirements of the plan
documents, some of which are within the plan administrator's discretion, as they
may exist from time to time.
3.3 TAX RETURNS. Executive shall be entitled to reimbursement
up to $5,000 annually for tax return preparation and reasonable financial and
estate planning, consultation and advice by the Company's accounting firm and/or
legal counsel and/or financial consultants.
3.4 OTHER BENEFITS. Executive may participate in all medical,
dental and disability insurance, 401(k), pension, personal leave, and other
employee benefit plans and programs except Executive may not participate in any
severance plans which may be made available from time to time to Company
executives at Executive's level;
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provided, however, that Executive's participation in benefit plans and programs
is subject to the applicable terms, conditions and eligibility requirements of
these plans and programs, some of which are within the plan administrator's
discretion, as they may exist from time to time.
3.5 BUSINESS EXPENSES. Executive shall be reimbursed for
reasonable and necessary expenses actually incurred by him in performing
services under this Agreement in accordance with and subject to the terms and
conditions of the applicable Company reimbursement policies, procedures and
practices as they may exist from time to time. Expenses covered by this
provision include but are not limited to travel, entertainment, professional
dues, subscriptions and dues, fees and expenses associated with membership in
various professional, and business and civic associations of which Executive's
participation is in the Company's best interest.
3.6 CHANGES TO PLANS. Nothing in this Agreement shall require
the Company to create, continue or refrain from amending, modifying, revising or
revoking any of the plans, programs or benefits set forth in Sections 3.2
through 3.5. Any amendments, modifications, revisions and revocations of these
plans, programs and benefits shall apply to Executive.
3.7 REDUCTION OF PAYMENT. If, at any time during which
Executive is receiving salary or post-termination payments from the Company, he
receives payments on account of mental or physical disability from any source,
then the Company, at its discretion, may reduce his salary or post-termination
payments by the amount of such disability payments.
4. TERM OF EMPLOYMENT. The original term of employment shall be for a
one-year period commencing on January 1, 1998, and terminating on January 1,
1999, subject to the following provisions:
4.1 RENEWAL. Upon the expiration of the original or any
renewal term of employment, Executive's employment shall be automatically
renewed for an additional one (1) year period unless, at least ninety (90) days
prior to the renewal date, either party gives the other party written notice of
its intent not to continue the employment relationship. During any renewal term
of employment, the terms, conditions and provisions set forth in this Agreement
shall remain in effect unless modified in accordance with Section 14.
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4.2 TERMINATION WITHOUT CAUSE. Either party may terminate the
employment relationship without cause at any time upon giving the other party
ninety (90) days written notice.
4.3 TERMINATION WITHOUT NOTICE. The Company may terminate the
Executive's employment relationship immediately without notice at any time for
the following reasons: (i) Executive's death; (ii) Executive's physical or
mental inability to perform the essential functions of his duties satisfactorily
for a period of 180 consecutive days or 180 days in total as determined by the
Company in its reasonable discretion and in accordance with applicable law;
(iii) any act or omission of Executive constituting willful misconduct
(including willful violation of the Company's policies), gross negligence,
fraud, misappropriation, embezzlement, criminal behavior, conflict of interest
or competitive business activities which, as determined by the Company in its
reasonable discretion, shall cause material harm, or any other actions that are
materially detrimental to the Company or any Affiliates' interest; (iv) any
other reason recognized as "cause" under applicable law; or (v) Executive's
material breach of this Agreement, provided that Employee shall have failed to
cure such breach within thirty (30) days of receipt of written notice from the
Company of such breach.
4.4 COMPANY'S BREACH. Executive may terminate Executive's
employment with the Company as a result of the Company's failure to cure its
material breach of this Agreement after Executive has given the Company written
notice of the material breach and at least thirty (30) days to cure the breach
(or such longer period as may be reasonably required to cure the breach as long
as the Company is making good forth efforts to do so).
4.5 PROVISIONS SURVIVING TERMINATION. This Agreement shall
terminate upon the termination of the employment relationship with the following
exceptions: Section 6 (Trade Secrets, Confidential Information, Company Property
and Competitive Business Activities), 7 (Intellectual Property Ownership), 8
(License), and 9 (Release) shall survive the termination of Executive's
employment and/or the expiration or termination of this Agreement, regardless of
the reasons for such expiration or termination.
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5. COMPENSATION AND BENEFITS UPON TERMINATION.
5.1 The Company's obligation to compensate Executive ceases on
the effective termination date except as to: (i) amounts due at that time; (ii)
any amount subsequently due pursuant to the plan described in Section 3.2; and
(iii) any compensation and/or benefits to which he may be entitled to receive
pursuant to Sections 5.2, 5.3, 5.4, 5.5, or 5.6.
5.2 If the Company terminates Executive's employment pursuant
to Sections 4.1 (notice of non-renewal) or 4.2 (without cause), then the
Company's sole obligation shall be to pay Executive: (i) amounts due on the
effective termination date; (ii) any amounts subsequently due pursuant to the
plan described in Section 3.2; and (iii) Subject to Executive's compliance with
Sections 6,7,8 and 9 and subject to Sections 3.7 and 5.6, an amount equal to his
then current monthly salary (less applicable withholdings) for the twelve (12)
month non-competition period set forth in Section 6.3, payable in equal monthly
installments.
5.3 During the period during which Executive receives
post-termination payments pursuant to Sections 5.2 and 5.6 he may continue to
participate, to the extent permitted by the applicable plans and subject to
their terms, conditions and eligibility requirements, in all employee welfare
benefits plans (as defined by the Employee Retirement Income Security Act of
1974, as amended) in which Executive participated on his effective termination
date. The Company will pay or, at the Company's discretion, reimburse Executive
for the premiums actually paid, to continue coverage under such plans during the
period. Notwithstanding the Company's payment of or reimbursement for the
premiums, any coverage under such plans shall be subject to the terms,
conditions and eligibility requirements of such plans and nothing in this
Section shall constitute any guaranty of coverage.
5.4 If the Company terminates Executive's employment as
provided in Sections 4.3 (i) (death), (ii) (physical or mental inability to
perform), (iii) (materially harmful acts or omissions), (iv) (other reasons
recognized as "cause") or (v) (Executive's material breach) or if the Executive
terminates his employment pursuant to Section 4.1 (notice of non-renewal) or
Section 4.2 (without cause), then the Company's sole obligation shall be to pay
Executive: (i) amounts due on the effective termination date and (ii) any
amounts subsequently due pursuant to the plan described in Section 3.2.
Executive, except when employment terminates pursuant to Section 4.3(i) (death),
shall comply with Sections 6,7,8 and 9 of this Agreement upon expiration or
termination of this Agreement.
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5.5 If Executive terminates the employment relationship as a
result of the Company's failure to cure its material breach of this Agreement
after he has given the Company notice of the material breach and 30 days in
which to cure the breach (or such longer period as may be reasonably required to
cure the breach as long as the Company is making good faith efforts to do so),
pursuant to Section 4.4 of this Agreement, then the Company's sole obligation to
Executive in lieu of any other damages or other relief to which he otherwise may
be entitled shall be (i) an amount equal to amounts due at the time of his
termination; and (ii) subject to Executive's compliance with Sections 6, 7, 8
and 9 and subject to Sections 3.7 and 5.7, liquidated damages in an amount equal
to his then current monthly salary (less applicable withholdings) for the twelve
(12) month non-competition period set forth in Section 6.3, payable in equal
monthly installments.
5.6 CHANGE OF CONTROL. In the event that Executive is
terminated in connection with, or is terminated or not renewed subject to
Sections 4.1 or 4.2, for a period of one (1) year after a "Change of Control,"
Executive shall receive 2.99 times his current Base Salary in addition to an
accelerated vesting of his stock options granted under the ECP. For purposes of
this Agreement, a "Change in Control" shall be deemed to have occurred if (i)
the Company shall become a subsidiary of, or shall be merged or consolidated
with or into, another entity, which entity is not controlled by the Company nor
67% or more of the voting shares of which are held by shareholders who were
shareholders of the Company immediately before the transaction; or (ii)
substantially all of the assets of the Company shall be sold or transferred to a
person or entity which person or entity is not controlled by the Company nor 67%
or more of the voting shares of which are held by shareholders who were
shareholders of the Company immediately before the transaction; or (iii) any
"Person" (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), or persons acting together or in concert, is
or becomes the "beneficial owner" (as defined in Rule 13(d) of the Securities
Exchange Act of 1934, as amended) of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company. Furthermore, for the purposes of this
Agreement, a termination or non-renewal pursuant to this Section 5.6 shall occur
if Executive is required, as a means of retaining employment hereunder, to
relocate his residence from the Research Triangle area of North Carolina.
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5.7 The Company's obligation to provide the payments under
Sections 5.2 and 5.5 is conditioned upon Executive's execution of an enforceable
release of all claims and his compliance with Sections 6, 7, 8 and 9 of this
Agreement. If Executive chooses not to execute such a release or fails to comply
with these sections, then the Company's obligation to compensate him ceases on
the effective termination date except as to amounts due at that time and any
amount subsequently due pursuant to the plan described in Section 3.2.
5.8 Executive is not entitled to receive any compensation or
benefits upon his termination except as: (i) set forth in this Agreement; (ii)
otherwise required by law; or (iii) otherwise required by any employee benefit
plan in which he participates. Moreover, the terms and conditions afforded
Executive under this Agreement are in lieu of any severance benefits to which he
otherwise might be entitled pursuant to any severance plan, policy and practice
of the Company and or its Affiliates. Nothing in this Agreement, however, is
intended to waive or supplant any death, disability, retirement, 401(k) or
pension benefits to which he may be entitled under employee benefit plans in
which he participates.
6. TRADE SECRETS, CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND
COMPETITIVE BUSINESS ACTIVITIES. Executive acknowledges that: (i) the Company
and its Affiliates have worldwide business operations, a worldwide customer
base, and are engaged in the business of contract research, sales and marketing,
healthcare policy consulting and health information management services to the
worldwide pharmaceutical, biotechnology, medical device and healthcare
industries; (ii) by virtue of his employment by and upper-level position with
the Company, he has or will have access to Trade Secrets and Confidential
Information (as defined in Sections 6.1(5) and 6.1(6)) of the Company and its
Affiliates, including valuable information about their worldwide business
operations and entities with whom they do business in various locations
throughout the world, and has developed or will develop relationships with their
customers and others with whom they do business in various locations throughout
the world; and (iii) the Trade Secret, Confidential Information and Competitive
Business Activities' provisions set forth in this Agreement are reasonably
necessary to protect the Company's and its Affiliates' legitimate business
interests, are reasonable as to the time, territory and scope of activities
which are restricted, do not interfere with public policy or public interest and
are described with sufficient accuracy and definiteness to enable him to
understand the scope of the restrictions imposed on him.
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6.1 TRADE SECRETS AND CONFIDENTIAL INFORMATION. Executive
acknowledges that: (i) the Company and/or its Affiliates will disclose to him
certain Trade Secrets and Confidential Information; (ii) Trade Secrets and
Confidential Information are the sole and exclusive property of the Company
and/or its Affiliates (or a third party providing such information to the
Company and/or its Affiliates) and the Company and/or its Affiliates or such
third party owns all worldwide rights therein under patent, copyright,
trademark, trade secret, confidential information or other property right; and
(iii) the disclosure of Trade Secrets and Confidential Information to Executive
does not confer upon him any license, interest or rights of any kind in or to
the Trade Secrets or Confidential Information.
6.1(1) Executive may use the Trade Secrets and
Confidential Information only while he is employed or otherwise retained by the
Company and only then in accordance with applicable Company policies and
procedures and solely for the Company's benefit. Except as authorized in the
performance of services for the Company, Executive will hold in confidence and
will not, either or indirectly, in any form, by any means, or for any purpose,
disclose, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer Trade Secrets or Confidential Information or any
portion thereof. Upon the Company's request, Executive shall return Trade
Secrets and Confidential Information and all related materials.
6.1(2) If Executive is required to disclose Trade
Secrets or Confidential Information pursuant to a court order, subpoena or other
government process or such disclosure is necessary to comply with applicable law
or defend against claims, he shall: (i) notify the Company promptly before any
such disclosure is made; (ii) at the Company's request and expense take all
reasonably necessary steps to defend against such disclosure, including
defending against the enforcement of the court order, other government process
or claims; and (iii) permit the Company to participate with counsel of its
choice in any proceeding relating to any such court order, subpoena, other
government process or claims.
6.1(3) Executive's obligations with regard to Trade
Secrets shall remain in effect for as long as such information shall remain a
trade secret under applicable law.
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6.1(4) Executive's obligations with regard to
Confidential Information shall remain in effect while he is employed or
otherwise retained by the Company and/or its Affiliates and for fifteen (15)
years thereafter.
6.1(5) As used in this Agreement, "Trade Secrets"
means information of the Company, its Affiliates and its and/or their licensors,
suppliers, customers, or prospective licensors or customers, including, but not
limited to, data, formulas, patterns, compilations, programs, devices, methods,
techniques, processes, financial data, financial plans, product plans, or lists
of actual or potential customers or suppliers, which: (i) derives independent
actual or potential commercial value, from not being generally known to or
readily ascertainable through independent development or reverse engineering by
persons or entities who can obtain economic value from its disclosure or use;
and (ii) is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy.
6.1(6) As used in this Agreement, "Confidential
Information" means information other than Trade Secrets, that is of value to its
owner and is treated as confidential, including, but not limited to, future
business plans, licensing strategies, advertising campaigns, information
regarding executives and employees, and the terms and conditions of this
Agreement; provided, however, Confidential Information shall not include
information which is in the public domain or becomes public knowledge through no
fault of Executive.
6.2 COMPANY PROPERTY. Upon termination of his employment,
Executive shall: (i) deliver to the Company all records, memoranda, data,
documents and other property of any description which refer or relate in any way
to Trade Secrets or Confidential Information, including all copies thereof,
which are in his possession, custody or control; (ii) deliver to the Company all
Company and/or Affiliates property (including, but not limited to, keys, credit
cards, client files, contracts, proposals, work in process, manuals, forms,
computer stored work in process and other computer data, research materials,
other items of business information concerning any Company and/or Affiliates
client, or Company and/or Affiliates business or business methods, including all
copies thereof) which is in his possession, custody or control; (iii) bring all
such records, files and other materials up to date before returning them; and
(iv) fully cooperate with the Company in winding up his work and transferring
that work to other individuals designated by the Company.
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6.3 COMPETITIVE BUSINESS ACTIVITIES. During his employment and
the one (1) year following his effective termination date (regardless of the
reason for the termination), Executive will not engage in the following
activities:
(a) on Executive's own or another's behalf, whether as an
officer, director, stockholder, partner, associate, owner, employee, consultant
or otherwise, directly or indirectly:
(i) compete with the Company or its Affiliates within
the geographical areas set forth in Section 6.3(1); except that Executive,
without violating this provision, may become employed by any company which is
engaged in the integrated development, discovery, manufacture, marketing and
sale of pharmaceutical drugs that does not engage in contract sales and/or
contract research;
(ii) within the geographical areas set forth in
Section 6.3(1), solicit or do business which is the same, similar to or
otherwise in competition with the business engaged in by the Company or its
Affiliates, from or with persons or entities: (a) who are customers of the
Company or its Affiliates; (b) who Executive or someone for whom he was
responsible solicited, negotiated, contracted or serviced on the Company's or
its Affiliates' behalf; or (c) who were customers of the Company or its
Affiliates at any time during the last year of Executive's employment with the
Company;
(iii) offer employment to or otherwise solicit for
employment any employee or other person who had been employed by the Company or
its Affiliates during the last year of Executive's employment with the Company;
or
(b) directly or indirectly take any action which is materially
detrimental or otherwise intended to be adverse to the Company's and/or
Affiliates' goodwill, name, business relations, prospects and operations.
6.3(1) The restrictions set forth in Section 6.3
apply to the following geographical areas; (i) within a 60-mile radius of the
Company and/or its Affiliates where the Executive had an office during the
Executive's employment with the Company and/or its Affiliates; (ii) any city,
metropolitan area, county (or similar political subdivision in foreign
countries) in which Executive's services were provided, or for which Executive
had responsibility, or in which Executive worked on Company and/or Affiliates
projects, while employed by the Company; and (iii) any city, metropolitan area,
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county (or similar political subdivisions in foreign countries) in which the
Company or its Affiliates are located or does or, during Executive's employment
with Company, did business.
6.3(2) Notwithstanding the foregoing, Executive's
ownership, directly or indirectly, of not more than one percent of the issued
and outstanding stock of a corporation the shares of which are regularly traded
on a national securities exchange or in the over-the-counter market shall not
violate Section 6.3.
6.4 REMEDIES. Executive acknowledges that his failure to abide
by the Trade Secrets, Confidential Information, Company Property or Competitive
Business Activities provisions of this Agreement would cause irreparable harm to
the Company and/or its Affiliates for which legal remedies would be inadequate.
Therefore, in addition to any legal or other relief to which the Company and/or
its Affiliates may be entitled by virtue of Executive's failure to abide by
these provisions: (i) the Company will be released of its obligations under this
Agreement to make any post-termination payments, including but not limited to
those otherwise available pursuant to Sections 5.2, 5.3, 5.4, 5.5 and 5.6; (ii)
the Company may seek legal and equitable relief, including but not limited to
preliminary and permanent injunctive relief, for Executive's actual or
threatened failure to abide by these provisions; (iii) Executive will return all
post-termination payments received pursuant to this Agreement, including but not
limited to those received pursuant to Sections 5.2, 5.3, 5.4, 5.5 and 5.6; (iv)
Executive will indemnify the Company and/or its Affiliates for all expenses
including attorneys' fees in seeking to enforce these provisions; and (v) if, as
a result of Executive's failure to abide by the Trade Secrets, Confidential
Information, Company Property or Competitive Business Activities provisions, any
commission or fee becomes payable to Executive or to any person, corporation or
other entity with which Executive has become employed or otherwise associated,
Executive shall pay the Company or cause the person, corporation or other entity
with whom he has become employed or otherwise associated to pay the Company an
amount equal to such commission or fee. In the event that the Company exercises
its right to discontinue payments under this provision and/or Executive returns
all post-termination payments received pursuant to this Agreement, Executive
shall remain obligated to abide by the Trade Secrets, Confidential Information,
Company Property and Competitive Business Activities provisions set forth in
this Agreement.
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6.5 TOLLING. The period during which Executive must refrain
from the activities set forth in Sections 6.1 and 6.3 shall be tolled during any
period in which he fails to abide by these provisions.
6.6 OTHER AGREEMENTS. Nothing in this Agreement shall
terminate, revoke or diminish Executive's obligations or the Company's and/or
its Affiliates' rights and remedies under law or any agreements relating to
trade secrets, confidential information, non-competition and intellectual
property which Executive has executed in the past or may execute in the future
or contemporaneously with this Agreement.
7. INTELLECTUAL PROPERTY OWNERSHIP.
7.1 As used in this Agreement, "Work Product" shall mean the
data, materials, documentation, computer programs, inventions (whether or not
patentable), improvements, modifications, discoveries, methods, developments,
picture, audio, video, artistic works and all works of authorship, including all
worldwide rights therein under patent, copyright, trademark, trade secret,
confidential information or other property right, created or developed in whole
or in part by Executive, while employed by the Company (whether developed during
work hours or not), whether prior or subsequent to the date of this Agreement;
provided, however, that the Executive's original works of fiction, poetry and
non-fiction writing shall not be considered Work Product.
7.2 All Work Product shall be considered work made for hire by
Executive and owned by the Company. If any of the Work Product may not, by
operation of law be considered work made for hire by Executive for the Company,
or if ownership of all right, title, and interest of the intellectual property
rights therein shall not otherwise vest exclusively in the Company, Executive
hereby assigns to the Company, and upon the future creation thereof
automatically assigns to the Company, without further consideration, the
ownership of all Work Product. The Company shall have the right to obtain and
hold in its own name copyrights, registrations and any other protection
available in the Work Product. Executive agrees to perform, during or after his
employment, such further acts which the Company requests as may be necessary or
desirable to transfer, perfect and defend its ownership of the Work Product.
7.3 Notwithstanding the foregoing, this Agreement shall not
require assignment of any invention that: (i) Executive developed entirely on
his own time without using the Company's equipment, supplies, facilities, Trade
Secrets or
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Confidential Information; and (ii) does not relate to the Company's business or
actual or anticipated research or development or result from any work performed
by Executive for the Company.
7.4 Executive shall promptly disclose to the Company in
writing all Work Product conceived, developed or made by him, individually or
jointly.
8. LICENSE. To the extent that any preexisting materials are contained
in Work Product which Executive delivers to the Company or its customers,
Executive grants to the Company an irrevocable, nonexclusive, worldwide,
royalty-free license to: (i) use and distribute (internally or externally)
copies of, and prepare derivative works based upon, such preexisting materials
and derivative works thereof; and (ii) authorize others to do any of the
foregoing.
9. RELEASE. Executive acknowledges that: (i) as a part of his services,
he may provide his image, likeness, voice or other characteristics; and (ii) the
Company may use his image, likeness, voice or other characteristics and
expressly releases the Company, its Affiliates and its and/or their agents,
employees, licensees and assigns from and against any and all claims which he
has or may have for invasion of privacy, right of privacy, defamation, copyright
infringement or any other causes of action arising out of the use, adaptation,
reproduction, distribution, broadcast or exhibition of such characteristics.
10. EMPLOYEE REPRESENTATION. Executive represents and warrants that his
employment and obligations under this Agreement will not (i) breach any duty or
obligation he owes to another or (ii) violate any law, recognized ethics
standard or recognized business custom.
11. OFFICERS AND DIRECTORS INDEMNIFICATION PROVISIONS. To the extent
Executive serves as a Company and/or Affiliate officer or director, Executive
shall be entitled to insurance under Company's directors and officers
indemnification policies comparable to any such insurance covering executives of
the applicable entity serving in similar capacities. Further, the Company's
bylaws shall contain provisions granting to Executive the maximum indemnity
protection allowed under applicable law and the Company hereby agrees to
indemnify and hold harmless Executive in accordance with such maximum indemnity
protection allowed under applicable law.
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12. NOTICES. All notices, requests, demands and other communications
required or permitted to be given in writing pursuant to this Agreement shall be
deemed given and received: (a) upon delivery if delivered personally; (b) on the
fifth (5th) day after being deposited with the U.S. Postal Service if mailed by
first class mail, postage prepaid, registered or certified with return receipt
requested, at the addresses set forth below; (c) on the next day after being
deposited with a reliable overnight delivery service; or (d) upon receipt of an
answer back confirmation, if transmitted by telefax, addressed to the below
indicated telefax number. Notice given in another manner shall be effective only
if and when received by the addressee. For purposes of notice, the addresses and
telefax number (if any) of the parties shall be as follows:
If to the Executive, to John S. Russell
101 Huntington Drive
Chapel Hill, NC 27514
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If to the Company, to: Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Durham, North Carolina 27703-8411
Attn: Gregory D. Porter
provided that: (a) each party shall have the right to change its address for
notice, and the person who is to receive notice, by the giving of fifteen (15)
days' prior written notice to the other party in the manner set forth above; and
(b) notices shall be effective if given to the other party in the manner set
forth above regardless of whether a copy was received by the additional
addressee specified above.
13. CONSIDERATION. Executive acknowledges that he agreed to the terms
of this Agreement at the inception of employment, as evidenced by the signing of
his offer letter. Accordingly, Executive waives any and all defenses he may have
to the validity or enforceability of this Agreement based on the absence or
failure of consideration.
14. WAIVER OF BREACH. The Company's or waiver of any breach of a
provision of this Agreement shall not waive any subsequent breach by the other
party.
15. SEVERABILITY. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases in the Trade Secrets, Confidential Information or Competitive
Business Activities provisions set forth in this Agreement are held
unenforceable by a court of competent jurisdiction, then the parties desire that
they be "blue-penciled" or rewritten by the court to the extent necessary to
render them enforceable.
16. PARTIES BOUND. The terms, provisions, covenants and agreements
contained in this Agreement shall apply to, be binding upon and inure to the
benefit of the Company's successors and assigns. The Company, at its discretion,
may assign this Agreement to Affiliates. Because this Agreement is personal to
Executive, Executive may not assign this Agreement.
16
<PAGE> 17
17. GOVERNING LAW. This Agreement and the employment relationship
created by it shall be governed by North Carolina law without giving effect to
North Carolina choice of law provisions. The parties hereby consent to
jurisdiction in North Carolina for the purpose of any litigation relating to
this Agreement and agree that any litigation by or involving them relating to
this Agreement shall be conducted in the courts of Wake County, North Carolina
or the federal courts of the United States for the Eastern District of North
Carolina.
18. ENTIRE AGREEMENT. Except as expressly provided in this Agreement,
this Agreement: (i) supersedes all other understandings and agreements, oral or
written, between the parties with respect to the subject matter of this
Agreement; and (ii) constitutes the sole agreement between the parties with
respect to this subject matter. Each party acknowledges that: (i) no
representations, inducements, promises or agreements, oral or written, have been
made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement; and (ii) no agreement, statement or promise not
contained in this Agreement shall be valid. No change or modification of this
Agreement shall be valid or binding upon the parties unless such change or
modification is in writing and is signed by the parties.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day and year first written above.
/s/ John S. Russell
----------------------------
John S. Russell
QUINTILES TRANSNATIONAL CORP.
By: /s/ Dennis B. Gillings
--------------------------------
Title: Chairman & CEO
-----------------------------
18
<PAGE> 1
EXHIBIT 10.11
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement ("Amendment") is made
and entered into this the 26th day of October, 1999 by and between QUINTILES
TRANSNATIONAL CORP., a North Carolina Corporation (hereinafter the "Company"),
and JOHN S. RUSSELL (hereinafter the "Executive").
WHEREAS, the Company and Executive are parties to an Executive
Employment Agreement dated as of December 3, 1998 (the "Employment Agreement"),
a copy of which is attached hereto as Exhibit A and incorporated herein; and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree to amend the Employment Agreement as follows:
1. The Employment Agreement is amended by deleting Section 5.6 thereof
in its entirety and inserting the following Section 19 at the end thereof:
19. CHANGE IN CONTROL.
19.1 For purposes of this Amendment, a "Change in Control" shall mean
the occurrence of any one of the following:
(A) An acquisition (other than directly from the Company) of
any voting securities of the Company by any "Person" (as such term is used in
Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the Securities Exchange Act of 1934,
as amended (the "Act")), after which such Person, together with its "affiliates"
and "associates" (as such terms are defined in Rule 12b-2 under the Act),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of more than one-third (33.33%) of the total
voting power of the Company's then outstanding voting securities, but excluding
any such acquisition by the Company, any Person of which a majority of its
voting power or its voting equity securities or equity interests is owned,
<PAGE> 2
directly or indirectly, by the Company (for purposes hereof, a "Subsidiary"),
any employee benefit plan of the Company or any of its Subsidiaries (including
any Person acting as trustee or other fiduciary for any such plan), or Dennis B.
Gillings;
(B) The shareholders of the Company approve a merger, share
exchange, consolidation or reorganization involving the Company and any other
corporation or other entity that is not controlled by the Company, as a result
of which less than two-thirds (66.66%) of the total voting power of the
outstanding voting securities of the Company or of the successor corporation or
entity after such transaction are held in the aggregate by the holders of the
Company's voting securities immediately prior to such transaction;
(C) The shareholders of the Company approve a liquidation or
dissolution of the Company, or approve the sale or other disposition by the
Company of all or substantially all of the Company's assets to any Person (other
than a transfer to a Subsidiary of the Company);
(D) During any period of twenty-four (24) consecutive months,
the individuals who constitute the Board of Directors of the Company at the
beginning of such period (the "Incumbent Directors") cease for any reason to
constitute at least two-thirds (66.66%) of the Board of Directors; provided,
however, that a director who is not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director is elected or
recommended for election by at least two-thirds (66.66%) of the directors who
are then Incumbent Directors.
19.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the occurrence of a
Change in Control, Executive shall be entitled to receive payments and benefits
pursuant to this Agreement if, at the time of the Change in Control, (i)
Executive is in ECP Levels 1 to 2 and his employment is terminated pursuant to
Sections 19.2(A), (B), or (C) below, or (ii) Executive is in ECP Levels 2.5 to 4
and his employment is terminated pursuant to Sections 19.2(B) or (C) below.
(A) Within eighteen (18) months following a Change in Control,
Executive terminates his employment with Company by giving written notice of
such termination to Company.
<PAGE> 3
(B) Within eighteen (18) months following a Change in Control,
Company terminates Executive's employment for reasons other than "Cause" as such
term is defined in Section 4.3 of the Employment Agreement.
(C) Within eighteen (18) months following a Change in Control,
Executive terminates his employment with the Company for "Good Reason." For
purposes of this Amendment, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in Executive's status, title, position
or responsibilities (including reporting responsibilities) which, in Executive's
reasonable judgment, represents an adverse change from his status, title,
position or responsibilities in effect immediately prior thereto; the assignment
to Executive of any duties or responsibilities which in Executive's reasonable
judgment, are inconsistent with his status, title, position or responsibilities;
or any removal of Executive from or failure to reappoint or reelect him to any
of such positions, status, or title except in connection with the termination of
his employment for Cause or by Executive other than for Good Reason,
(ii) a reduction in Executive's base salary;
(iii) the Company's requiring Executive to be based
at any place outside a thirty (30) mile radius from Executive's principal place
of residence, except for reasonably required travel on Company's business which
is not greater than such travel requirements prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Executive is participating at
the time of a Change in Control, including benefits pursuant to the Executive
Compensation Plan or similar plans, without substituting plans providing
Executive with substantially similar or greater benefits, or the taking of any
action by the Company which would adversely affect Executive's participation in
or materially reduce Executive's benefits under any such plans or deprive
Executive of any material fringe benefit enjoyed by Executive at the time of the
Change in Control;
<PAGE> 4
(v) any purported termination of Executive's
employment for Cause without grounds therefor;
(vi) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the Company;
(vii) any material breach by the Company of any
provision of the Employment Agreement after Executive has given the Company
notice of the material breach and at least thirty (30) days to cure the breach
(or such longer period as may be reasonably required to cure the breach as long
as the Company is making good faith efforts to do so.); or
(viii) the failure of the Company to obtain an
agreement, satisfactory to Executive, from any successor or assign of the
Company to assume and agree to perform the Employment Agreement, including this
Amendment.
19.3 SEVERANCE PAY AND BENEFITS. If Executive's employment with the
Company terminates under circumstances as described in Section 19.2. above,
Executive shall be entitled to receive all of the following:
(A) all accrued compensation through the termination date,
plus any Bonus for which the Executive otherwise would be eligible in the year
of termination, prorated through the termination date, payable in cash. For
purposes of Sections 19.3(A) and 19.3(B), "Bonus" shall be defined as any
benefits for which Executive would be eligible under the Executive Compensation
Plan described in Section 3.2 of the Employment Agreement. The amount of such
Bonus shall be paid in cash and, for purposes of Sections 19.3(A) and 19.3(B),
shall be calculated as if Executive had achieved 100% of Executive's performance
goals for that year.
(B) a severance payment equal to two and ninety-nine
hundredths (2.99) times the amount of Executive's most recent annual
compensation, including the amount of his most recent annual Bonus. The
severance amount shall be paid (i) in cash in thirty-four (34) equal monthly
installments commencing one month after the termination date, or (ii) in a lump
sum, within one month after the termination date, at the sole option of the
Executive.
<PAGE> 5
(C) the Company shall maintain in full force and effect, for
eighteen (18) months after the termination date, all life insurance, health,
accidental death and dismemberment, disability plans and other benefit programs
in which Executive is entitled to participate immediately prior to the
termination date, provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. Executive's
continued participation in such plans and programs shall be at no greater cost
to Executive than the cost he bore for such participation immediately prior to
the termination date. If Executive's participation in any such plan or program
is barred, Company shall arrange upon comparable terms, and at no greater cost
to Executive than the cost he bore for such plans and programs prior to the
termination date, to provide Executive with benefits substantially similar to,
or greater than, those which he is entitled to receive under any such plan or
program; and
(D) a lump sum payment (or otherwise as specified by Executive
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Executive is entitled
to under the terms of any such plan through the date of termination.
19.4 STOCK OPTIONS.
(A) Upon a Change in Control, all options ("Options") to
purchase Common Stock of the Company held by Executive as of the date of the
Change in Control shall become fully vested and exercisable.
(B) If Executive's employment with the Company terminates
pursuant to Section 19.2, then the Options shall remain exercisable until the
later of:
(i) the expiration of the applicable period for
exercise following termination of employment set forth in the Option agreements
(or in any other agreement between Executive and the Company that supersedes the
Option agreements); or
(ii) three (3) years after the date of termination
(to the extent of the terms of the Options); provided, however, that any
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended
<PAGE> 6
(the "Code"), that are exercised more than ninety (90) days after the date of
termination pursuant Section 19.2 shall be treated for tax purposes as
nonqualified stock options.
19.5 EXCISE TAX PAYMENTS.
(A) If any payment or benefit (within the meaning of Section
280G(b)(2) of the Code), to Executive or for his benefit pursuant to this
Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the amount of the Payment net of all taxes
other than the Excise Tax (the "Net Amount") shall be calculated. Executive
shall then receive, in addition to the Payment, an additional payment (the
"Gross-Up Payment"), which shall be an amount such that, after payment of all
taxes (including the Excise Tax) on the Payment and the Gross-Up Payment,
Executive shall retain an amount equal to the Net Amount.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Amendment and the amount of such Gross-Up Payment
shall be made at Company's expense by an accounting firm selected by Company and
reasonably acceptable to Executive which is designated as one of the five
largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to Company and Executive
within ten (10) days of the date Executive's employment terminates if
applicable, or such other time as requested by Company or by Executive (provided
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable
by Executive with respect to a Payment, it shall furnish Executive with an
opinion reasonably acceptable to Executive that no Excise Tax will be imposed
with respect to any such Payment. Within ten (10) days of the delivery of the
Determination to Executive, Executive shall have the right to dispute the
Determination (the "Dispute"). The Gross-Up Payment, if any, as determined
pursuant to this Section 19.5 shall be paid by Company to Executive within five
(5) days of the receipt of the Accounting Firm's determination. The existence of
the Dispute shall not in any way affect Executive's right to receive the
Gross-Up Payment in accordance with the Determination. Upon the final resolution
of a Dispute, Company shall promptly pay to Executive any additional amount
required by such resolution. If there is no Dispute, the
<PAGE> 7
Determination shall be binding, final and conclusive upon Company and Executive
subject to the application of Section (C) below.
(C) Notwithstanding anything in this Amendment to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment, Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment and the Gross-Up Payment, as
applicable.
(D) If Executive is subject to taxation under a non-United
States taxing authority and an excise tax similar to the Excise Tax is imposed
on any Payment by such non-United States taxing authority, then Executive shall
be entitled to receive a Gross-Up Payment as calculated pursuant to Section
19.5(A) above, based upon the lesser of such non-United States excise tax
imposed and the Excise Tax that would have been imposed had the Payment been
subject to United States taxation.
2. Except as herein set forth, the Employment Agreement is not modified
or amended and the parties hereto reaffirm and agree to all of the terms and
provisions of the Employment Agreement, as herein amended, in all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Executive Employment Agreement as of the day and year first written above.
/s/ John S. Russell
-----------------------------------------
JOHN S. RUSSELL
QUINTILES TRANSNATIONAL CORP.
By: /s/ Dennis B. Gillings
-------------------------------------
Name: Dennis B. Gillings
-----------------------------------
Title: Chairman & CEO
----------------------------------
<PAGE> 8
EXHIBIT "A"
(previously filed)
<PAGE> 1
EXHIBIT 10.13
QUINTILES TRANSNATIONAL CORP.
EQUITY COMPENSATION PLAN
(AS AMENDED AND RESTATED NOVEMBER 4, 1999)
<PAGE> 2
QUINTILES TRANSNATIONAL CORP.
EQUITY COMPENSATION PLAN
(AS AMENDED AND RESTATED NOVEMBER 4, 1999)
TABLE OF CONTENTS
ARTICLE I - GENERAL PROVISIONS................................................1
ARTICLE II - DEFINITIONS......................................................2
ARTICLE III - ADMINISTRATION..................................................8
ARTICLE IV - INCENTIVE STOCK OPTIONS.........................................13
ARTICLE V - NONQUALIFIED STOCK OPTIONS.......................................16
ARTICLE VI - STOCK APPRECIATION RIGHTS.......................................17
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS....................19
ARTICLE VIII - RESTRICTED STOCK..............................................21
ARTICLE IX - ACCELERATION EVENTS.............................................24
ARTICLE X - AMENDMENT AND TERMINATION........................................26
ARTICLE XI - MISCELLANEOUS PROVISIONS........................................28
<PAGE> 3
QUINTILES TRANSNATIONAL CORP.
EQUITY COMPENSATION PLAN
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed for the benefit of the executives, directors and
key employees of the Corporation and its Subsidiaries; to attract and
retain for the Corporation and its subsidiaries 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; and (iv) Restricted Stock.
1.3 The Plan shall be effective February 21, 1994 (the "Effective Date"),
subject to the approval of the Plan by a vote of a majority of the
Board of Directors and by a majority of the votes cast by the holders
of the Corporation's Common Stock that may be voted at the meetings of
the Board of Directors and shareholders, respectively, scheduled for
February 21, 1994.
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<PAGE> 4
ARTICLE II - DEFINITIONS
DEFINITIONS. Except where the context otherwise indicates, the following
definitions apply:
2.1 "Acceleration Event" means the occurrence of an event defined in
Article IX 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 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, or any combination of the foregoing.
2.5 "Board" means the Board of Directors of the Corporation.
2.6 "Board-Approved Change in Control" shall have the meaning set forth in
Section 9.3 of the Plan.
2.7 "Change in Control" shall have the meaning set forth in Section 9.2 of
the Plan.
2.8 "Change in Control Price" shall have the meaning set forth in Section
9.8 of the Plan.
2.9 "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.)
2.10 "Committee" means the Compensation Committee or such other committee
consisting of three (3) 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 Non-Employee Directors.
Committee members may also be appointed for such limited purposes as
may be provided by the Board.
2.11 "Corporation" means Quintiles Transnational Corp., a North Carolina
corporation, and its successors and assigns. "Corporation" also means
Quintiles Transnational Corp. and its Subsidiaries, unless the context
clearly indicates otherwise.
2.12 "Disability" means disability as determined under procedures
established by the Committee or in any Award.
2.13 "Discount Stock Options" means the Nonqualified Stock Options that
provide for an
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<PAGE> 5
exercise price of less than the Fair Market Value of the Stock at the
date of the Award.
-3-
<PAGE> 6
2.14 "Early Retirement" means retirement from active employment with the
Corporation or any Subsidiary, with the express consent of the
Committee, pursuant to the early retirement provisions established by
the Committee or in any Award.
2.15 "Effective Date" shall have the meaning set forth in Section 1.3 of the
Plan.
2.16 "Eligible Participant" means any executive, key employee or director of
the Corporation or its Subsidiaries, as shall be determined by the
Committee, as well as any other person whose participation the
Committee determines is in the best interest of the Corporation,
subject to limitations as may be provided by the Code, the Act or the
Committee.
2.17 "ERISA" means the Employee Retirement Income Security Act of 1974, as
now in effect or as hereafter amended.
2.18 "Fair Market Value" means, with respect to any given day, the closing
price of the Stock reported on the Nasdaq National Market for such day,
or if the Stock is not traded on such day, then on the next day on
which the Stock is traded, all as reported by such source as the
Committee may select. The Committee may establish an alternative method
of determining Fair Market Value.
2.19 "Incentive Stock Option" means a Stock Option granted under Article IV
of the Plan, and as defined in Section 422 of the Code.
2.20 "Limited Stock Appreciation Rights" means a Stock Right that is
exercisable only in the event of a Change in Control and/or a Potential
Change in Control, as described in Section 6.8 of this Plan, that
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.
2.21 "Non-Employee Directors" shall have the meaning set forth under Rule
16b-3(b)(3) of the Act.
2.22 "Nonqualified Stock Option" means a Stock Option granted under Article
V of the Plan.
2.23 "Normal Retirement" means retirement from active employment with the
Corporation or any Subsidiary on or after age 65, or pursuant to such
other requirements as may be established by the Committee or in any
Award.
2.24 "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;
(b) the date the Participant receiving the Stock Option becomes an
employee of the Corporation or its Subsidiaries, to the extent
employment status is a condition of the
-4-
<PAGE> 7
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.
2.25 "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.
2.26 "Potential Change in Control" shall have the meaning set forth in
Section 9.4 of the Plan.
2.27 "Plan" means the Quintiles Transnational Corp. Equity Compensation
Plan, as amended from time to time.
2.28 "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.
2.29 "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.
2.30 "Retirement" means Normal or Early Retirement.
2.31 "Stock" means shares of Common Stock of the Corporation, as may be
adjusted pursuant to the provisions of Section 3.11.
2.32 "Stock Appreciation Right" means a Stock Right, as described in Article
VI of this Plan, that 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.
2.33 "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.
2.34 "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.
2.35 "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.
2.36 "Subsidiary" or "Subsidiaries" means:
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<PAGE> 8
(a) for the purpose of an Incentive Stock Option, any corporation
(other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation if, at the time of
the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%)
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<PAGE> 9
or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain; and
(b) for the purposes of all other types of equity-based
compensation provided for under the Plan, any corporation (or
partnership, joint venture, limited liability company, or
other enterprise) of which the Corporation owns or controls,
directly or indirectly, fifty percent (50%) or more of the
outstanding shares of stock normally entitled to vote for the
election of directors (or comparable equity participation and
voting power).
2.37 "Termination of Employment" means the discontinuance of employment of a
Participant with the Corporation or its Subsidiaries for any reason
other than a Transfer. 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 Corporation has a
significant ownership interest shall be treated as employment with the
Corporation. 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.
2.38 "Transfer" means a change of employment of a Participant within the
group consisting of the Corporation and its Subsidiaries.
-7-
<PAGE> 10
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. The Committee, in its
discretion, may delegate to one or more of its members, or to one or
more officers of the Corporation, all or part of the Committee's
authority and duties with respect to grants and awards to individuals
who are not subject to the reporting and other provisions of Section 16
of the Act; provided, however, that such persons must exercise any
authority so delegated to them within any guidelines established by the
Committee. The Committee may revoke or amend the terms of a delegation
at any time but such action shall not invalidate any prior actions of
the Committee's delegate or delegates that were consistent with the
terms of the Plan. 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
a 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, and shares of Restricted Stock 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 IX.
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 payments, 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
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<PAGE> 11
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.
3.6 The maximum aggregate number of shares of Stock subject to Awards under
the Plan shall be five million eight hundred forty-one thousand three
hundred and nineteen (5,841,319) shares, plus an annual increase to be
added as of January 1 of each year, beginning January 1, 2000, equal to
the lesser of (i) five hundred thousand (500,000) shares, (ii) five
percent (5%) of any increase, other than any increase due to Awards
under this Plan or any other similar plan of the Corporation, in the
number of authorized and issued shares (on a fully diluted basis) above
the number of authorized and outstanding shares as of the preceding
January 1, or (iii) a lesser number determined by the Board.
(a) If, for any reason, any shares of Stock awarded or subject to
purchase under the Plan are not delivered or purchased, or are
reacquired by the Corporation, for reasons including, but not
limited to, a forfeiture of Restricted Stock or termination,
expiration or cancellation of a Stock Option or Stock Right,
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 shall not be charged against the
aggregate number of shares of Stock available for Award under
the Plan, and shall again be available for Award under the
Plan.
(b) 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
that 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 an Award under
the Plan, and shall again be available for Award under the
Plan.
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 Corporation 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 or the
national market system 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 law, or any ruling
or regulation of any government body that the Corporation
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
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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 or the national
market system 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 Corporation.
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 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 or Stock Right shall
have any right as a shareholder with respect to any shares of Stock
covered by his or her Stock Option or Stock Right 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 Corporation or its subsidiaries or sale or
other disposition by the Corporation or its Subsidiaries of all or a
portion of its assets, any other change in the Corporation's or its
Subsidiaries' 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 Corporation, or for shares of Stock or other
securities of any other corporation; or new, different or additional
shares or other securities of the Corporation 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 limitation of the aggregate number of shares of Stock that
may be awarded as set forth in Section 3.6 of the Plan;
(b) the number and class of Stock that may be subject to an Award
and that 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.
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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 Corporation against reasonable expenses,
including attorney's fees, actually and necessarily incurred in
connection with the defense of any action, 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
Corporation) 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
sixty (60) days after institution of any such action, suit or
proceeding, a Committee member shall in writing offer the Corporation
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 Corporation 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 that the
Committee deems appropriate to reflect any restrictions on transfer.
3.14 The Committee shall be authorized to make adjustments in the terms and
conditions of Awards in recognition of unusual or nonrecurring events
affecting the Corporation (or any Subsidiary, if applicable) 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. If the Corporation (or any Subsidiary, if
applicable) 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
canceled or suspended. In particular, but without limitation, all
outstanding Awards to any Participant shall be canceled if (a) the
Participant, without the consent of the Committee, while employed by
the Corporation or any Subsidiary or after termination of such
employment, becomes associated with, employed by, renders services to,
or owns any interest in (other than any nonsubstantial interest, as
determined by the Committee), any business that is in competition with
the Corporation or with any business in which the Corporation and/or
its Subsidiaries have a substantial interest as determined by the
Committee; or (b) is terminated for cause as determined by the
Committee.
3.16 The following limitations shall apply to grants of Options:
(a) No Eligible Participant shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 shares
of Stock.
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<PAGE> 14
(b) In connection with his or her initial service, an Eligible
Participant may be granted Options to purchase up to an
additional 200,000 shares that shall not count against the
limit set forth in subsection (a) above.
(c) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as
described in Section 3.11.
(d) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with
a transaction described in Article IX of the Plan), the
cancelled Option will be counted against the limits set forth
in subsections (a) and (b) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will
be treated as a cancellation of the Option and the grant of a
new Option.
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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. Incentive Stock Options shall be
granted only to Eligible Participants, each of whom may be granted one
or more such Incentive Stock Options at such time or times determined
by the Committee following the Effective Date until February 21, 2004,
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 one
hundred percent (100%) of the Fair Market Value of the Stock
at the time of the Option Grant Date.
(b) The Incentive Stock Option and its related Stock Right, if
any, may be exercised in full or in part from time to time
within ten (10) years from 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 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 (3) 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 extend the original exercise
period of the Incentive Stock Option or any related Stock
Right.
(c) The aggregate Fair Market Value, determined as of the Option
Grant Date, of the shares of Stock with respect to which
Incentive Stock Options are first exercisable during any
calendar year by any Eligible Participant shall not exceed one
hundred thousand dollars (100,000); provided, however, to the
extent permitted under Section 422 of the Code:
(i) if a Participant's employment is terminated by reason
of death, Disability or Retirement and the portion of
any Incentive Stock Option that is otherwise
exercisable during the post-termination period
applied without regard to the
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one hundred thousand dollar (100,000) limitation
contained in Section 422 of the Code is greater than
the portion of such option that is immediately
exercisable as an Incentive Stock Option during such
post-termination
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<PAGE> 17
period under Section 422, such excess shall be
treated as a Nonqualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of an Acceleration Event, any
portion of such Award that is not exercisable as an
Incentive Stock Option by reason of the one hundred
thousand dollar ($100,000) limitation contained in
Section 422 of the Code shall be treated as a
Nonqualified Stock Option.
(d) Incentive Stock Options shall be granted only to Eligible
Participants who, at the time of the Option Grant Date, do not
own stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the
Corporation, unless the Incentive Stock Option Price per share
of Stock shall not be less than one hundred and ten percent
(110%) of the Fair Market Value of the Stock at the time of
the Option Grant Date and the Incentive Stock Options by their
terms are not exercisable after the expiration of five (5)
years from the Option Grant Date.
(e) The Committee may adopt any other terms and conditions that it
determines should be imposed for Incentive Stock Options 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.
4.2 The Committee may at any time offer to buy out for a payment in cash,
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.
4.3 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 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 Restricted Stock determined without regard to the
forfeiture restrictions involved.
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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 one hundred
percent (100%) of the Fair Market Value at the time of the grant.
5.3 The times and conditions upon which a Nonqualified Stock Option and its
related Stock Right, if any, will terminate where a Participant to whom
such an option and related right has been granted under the Plan
terminates, or the Corporation terminates, his or her employment,
consultant, or service relationship with the Corporation shall be
determined by the Committee when the option and any related right are
granted; provided, however, that in no event shall an option or related
right be exercisable more than ten (10) years from the date it was
granted. Nothing in the Plan or in any option or related right granted
pursuant to the Plan shall (a) confer on any individual any right to
continue in the employ of the Corporation or to continue any consultant
or service relationship with the Corporation or (b) interfere in any
way with the Corporation's right to terminate such individual's
employment, consultant or service relationship at any time.
5.4 The Nonqualified Stock Option Award Agreement may include any other
terms and conditions not inconsistent with this Article V or Article
VII below, 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, 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, that 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 and shall terminate or
lapse and cease to be 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, 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 payments 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, 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 that is surrendered.
6.7 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, 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, subject to such terms and conditions as the Committee
may specify at grant.
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6.8 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 at
grant. 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
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.
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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 that may be advisable to
comply with applicable laws, regulations or rulings of any governmental
authority.
7.2 Unless determined otherwise by the Committee (or a designee of the
Committee, as applicable), 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 allowed by applicable law,
pursuant to a qualified domestic relations order as defined by the Code
or ERISA and the rules thereunder, and shall be exercisable during the
lifetime of the Participant only by him or by his guardian or legal
representative. If the Committee (or its designee) in its sole
discretion permits an option or Stock Right to be transferable, it
shall be transferable only by gift or by domestic relations order to or
for the benefit of a "family member" of the Participant, as such term
is defined in the General Instructions to Form S-8 under the Securities
Act of 1933, as amended.
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
that permit the Participant to deliver shares of Stock (or other
evidence of ownership of Stock satisfactory to the Corporation) 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 that 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 of Stock is delivered
pursuant to exercise of such Stock 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
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limitations set forth in Section 3.6.
7.5 The Committee, in its sole discretion, may authorize payment of
interest equivalents on dividend equivalents that are payable in cash
at a future time.
7.6 In the event of death or Disability, 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 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 Corporation 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 it 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.
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 voluntary 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 Option surrendered shall
be canceled and the shares of Stock previously subject to it shall be
available for the grant of other Stock Options.
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ARTICLE VIII - RESTRICTED STOCK
8.1 Restricted Stock Awards may be made to certain Participants as
incentives for the performance of future services that will contribute
materially to the successful operation of the Corporation and its
Subsidiaries. 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 withheld by the Corporation for the account of the
Participant.
8.3 Awards of Restricted Stock must be accepted within a period of sixty
(60) days (or such shorter periods as the Committee may specify at
grant) after the Award date, 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 Award, unless such recipient has
executed a Restricted 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, if a Participant
terminates employment with the Corporation or its Subsidiaries for any
reason 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 Corporation.
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.
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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
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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 employment with the Corporation or any Subsidiary is
involuntarily terminated (other than for cause), 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 Corporation until the Restriction
Period expires or until restrictions thereon otherwise lapse,
and the Participant shall deliver to the Corporation 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 Corporation, 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 withheld by the corporation for the account of the
Participant. The Committee shall determine whether interest shall be
paid on amounts withheld, the rate of any such interest, and the other
terms applicable to such withheld 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 payments actually reflect the
performance of the Corporation and its Subsidiaries 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.
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ARTICLE IX - ACCELERATION EVENTS
9.1 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.
9.2 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 3(d)(3)
and 14(d)(2) of the Act), but excluding the Corporation and
any Subsidiary and any employee benefit plan sponsored or
maintained by the Corporation and any Subsidiary (including
any trustee of such plan acting as trustee) or Dennis B.
Gillings, Ph.D. individually, who:
(i) makes a tender or exchange offer for any shares of
the Corporation's Stock (as defined below) pursuant
to which any shares of the Corporation'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 twenty percent
(20%) of the Corporation's Stock (an "Acquisition");
(b) The shareholders of the Corporation approve a definitive
agreement or plan to merge or consolidate the Corporation with
or into another corporation, to sell or otherwise dispose of
all or substantially all of its assets, or to liquidate the
Corporation (individually, a "Transaction"); or
(c) When, during any period of twenty-four (24) consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") 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 twenty-four (24) month period shall be deemed to have
satisfied such twenty-four (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 qualified as Incumbent Directors
either actually (because they were directors at the beginning
of such twenty-four (24) month period) or by prior operation
of this Section 9.2(c).
9.3 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 two-thirds (2/3) majority of the Directors serving as
members of the Board at the time of the Potential Change in Control or
Change in Control.
9.4 A "Potential Change in Control" means the happening of any one of the
following:
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<PAGE> 27
(a) The approval by shareholders of an agreement by the
Corporation, the consummation of which would result in a
Change in Control of the Corporation, as defined in Section
9.2; or
(b) The acquisition of Beneficial Ownership, directly or
indirectly, by any entity, person or group (other than the
Corporation or any Subsidiary or any Corporation or Subsidiary
employee benefit plan (including any trustee of such plan
acting as such trustee) or Dennis B. Gillings, Ph.D.
individually), of securities of the Corporation representing
ten percent (10%) or more of the combined voting power of the
Corporation's outstanding securities and the adoption by the
Board of a resolution to the effect that a Potential Change in
Control of the Corporation has occurred for the purposes of
this Plan.
9.5 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, 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 (6) months) not
previously exercisable and vested as immediately exercisable and fully
vested, in whole or in part.
9.6 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 the restrictions applicable to Awards of Restricted Stock to
have lapsed, in which case the Corporation 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.
9.7 The value of all outstanding Stock Options, Stock Rights, and
Restricted Stock, 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 9.8 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.
9.8 For purposes of Section 9.7, "Change in Control Price" means the
highest price per share of Stock paid in any transaction reported on
the Nasdaq National Market or paid or offered in any bona fide
transaction related to a Potential or actual Change in Control of the
Corporation at any time during the sixty (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 Stock Appreciation Rights (or Limited
Stock Appreciation Rights).
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<PAGE> 28
ARTICLE X - AMENDMENT AND TERMINATION
10.1 The Board, upon recommendation of the Committee, or otherwise, at any
time and from time to time (subject to the provisions of Section 9.7),
may amend or terminate the Plan as may be necessary or desirable to
implement or discontinue this Plan or any provision thereof. To the
extent required by Rule 16b-3 under the Act, no amendment, without
approval by the Corporation'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 that are
available for Awards under the Plan;
(c) extend the period during which Incentive Stock Option Awards
may granted beyond February 21, 2004;
(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 X.
10.2 No amendment to or discontinuance of this Plan or any provision thereof
by the Board or the shareholders of the Corporation 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 Corporation or any Subsidiary; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock Option.
10.3 If an Acceleration Event has occurred, no amendment or termination
shall impair the rights
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<PAGE> 29
of any person with respect to an outstanding Award as provided in
Article IX.
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<PAGE> 30
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 Nothing in the Plan or any Award granted hereunder shall confer upon
any Participant any right to continue in the employ of the Corporation
or its Subsidiaries (or to serve as a director thereof) or interfere in
any way with the right of the Corporation or its subsidiaries 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 Corporation or its
Subsidiaries for the benefit of its employees unless the Corporation
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 Corporation
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 Corporation. All payments to be made hereunder shall be
paid from the general funds of the Corporation, and no special or
separate fund shall be established and 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.
11.2 The Corporation may make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes that the
Corporation or any Subsidiary 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 Restricted Stock, 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
Corporation or its Subsidiaries for the amount the Corporation or its
Subsidiaries 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 contingently credited by the
Corporation 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.
11.3 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 government or regulatory agency as may be required.
11.4 The terms of the Plan shall be binding upon the Corporation, its
Subsidiaries, and their successors and assigns.
11.5 Neither a Stock Option, Stock Right, nor any Restricted Stock shall be
transferable except as provided for herein or in an Award Agreement. If
any Participant makes such a transfer in violation hereof, any
obligation of the Corporation shall forthwith terminate.
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<PAGE> 1
EXHIBIT 10.14
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
The purpose of the Quintiles Transnational Corp. Elective Deferred
Compensation Plan (the "Plan") is to further the success of Quintiles
Transnational Corp. (the "Company") by providing deferred compensation for a
select group of management and highly compensated employees, thereby giving such
persons an additional incentive to continue in the employ of the Company.
ARTICLE I
ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Company's Board of Directors (the "Board"). The Committee
shall report all of its actions to the Board. Except as otherwise provided
herein, the Committee shall have absolute discretionary authority to interpret
and construe the provisions of the Plan as it deems appropriate, including the
absolute discretionary authority to determine eligibility for benefits under the
Plan. The Committee shall have the duty and responsibility of maintaining
records, making the requisite calculations and disbursing the payments
hereunder. The interpretations, determinations, regulations and calculations of
the Committee shall be final and binding on all persons and parties concerned.
The Committee shall furnish individual annual statements of accrued benefits to
each participant, or current beneficiary, in such form as may be determined by
the Committee or required by law. In order to discharge its duties hereunder,
the Committee shall have the power and authority to delegate ministerial duties
and to employ such outside professionals as may be required for prudent
administration of the Plan. No member of the Board or the Committee, and no
officer or employee of the Company, shall be liable to any person for any action
or determination which he or she makes in good faith in connection with the
administration of the Plan.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1 Eligibility. All management or highly compensated employees
who (1) reach the level of Executive Compensation Plan Level 6 or higher, (2)
receive base compensation from the Company or one of its subsidiaries in an
amount that is at least equal to the FICA taxable wage base, as adjusted
($72,600 in 1999), per year, and (3) are selected to participate in the Plan by
the Committee, shall be eligible to participate in the Plan.
Section 2.2 Election to Participate. The individuals described in
Section 2.1 may elect to participate in the Plan by submitting a written
election to the Committee in the form attached or in such other form as may be
determined by the Committee (the "Deferral Election Form"). Except as otherwise
provided herein, elections to defer payment of compensation must be made before
the beginning of the calendar year for which the compensation is payable. In the
first year in which a participant becomes eligible to participate in the Plan,
the newly eligible participant
<PAGE> 2
may make an election to defer payment of compensation for services to be
performed subsequent to the election within 30 days after the date the
participant becomes eligible. Elections to defer shall be irrevocable as to the
compensation for which they are made. Except as otherwise provided herein,
elections shall remain effective for all subsequent calendar years. For purposes
of this Plan, the term "compensation" shall mean for any calendar year (or
portion of a calendar year in the event of a newly eligible participant), the
sum of the participant's base cash salary as of the first day of such year plus
any cash bonus payable to the participant with respect to services rendered in
such year or partial year.
Section 2.3 Minimum and Maximum Deferrals. The minimum amount of
compensation that may be deferred with respect to any calendar year shall be
$5,000. The maximum amount of compensation that may be deferred with respect to
any calendar year (or portion of a calendar year in the event of a newly
eligible participant) shall be 90% of the participant's base cash salary as of
the first day of such year or partial year and 100% of any cash bonus payable to
the participant with respect to services rendered in such year or partial year.
Section 2.4 Change or Suspension of Deferrals. A participant may change
the amount of, or suspend, future deferrals with respect to compensation
otherwise payable to him or her for calendar years beginning after the date of
change or suspension by filing a written notice with the Committee. If a
participant elects to suspend deferrals, the participant may make a new election
to again become a participant in the Plan. Any new election to defer payment of
compensation must be made before the beginning of the calendar year for which
the compensation is payable.
Section 2.5 Deferred Compensation Account. For each individual electing
to participate in the Plan, the Company shall establish and maintain a Deferred
Compensation Account on the Company's books and records. The amount of each
participant's deferred compensation shall be credited to this account as of the
date such compensation otherwise would be payable. No amount shall actually be
set aside for payment under the Plan. Any participant to whom an amount is
credited under the Plan shall be deemed a general, unsecured creditor of the
Company.
ARTICLE III
DEFERRED COMPENSATION
Section 3.1 Investment Election. Each participant shall be entitled to
make an investment election by submitting a written election to the Committee in
the form attached or in such other form as may be determined by the Committee
(the "Investment Election Form"). A participant may change his or her election
by filing a new Investment Election Form with the Committee; provided, however,
that such changes, to be effective for the following calendar quarter, must be
submitted at least 30 days prior to the first day of such calendar quarter. The
investments from which participants may choose are subject to change at the
discretion of the Committee. The Committee reserves the right to shift any
amount designated for an investment eliminated by the Committee to the
investment that the Committee determines, in its discretion, most closely
resembles the eliminated investment.
<PAGE> 3
Section 3.2 Rate of Return. All amounts credited under the terms of the
Plan to a Deferred Compensation Account maintained in the name of a participant
shall be deemed to have been invested pursuant to the investment election made
in the participant's Investment Election Form. Each participant's Deferred
Compensation Account shall be credited or debited no less frequently than
quarterly by an amount equal to the gains or losses that would have been
generated had the account been invested pursuant to such election until such
time as the entire account has been distributed to the participant or to the
participant's beneficiary. In the case of a lump-sum distribution, as provided
in Section 4.1(a) below, investment gains and losses shall cease to accrue to
the participant's account as of the date of termination of the participant's
employment with the Company and all related employers of the Company, as
determined under Section 4.1 below. Although the performance of the investments
selected by the participant will be used to determine the rate of return on the
participant's account, deferrals will not necessarily be invested by the Company
in the investments selected by the participant.
ARTICLE IV
DISTRIBUTION
Section 4.1 Termination of Employment. Within 60 days of the date on
which a participant's employment with the Company and all other related
employers of the Company (as determined under Section 414 of the Internal
Revenue Code, as amended (the "Code")) terminates for any reason including
death, distribution of the amount credited to the participant's account in
accordance with this Plan shall commence in accordance with either of the
alternatives set forth below as selected by the participant on his or her
Deferral Election Form at the time he or she elects to participate in the Plan.
The alternative forms of distribution shall be:
(a) lump sum; or
(b) monthly installments over a period not to exceed 15 years. The
monthly payment amount will be redetermined annually by dividing the
participant's current deferral account balance at the beginning of the year by
the number of remaining years in the payment period based on the participant's
retirement payment election. The unpaid balance of the deferred compensation
account will continue to earn a rate of return as specified in Section 3.2 of
the plan. The final installment will be the balance of the participant's
deferred compensation account including gains or losses credited to the account
during the last year of the payout period.
Once made, a participant's election with respect to the form of
distribution as described in this Section 4.1 shall be irrevocable; provided,
however (1) that upon the request of a participant or beneficiary whose account
is in the process of an installment distribution, the Committee may, in its sole
discretion and without obligation to do so, accelerate any or all payments
credited to said participant or beneficiary and (2) that if at any time the
balance of an account that is in the process of an installment distribution
falls below $25,000 the Committee may, in its sole discretion and without
obligation to do so, pay out the remaining balance in the form of a lump sum.
<PAGE> 4
Section 4.2 Scheduled In-Service Distributions. Although distribution
of the amount credited to a participant's account will in all cases begin upon
the participant's termination of employment for any reason as described in
Section 4.1 above, a participant may, at the time he or she first elects to
participate in the Plan, elect to take one or more scheduled in-service
distributions of certain amounts on certain dates as indicated by the
Participant in his or her Deferral Election Form; provided, however, that the
minimum amount of any such scheduled in-service distribution shall be $5,000 and
that the participant may in no event elect a total of more than 6 such
distributions. All such distributions shall be made in the form of a lump sum.
Once made, a participant's election with respect to scheduled
distributions as described in this Section 4.2 shall be irrevocable; provided,
however, (1) that the participant may revoke his or her election with respect to
any scheduled distribution by submitting a written notice to the Committee
before the earlier of (a) 30 days prior to the first day of the calendar year in
which the distribution is scheduled to take place as set forth in the
participant's Deferral Election Form or (b) 6 months prior to the date of the
scheduled distribution as set forth in the participant's Deferral Election Form
and (2) that the participant's termination of employment for any reason will be
deemed to nullify any such election.
Section 4.3 Death. If a participant should die before distribution of
the full amount of any account described in this Plan has been made to the
participant, any remaining amounts shall be distributed to the beneficiary
designated by the participant in the form attached or in such other form as may
be determined by the Committee (the "Beneficiary Designation Form"). Except as
otherwise provided herein, such amounts shall be distributed to the
participant's designated beneficiary in the form designated by the participant
in his or her Deferral Election Form. A participant may change his or her
beneficiary designation at any time by submitting a new Beneficiary Designation
Form to the Committee. If a participant has not designated a beneficiary, or if
no designated beneficiary is living on the date of distribution, then,
notwithstanding any provision herein to the contrary, such amounts shall be
distributed to such participant's estate in a lump sum distribution as soon as
administratively feasible following such participant's death.
Section 4.4 Hardship Withdrawals. In the event a participant incurs an
unforeseeable emergency, the participant may make a written request to the
Company for a hardship withdrawal from his or her account established under the
Plan. An unforeseeable emergency is a severe financial hardship to the
participant resulting from a sudden and unexpected illness or accident of the
participant or a dependent (as defined in Section 152(a) of the Code) of the
participant, loss of the participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the participant. Withdrawal amounts because of an
unforeseeable emergency are only permitted to the extent reasonably needed to
satisfy the emergency need. This section shall be interpreted in a manner
consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury
Regulations.
Section 4.5 Other Withdrawals. Anything herein to the contrary
notwithstanding, if, at any time, a court or the Internal Revenue Service
determines that an amount in a participant's account is includable in the gross
income of the participant and subject to tax, the Committee
<PAGE> 5
may, in its sole discretion, permit a lump sum distribution of an amount equal
to the amount determined to be includable in the participant's gross income.
Section 4.6 Limit on Annual Distributions. Except as otherwise provided
by the Committee, the total distributions under the Plan in any calendar year
shall be limited to such amount as may be deductible by the Company for federal
income tax purposes under the Code.
Section 4.7 Withholding; Unemployment Taxes. To the extent required by
law, the Company shall withhold from distributions those taxes required to be
withheld by the federal or any state or local government.
ARTICLE V
AMENDMENT AND TERMINATION OF PLAN
The Company reserves the right to amend or terminate the Plan at any
time. Any such termination shall be effective as of the end of the calendar year
during which notification is given to each participant. Notification will be by
first class mail, addressed to each participant at the participant's last known
address, or by such other method as may be commonly used by the Company to
communicate similar information if such notice is acknowledged by the
participant. Any amounts credited to an account of any participant shall remain
subject to the provisions of the Plan and distribution will not be accelerated
because of the termination of the Plan. No amendment or termination shall
directly or indirectly reduce the balance of any account described in this Plan
as of the effective date of such amendment or termination.
ARTICLE VI
CLAIMS PROCEDURE
Section 6.1. Claims Reviewer. For purposes of handling claims with
respect to this Plan, the "Claims Reviewer" shall be the Committee, unless
another person or organizational unit is designated by the Company as Claims
Reviewer.
Section 6.2. Claims Procedure. An initial claim for benefits under the
Plan must be made by the participant or his or her beneficiary in accordance
with the terms of the Plan through which the benefits are provided. Not later
than 90 days after receipt of such a claim, the Claims Reviewer will render a
written decision on the claim to the claimant, unless special circumstances
require the extension of such 90-day period. If such extension is necessary, the
Claims Reviewer shall provide the Participant or the Participant's beneficiary
with written notification of such extension before the expiration of the initial
90-day period. Such notice shall specify the reason or reasons for such
extension and the date by which a final decision can be expected. In no event
shall such extension exceed a period of 90 days from the end of the initial
90-day period. In the event the Claims Reviewer denies the claim of a
participant or the beneficiary in whole or in part, the Claims Reviewer's
written notification shall specify, in a manner calculated to be understood by
the claimant, the reason for the denial, a reference to the Plan or other
document or form that is the basis for the denial, a description of any
additional material or information necessary for the claimant to perfect the
claim, an explanation as to why
<PAGE> 6
such information or material is necessary, and an explanation of the applicable
claims procedure. Should the claim be denied in whole or in part and should the
claimant be dissatisfied with the Claims Reviewer's disposition of the
claimant's claim, the claimant may have a full and fair review of the claim by
the Company upon written request therefore submitted by the claimant or the
claimants duly authorized representative and received by the Company within 60
days after the claimant receives written notification that the claimant's claim
has been denied. In connection with such review, the claimant or the claimant's
duly authorized representative shall be entitled to review pertinent documents
and submit the claimant's views as to the issues, in writing. The Company shall
act to deny or accept the claim within 60 days after receipt of the claimant's
written request for review unless special circumstances require the extension of
such 60-day period. If such extension is necessary, the Company shall provide
the claimant with written notification for such extension before the expiration
of such initial 60-day period. In all events, the Company shall act to deny or
accept the claim within 120 days of the receipt for the claimant's written
request for review. The action of the Company shall be in the form of a written
notice to the claimant and its contents shall include all of the requirements
for action on the original claim. In no event may a claimant commence legal
action for benefits the claimant believes are due the claimant until the
claimant has exhausted all of the remedies and procedures afforded the claimant
by this Article.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Unfunded Plan. The Company intends to establish and fund
the Quintiles Transnational Corp. Elective Deferred Compensation Trust (the
"Rabbi Trust.") The assets of the Rabbi Trust shall be subject to the claims of
the Company's creditors. To the extent any benefits provided under the Plan are
actually paid from the Rabbi Trust, the Company shall have no further obligation
with respect thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Company. Participants and their
beneficiaries, heirs, successors and assigns shall have no legal or equitable
rights, interest or claims in any specific property or assets of the Company,
nor shall they be beneficiaries of, or have any rights, claims or interests in
any life insurance policies, annuity contract, or the proceeds therefrom owned
or which may be acquired by the Company (the "Policies"). Apart from the Rabbi
Trust, such Policies or other assets of the Company shall not be held under any
trust for the benefits of participants, their beneficiaries, heirs, successors
or assigns, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all of the Company's assets
and Policies shall be, and remain, the general, unpledged, unrestricted assets
of the Company and available to its general creditors in the event of bankruptcy
or insolvency.. The Company's obligation under the plan shall be merely that of
an unfunded and unsecured promise of the Company to pay money in the future and
the Plan shall at all times be considered entirely unfunded both for tax
purposes and for purposes of Title I for the Employee Retirement Income Security
Act of 1974, as amended.
Section 7.2 Expenses. Expenses of administration shall be paid by the
Company. The Committee shall be entitled to rely on all tables, valuations,
certificates, opinions, data and
<PAGE> 7
reports furnished by any actuary, accountant, controller, counsel or other
person employed or retained by the Company with respect to the Plan.
Section 7.3 Rights Under Plan. The sole rights of a participant or
beneficiary under this Plan shall be to have this Plan administered in
accordance with its terms, to receive whatever benefits he or she may be
entitled to hereunder, and nothing in the plan shall be interpreted as a
guaranty that any funds in any trust which may be established in connection with
the Plan or assets of the Company will be sufficient to pay any benefit
hereunder. Further, the adoption and maintenance of this Plan shall not be
construed as creating any contract of employment between the Company and any
participant. The Plan shall not affect the right of the Company to deal with any
participants in employment respects, including their hiring, discharge,
compensation, and conditions of employment.
Section 7.4 Distributions to Incompetent Persons. The Committee may
from time to time establish rules and procedures which it determines to be
necessary for the proper administration of the Plan and the benefits payable to
an individual in the event that individual is declared incompetent and a
conservator or other person legally charged with that individual's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such individual is unable to manage his or her financial affairs, the
Committee may pay such individual's benefits to such conservator, person legally
charged with such individual's care, or institution then contributing toward or
providing for the care and maintenance of such individual. Any such payment
shall constitute a complete discharge of any liability of the Company and the
Plan for such individual.
Section 7.5 Change in Control. The Plan may continue after a sale of
assets of the Company, or a merger or consolidation of the Company with or into
another corporation or entity only if and to the extent that the transferee,
purchaser or successor entity agrees to continue the Plan. In the event that the
Plan is not continued by the transferee, purchaser or successor entity, then the
Plan shall be terminated subject to the provisions of Article IV.
Section 7.6 Nonassignability. Neither a participant, nor his or her
designated beneficiary, nor any other beneficiary under this Plan shall have any
power or right to transfer, assign, anticipate, hypothecate or otherwise
encumber all or any part of the amounts payable hereunder. No such amounts shall
be subject to seizure by any creditor of such beneficiary, by a proceeding at
law or in equity, nor shall such amounts be transferable by operation of law in
the event of bankruptcy, insolvency or death of the participant, his or her
designated beneficiary, or any other beneficiary hereunder. Any such attempted
assignment or transfer shall be void.
Section 7.7 Notice. Any notice or filing required or permitted to be
given to the Committee or the Company under the Plan shall be sufficient if in
writing and hand delivered, or sent by registered or certified mail, to the
principal office of the Company directed to the attention of the Secretary of
the Company. Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
<PAGE> 8
Section 7.8 Current Address. Each participant shall keep the Company
informed of his or her current address and the current address of his or her
designated beneficiary. The Company shall not be obligated to search for any
person. If such person is not located within 3 years after the date on which
payment of the participant's benefits payable under this Plan may first be made,
payment may be made as though the participant or his or her beneficiary had died
at the end of such 3-year period.
Section 7.9 Governing Law. All questions pertaining to the
construction, validity and effect of the Plan shall be determined in accordance
with the laws of the United States and to the extent not preempted by such laws,
by the laws of the State of North Carolina.
<PAGE> 9
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION FORM
I. I hereby elect to have the following amount deducted from my
compensation:
________% (no more than 50%) of my annual base cash salary without
cash bonuses; and
________% (up to 100%) of my cash bonuses, if any.
NOTE: ELECTIONS SHALL REMAIN EFFECTIVE UNTIL CHANGED OR SUSPENDED. A
PARTICIPANT MAY CHANGE THE AMOUNT OF, OR SUSPEND, FUTURE DEFERRALS WITH
RESPECT TO COMPENSATION OTHERWISE PAYABLE TO HIM OR HER FOR CALENDAR
YEARS BEGINNING AFTER THE DATE OF CHANGE OR SUSPENSION BY FILING A
WRITTEN NOTICE WITH THE COMMITTEE. IF A PARTICIPANT ELECTS TO SUSPEND
DEFERRALS, THE PARTICIPANT MAY MAKE A NEW ELECTION TO AGAIN BECOME A
PARTICIPANT IN THE PLAN. ANY NEW ELECTION TO DEFER PAYMENT OF
COMPENSATION MUST BE MADE BEFORE THE BEGINNING OF THE CALENDAR YEAR FOR
WHICH THE COMPENSATION IS PAYABLE.
II. I hereby elect the following form of distribution for the amounts
credited to my account and any earnings thereon:
> Lump Sum Distribution
> Monthly Installments over ________ (no more than 15) years
NOTE: ONCE MADE, A PARTICIPANT'S ELECTION WITH RESPECT TO THE FORM OF
DISTRIBUTION SHALL BE IRREVOCABLE; PROVIDED, HOWEVER (1) THAT UPON THE
REQUEST OF A PARTICIPANT OR BENEFICIARY WHOSE ACCOUNT IS IN THE PROCESS
OF AN INSTALLMENT DISTRIBUTION, THE COMMITTEE MAY, IN ITS SOLE
DISCRETION AND WITHOUT OBLIGATION TO DO SO, ACCELERATE ANY OR ALL
PAYMENTS CREDITED TO SAID PARTICIPANT OR BENEFICIARY AND (2) THAT IF AT
ANY TIME THE BALANCE OF AN ACCOUNT THAT IS IN THE PROCESS OF AN
INSTALLMENT DISTRIBUTION FALLS BELOW $25,000 THE COMMITTEE MAY, IN ITS
SOLE DISCRETION AND WITHOUT OBLIGATION TO DO SO, PAY OUT THE REMAINING
BALANCE IN A LUMP SUM. IN ADDITION, HARDSHIP WITHDRAWALS ARE AVAILABLE
FOR UNFORSEEABLE EMERGENCIES AS DESCRIBED IN THE PLAN.
<PAGE> 10
III. I hereby elect to receive scheduled in-service distributions of the
amounts credited to my account and any earnings thereon as follows:
Amount of Distribution Date of Distribution
$________ ________
$________ ________
$________ ________
$________ ________
$________ ________
$________ ________
NOTE: THE MINIMUM AMOUNT OF ANY SUCH SCHEDULED IN-SERVICE DISTRIBUTION
SHALL BE $5,000. A PARTICIPANT MAY NOT ELECT A TOTAL OF MORE THAN 6
SUCH DISTRIBUTIONS. ALL SUCH DISTRIBUTIONS SHALL BE MADE IN THE
FORM OF A LUMP SUM. ONCE MADE, A PARTICIPANT'S ELECTION WITH RESPECT
TO SCHEDULED IN-SERVICE DISTRIBUTIONS SHALL BE IRREVOCABLE;
PROVIDED, HOWEVER, (1) THAT THE PARTICIPANT MAY REVOKE HIS OR HER
ELECTION WITH RESPECT TO ANY SCHEDULED IN-SERVICE DISTRIBUTION BY
SUBMITTING A WRITTEN NOTICE TO THE COMMITTEE BEFORE THE EARLIER OF
(A) 30 DAYS PRIOR TO THE FIRST DAY OF THE CALENDAR YEAR IN WHICH
THE DISTRIBUTION IS SCHEDULED TO TAKE PLACE AS SET FORTH IN THE
PARTICIPANT'S DEFERRAL ELECTION FORM OR (B) 6 MONTHS PRIOR TO THE
DATE OF THE SCHEDULED IN-SERVICE DISTRIBUTION AS SET FORTH IN THE
PARTICIPANT'S DEFERRAL ELECTION FORM AND (2) THAT THE PARTICIPANT'S
TERMINATION OF EMPLOYMENT FOR ANY REASON WILL BE DEEMED TO NULLIFY
ANY SUCH ELECTION.
This Deferral Election Form is signed as of this _____ day of ________, _____.
_______________________________
Employee Signature
_______________________________
Employee Name (Please Print)
_______________________________
Employee Social Security Number
Received on:_____________________
By:____________________________
<PAGE> 11
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
I hereby elect to have all amounts credited to my Deferred Compensation
Account credited or debited no less frequently than quarterly by an amount equal
to the gains or losses that would have been generated if the account had been
invested in one or more of the following funds:
Fund Manager Fund Allocation Percentage
1. [NAME OF FUND MANAGER] [NAME OF FUND] ________%
2. ________%
3. ________%
4. ________%
5. ________%
NOTE: ALLOCATIONS MUST BE MADE IN INCREMENTS OF 10%. NO MORE THAN [NUMBER]
FUNDS MAY BE ELECTED. CHANGES IN SUCH ALLOCATIONS, TO BE EFFECTIVE FOR
THE FOLLOWING CALENDAR QUARTER, MUST BE SUBMITTED AT LEAST 30 DAYS
PRIOR TO THE FIRST DAY OF SUCH CALENDAR QUARTER. THE LIST OF FUNDS IS
SUBJECT TO CHANGE AT THE DISCRETION OF THE COMMITTEE. THE COMMITTEE
RESERVES THE RIGHT TO SHIFT ANY ALLOCATION PERCENTAGE DESIGNATED FOR A
FUND ELIMINATED FROM THE LIST TO THE FUND THAT IT DETERMINES, IN ITS
DISCRETION, MOST CLOSELY RESEMBLES THE ELIMINATED FUND.
This Investment Election Form is signed as of this ____ day of ________, _____.
_______________________________
Employee Signature
_______________________________
Employee Name (Please Print)
_______________________________
Employee Social Security Number
Received on:_____________________
By:____________________________
<PAGE> 12
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION FORM
If I die before distribution of the full amount of my account has been
made to me, any remaining amounts shall be distributed in the form designated by
me in my Deferral Election Form to the following persons in the following
amounts:
Primary Beneficiary(ies):
Name % Address
---- - -------
_________________________ ____ ____________________________________
_________________________ ____ ____________________________________
_________________________ ____ ____________________________________
Contingent Beneficiary(ies):
Name % Address
---- - -------
_________________________ ____ ____________________________________
_________________________ ____ ____________________________________
_________________________ ____ ____________________________________
NOTE: BENEFICIARIES WILL BE PRESUMED TO SHARE EQUALLY UNLESS PERCENTAGES ARE
INDICATED. A PARTICIPANT MAY CHANGE HIS OR HER BENEFICIARY DESIGNATION
AT ANY TIME BY SUBMITTING A NEW BENEFICIARY DESIGNATION FORM TO THE
COMMITTEE.
I hereby revoke any previous beneficiary designations I may have made.
This Beneficiary Designation Form is signed as of this _________ day of
________, _____.
_______________________________
Employee Signature
_______________________________
Employee Name (Please Print)
_______________________________
Employee Social Security Number
Received on:_____________________
By:____________________________
<PAGE> 1
EXHIBIT 10.15
QUINTILES TRANSNATIONAL CORP.
NONQUALIFIED STOCK OPTION PLAN
(Amended November 4, 1999)
1. PURPOSE
The purpose of the Quintiles Transnational Nonqualified Stock Option
Plan (the "Plan") is to further the success of Quintiles Transnational Corp.
(the "Company") by making shares of the Company's Common Stock ("Common Stock")
available for purchase by eligible employees, officers, directors and
consultants of the Company, or any affiliated company or partnership in which
the Company has an ownership interest, and other persons receiving services from
or providing services to the Company, in order to provide an additional
incentive to such persons to continue their relationship with the Company and in
order to give such persons a greater interest in the Company's success. This
purpose will be carried out through the granting of options which do not meet
the statutory requirements of Sections 422 or 423 of the Internal Revenue Code
of 1986, as amended.
2. STOCK SUBJECT TO PLAN
Subject to the provisions of Section 9 of the Plan, the Company's Board
of Directors (the "Board") shall reserve for issuance upon the exercise of the
options an aggregate of 25,460,777 authorized and unissued shares of Common
Stock, plus an annual increase to be added as of January 1 of each year,
beginning January 1, 2000, equal to the lesser of (i) five hundred thousand
(500,000) shares, (ii) five percent (5%) of any increase, other than any
increase due to the issuance of shares under the Plan or any other similar plan
of the Company, in the authorized and issued shares (on a fully diluted basis)
of Common Stock, or other securities directly or indirectly exercisable for or
convertible into Common Stock, since the immediately preceding January 1 or
(iii) a lesser number determined by the Board. The Board may from time to time
reserve additional shares of authorized and unissued Common Stock for issuance
upon exercise of options. If any option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares of Common Stock subject to the expired or terminated option shall again
be available for options under the Plan.
3. ADMINISTRATION
The Board shall designate a committee of at least two "Non-Employee
Directors" as defined in Rule 16b-3(b)(3) promulgated under Section 16 of the
Securities Exchange Act of 1934 (the "Committee") to administer the Plan. The
Committee shall report all of its actions to the Board. The Board may from time
to time remove members from the Committee and appoint their successors. The
Board shall fill all vacancies on the Committee however caused. Except as
otherwise expressly provided in the Plan, the Committee shall have absolute
discretionary authority (a) to determine the individuals to receive options, the
times when options shall be granted, the number of shares to be subject to each
option, the option price, the option period, and the time or times when each
option shall be exercisable; (b) to interpret the Plan; (c) to prescribe, amend,
and
<PAGE> 2
rescind rules and regulations relating to the Plan; (d) to determine the terms
and provisions (and amendments of the terms and provisions) of the option
agreements to be entered into between the Company and each Participant granted
an option under the Plan (which option agreements need not be identical),
including such terms and provisions as shall be required in the Committee's
judgment to conform to any change in any applicable law or regulation; and (e)
to make all other determinations the Committee shall deem necessary or advisable
for the Plan's administration.
No member of the Committee or the Board shall be liable to any person
for any action or determination which he or she makes in good faith.
4. ELIGIBILITY
Subject to the provisions of Section 3, any employee, officer,
director, and consultant of the Company or any affiliated company or partnership
in which the Company has an ownership interest and other persons receiving
services from or providing services to the Company designated by the Committee
shall be eligible to receive options under the Plan (the "Participants"). In
designating Participants and in recommending the number of shares of Common
Stock to be covered by each option granted to a Participant, the Committee may
take into account the nature of the services rendered by or for each
Participant, his or her present and potential contributions to the Company's
success, and such other factors as the Committee in its discretion shall deem
relevant. The Company may grant additional options to Participants who have
already been granted options under the Plan.
5. OPTION PRICE
The Committee shall determine the purchase price of the shares of
Common Stock covered by each option, which purchase price may be above or below
the fair market value of the Common Stock at the time of the grant, as
determined by the Committee.
6. EXERCISE OF OPTION
The period during which an option may be exercised shall be determined
by the Committee when the option is granted and shall not extend more than ten
(10) years from the date on which the option is granted. The term of each
option, however, shall not extend for more than the period prescribed in
Sections 8 or 10 of the Plan. Except as provided in the option agreement
relating to such option, an option may be exercised in whole or in part at any
time during its term. The Committee may impose vesting or other restrictions on
the exercisability or conditions of options. Except as provided in the option
agreement relating to such option, the purchase price of the shares of Common
Stock subject to the option shall be paid in full in cash upon the exercise of
the option. If the option agreement so provides, the purchase price may be paid
in whole or in part by surrendering shares of Common Stock or by surrendering
the option to the Company. If shares or options are used to pay all or part of
the purchase price, the cash and any shares or options surrendered must have a
fair market value (determined as of the day preceding the date of exercise) that
is not less than the purchase price for the number of shares for which the
option is being
2
<PAGE> 3
exercised. The holder of an option under the Plan shall not have any of the
rights of a shareholder with respect to the Common Stock subject to the option
until such shares shall be issued to him or her upon the exercise of the option
and payment of the purchase price.
7. TRANSFERABILITY OF OPTION
Except as determined by the Committee and set forth in the option
agreement relating to such option, no option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution
(including by pledge or hypothecation) and shall be exercisable only by the
Participant or his or her duly appointed legal representative.
8. TERMINATION OF RELATIONSHIP WITH THE COMPANY
The times and conditions upon which an option will terminate where a
Participant to whom an option has been granted under the Plan terminates, or the
Company terminates, his or her employment, consultant, or service relationship
with the Subsidiary or an affiliated company or partnership in which the
Subsidiary has an ownership interest shall be determined by the Committee when
the option is granted; provided, however, that in no event shall an option be
exercisable more than ten (10) years from the date it was granted. Nothing in
the Plan or any option granted pursuant to the Plan shall (a) confer on any
individual any right to continue in the employ of the Company or to continue any
consultant or service relationship with the Company or (b) interfere in any way
with the Company's right to terminate such individual's employment, consultant
or service relationship at any time.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of a change in the Company's Common Stock by reason of any
stock dividend, split-up, recapitalization, combination or exchange of shares,
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation or similar action, the Committee shall make an
appropriate adjustment of the number and class of shares of Common Stock subject
to and the purchase price for each then outstanding option, consistent with and
as provided in the corresponding option agreement under the Plan. In the event
of any such change in the outstanding Common Stock, the Committee shall adjust
appropriately the aggregate number and class of shares of Common Stock reserved
and available under the Plan appropriately, and the Committee's determination on
adjustment shall be conclusive.
10. TERMINATION OF OPTIONS ON MERGER OR SALE OF ASSETS
A liquidation of the Company, a merger or consolidation in which the
Company is not the surviving or resulting corporation, or a sale of all or
substantially all of the Company's assets shall cause every option outstanding
under the Plan to terminate on the effective date of such action.
Notwithstanding the preceding sentence, upon a liquidation of the Company, a
merger or consolidation in which the Company is not the surviving or resulting
corporation, or a sale of all or substantially all of the Company's assets, each
option holder shall have the right, within his or her
3
<PAGE> 4
sole discretion, to exercise before the effective date of such action any or all
of the options he or she then holds, but only to the extent that such options
are otherwise exercisable under the terms of the Plan. Any options not so
exercised shall terminate on the effective date of such action.
11. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN
The Board may at any time suspend or terminate the Plan or may amend it
from time to time in such respects as the Board may deem advisable in order that
the options granted under the Plan may conform to any changes in the law or in
any other respect which the Board may deem to be in the best interest of the
Company. Modifications or amendments to the Plan are not required to be approved
by the Company's shareholders, except to the extent required by law or by the
Company's bylaws. No termination, modification, or amendment of the Plan without
the consent of the Participant to whom any option shall have been previously
granted shall adversely affect such Participant's rights under such option.
Unless terminated earlier in accordance with this Section, the Plan shall
terminate when all shares of Common Stock reserved for issuance under the Plan
have been issued.
12. EFFECTIVENESS OF THE PLAN
The Plan shall become effective on such date as the Board shall
determine (the "Effective Date"). The exercise of each option granted pursuant
to the Plan shall be subject to the condition that if at any time the Company
shall determine in its discretion that (a) the satisfaction of withholding tax
or other withholding liabilities, (b) the listing on any securities exchange or
the registration or qualification under any state or federal law of any shares
of Common Stock otherwise deliverable upon its exercise, or (c) the consent or
approval of any regulatory body or the shareholders is necessary or desirable as
a condition of, or in connection with, such exercise or the delivery or purchase
of shares of Common Stock pursuant to such exercise, then, in any such event,
such exercise shall not be effective unless such withholding, listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions unacceptable to the Company.
13. TIME OF GRANTING OPTIONS
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board or the Committee will constitute the granting of an option
pursuant to the Plan. The granting of an option pursuant to the Plan will occur
only when a written option agreement is duly executed and delivered by and on
behalf of the Company and the Participant to whom such option is to be granted.
4
<PAGE> 5
14. APPLICABLE LAW
Except as otherwise provided herein, the Plan shall be construed and
enforced according to the laws of the State of North Carolina.
5
<PAGE> 1
EXHIBIT 10.16
DATE: FEBRUARY 21, 1997
AMENDED AND RESTATED ENVOY CORPORATION
1995 EMPLOYEE STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
(a) PURPOSE. The purpose of the Plan is to enable the Corporation to
attract, retain and reward officers and key employees of and consultants to the
Corporation and its Subsidiaries and Affiliates, and strengthen the mutuality of
interests between such individuals and the Corporation's shareholders, by
offering such officers, key employees and consultants Options or other rights
with respect to shares of Common Stock of the Corporation. The creation of the
Plan shall not diminish or prejudice other compensation programs approved from
time to time by the Board.
(b) DEFINITIONS. For purposes of the Plan, the following terms are
defined as set forth below:
(i) "Affiliate" means any entity other than the Corporation and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Corporation directly or indirectly owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
(ii) "Board" means the Board of Directors of the Corporation.
(iii) "Capital Transaction" has the meaning provided in Section 3(b) of
the Plan.
(iv) "Cause" has the meaning provided in Section 5(b)(x) of the Plan.
(v) "Change in Control" has the meaning provided in Section 9(b) of the
Plan.
(vi) "Change in Control Price" has the meaning provided in Section 9(d)
of the Plan.
(vii) "Common Stock" means the Corporation's Common Stock, without par
value, together with the associated rights under the Corporation's Shareholders'
Rights Plan.
(viii) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(ix) "Commission" means the Securities and Exchange Commission.
<PAGE> 2
(x) "Committee" means the Committee referred to in Section 2 of the
Plan.
(xi) "Corporation" means Envoy Corporation, a corporation organized
under the laws of the State of Tennessee, or any successor corporation.
(xii) "Disability" means disability as determined under the
Corporation's long-term disability insurance policy or, if there is no such
definition, as reasonably determined by the Committee.
(xiii) "Disinterested Person" has the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
(xiv) "Early Retirement" means retirement, for purposes of this Plan
with the express consent of the Corporation at or before the time of such
retirement, from active employment with the Corporation and any Subsidiary or
Affiliate prior to age 65, in accordance with any applicable early retirement
policy of the Corporation then in effect.
(xv) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(xvi) "Fair Market Value" means the reported closing price of the
Common Stock on The Nasdaq Stock Market's National Market on the relevant date
or, if no shares of Common Stock are traded on that date, the reported closing
price on the next preceding date on which shares were traded. In the event that
trading in the shares of Common Stock is no longer reported on The Nasdaq Stock
Market's National Market, Fair Market Value shall be determined by such other
method as the Committee in good faith deems appropriate without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(xvii) "Incentive Stock Option" means any Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(xviii) "Non-Qualified Stock Option" means any Option that is not an
Incentive Stock Option.
(xix) "Normal Retirement" means retirement from active employment with
the Corporation and any Subsidiary or Affiliate on or after age 65.
(xx) "Option" means any option to purchase shares of Common Stock
granted pursuant to Section 5 below.
(xxi) "Other Stock-Based Award" means an award under Section 8 below
that is valued in whole or in part by reference to, or is otherwise based on,
Common Stock.
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<PAGE> 3
(xxii) "Plan" means this Envoy Corporation 1995 Employee Stock
Incentive Plan, as amended from time to time in accordance herewith.
(xxiii) "Restriction Period" has the meaning provided in Section
7(c)(i) of the Plan.
(xxiv) "Restricted Stock" means an award of shares of Common Stock that
is subject to restrictions under Section 7 of the Plan.
(xxv) "Retirement" means Normal Retirement or Early Retirement.
(xxvi) "Stock Appreciation Right" means the right granted under Section
6 of the Plan.
(xxvii) "Subsidiary" means any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation if each of
the corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
(a) THE COMMITTEE. The Plan shall be administered by a Committee of not
less than two Disinterested Persons, who shall be appointed by the Board and who
shall serve at the pleasure of the Board. The functions of the Committee
specified in the Plan may be exercised by an existing Committee of the Board
composed exclusively of Disinterested Persons. The initial Committee shall be
the Compensation Committee of the Board.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall have authority to
grant, pursuant to the terms of the Plan, to officers, other key employees and
consultants eligible under Section 4 hereof: Options, Stock Appreciation Rights,
Restricted Stock and Other Stock-Based Awards.
In particular, the Committee shall have the authority, consistent with
the terms of the Plan:
(i) to select the officers and other key employees of and
consultants to the Corporation and its Subsidiaries and Affiliates to
whom Options, Stock Appreciation Rights, Restricted Stock or Other
Stock-Based Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock or Other
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<PAGE> 4
Stock-Based Awards, or any combination thereof, are to be granted
hereunder to one or more eligible employees;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting, acceleration of vesting or waiver of forfeiture
restrictions regarding any Option or other award or the shares of
Common Stock relating thereto, based in each case on such factors as
the Committee shall determine, in its sole discretion) and to amend or
waive any such terms and conditions to the extent permitted by Section
10 hereof;
(v) to determine whether and under what circumstances an
Option or Stock Appreciation Right may be settled in cash or Restricted
Stock under Section 5(b)(xiii) hereof, instead of shares of Common
Stock;
(vi) to determine whether, to what extent and under what
circumstances Option grants or other awards under the Plan are to be
made, and operate, on a tandem basis vis-a-vis other awards under the
Plan, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances shares of Common Stock and other amounts payable with
respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period); and
(viii) to determine whether to require payment of any
withholding requirements in shares of Common Stock.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Corporation and Plan participants.
4
<PAGE> 5
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) SHARES OF COMMON STOCK RESERVED UNDER PLAN. The aggregate number of
shares of Common Stock reserved and available for distribution under the Plan
shall be 3,000,000 shares. Such shares of Common Stock may consist, in whole or
in part, of authorized and unissued shares or treasury shares. The aggregate
number of shares of Common Stock that may be granted to any individual pursuant
to any award under the Plan or with respect to which any awards are made shall
be 500,000, or up to 500,000 in any one year.
If any Option or Stock Appreciation Right expires or is forfeited
without exercise, or if any shares of Common Stock that are subject to any
Restricted Stock or Other Stock-Based Award granted hereunder are forfeited
prior to the payment of any dividends, if applicable, with respect to such
shares of Common Stock, such shares shall again be available for distribution in
connection with future awards under the Plan. If dividends have been paid to the
grantee with respect to the shares of Common Stock subject to such forfeited
award, such shares shall not be available for distribution in connection with
future awards under the Plan.
(b) ADJUSTMENT IN CERTAIN EVENTS. In the event of any merger,
reorganization, consolidation, recapitalization, extraordinary cash dividend,
stock dividend, stock split or other change in corporate structure affecting the
Common Stock (a "Capital Transaction"), a substitution or adjustment will be
made in the aggregate number of shares reserved for issuance under the Plan, the
number that may be granted to any individual in any year or over the life of the
Plan and the number and price (if applicable) of shares subject to outstanding
awards granted under the Plan, so as to provide each holder of an award under
this Plan with the same rights on exercise or distribution of the benefits of
such award that such holder would have received if such holder had exercised or
received a distribution of the benefits of such award immediately prior to the
occurrence of such Capital Transaction; provided, however, that the number of
shares subject to any award shall always be a whole number. In the event of any
dispute as to any substitution or adjustment made under this Section 3(b), the
decision of the Committee shall be final and binding on all persons, including
the Corporation and Plan participants.
SECTION 4. ELIGIBILITY.
Officers and other key employees of and consultants to the Corporation
and its Subsidiaries and Affiliates (but excluding members of the Committee and
any person who serves only as a director) who are responsible for or contribute
to the management, growth or profitability of the business of the Corporation
and its Subsidiaries and Affiliates are eligible to be granted awards under the
Plan. Incentive Stock Options may only be granted to persons who are employees
of the Corporation or a Subsidiary of the Corporation.
5
<PAGE> 6
SECTION 5. OPTIONS.
(a) ADMINISTRATION. Options may be granted alone, in addition to or in
tandem with other awards granted under the Plan. Any Option granted under the
Plan shall be in such form as the Committee may from time to time approve.
Options granted under the Plan may be of two types: (i) Incentive Stock
Options and (ii) Non-Qualified Stock Options. Incentive Stock Options may be
granted only to individuals who are employees of the Corporation or any
Subsidiary of the Corporation.
The Committee shall have the authority to grant to any optionee
(subject to the limitation set forth in the paragraph above) Incentive Stock
Options, Non-Qualified Stock Options, or both types of Options (in each case
with or without Stock Appreciation Rights).
(b) TERMS AND CONDITIONS. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable.
(i) Option Price. The option price per share of Common Stock
purchasable under an Option shall be determined by the Committee at the
time of grant but shall be not less than 100% (or, in the case of any
employee who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Corporation or of any of
its subsidiary or parent corporations, not less than 110%) of the Fair
Market Value of the Common Stock at grant, in the case of Incentive
Stock Options, and not less than 50% of the Fair Market Value of the
Common Stock at grant, in the case of Non-Qualified Stock Options.
(ii) Option Term. The term of each Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more
than ten years (or, in the case of an employee who owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation or any of its subsidiary or parent
corporations, more than five years) after the date the Option is
granted.
(iii) Exercisability. Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that
except as provided in Section 5(b)(vii), (viii) and (ix) hereof and
Section 9 hereof, unless otherwise determined by the Committee at or
after grant, no Option shall be exercisable prior to the first
anniversary date of the granting of the Option. The Committee may
provide that an Option shall vest over a period of future service at a
rate specified at the time of grant, or that the Option is
6
<PAGE> 7
exercisable only in installments. If the Committee provides, in its
sole discretion, that any Option is exercisable only in installments,
the Committee may waive such installment exercise provisions at any
time at or after grant in whole or in part, based on such factors as
the Committee shall determine, in its sole discretion. The Committee
may establish performance conditions or other conditions to the
exercisability of any Options, as determined by the Committee in its
sole discretion, which conditions may be waived by the Committee in its
sole discretion.
(iv) Method of Exercise. Subject to whatever installment or
other exercise restrictions apply under Section 5(b)(iii) hereof,
Options may be exercised in whole or in part at any time during the
option period, by giving written notice of exercise to the Corporation
specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by check, note or such other instrument as the
Committee may accept. As determined by the Committee, in its sole
discretion, at or (except in the case of an Incentive Stock Option)
after grant, payment in full or in part may also be made in the form of
unrestricted shares of Common Stock already owned by the optionee or,
in the case of the exercise of a Non-Qualified Stock Option, Common
Stock or Restricted Stock subject to an award hereunder (based in each
case, on the Fair Market Value of the Common Stock on the date the
option is exercised, as determined by the Committee). If payment of the
exercise price is made in part or in full with shares of Common Stock,
the Committee may (subject to the availability of additional shares
reserved for issuance under Section 3 above) award to the optionee a
new Option to replace the shares of Common Stock which were
surrendered.
If payment of the option exercise price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted
Stock, the Common Stock received upon exercise shall be restricted in
accordance with the original terms of the Restricted Stock award in
question, and any additional shares of Common Stock received upon the
exercise shall be subject to the same forfeiture restrictions, unless
otherwise determined by the Committee, in its sole discretion, at or
after grant.
No shares of Common Stock shall be issued until full payment
therefor has been made. An optionee shall generally have the rights to
dividends or other rights of a shareholder with respect to shares
subject to the Option when the optionee has given written notice of
exercise, has paid in full for such shares, and, if requested, has
given the representation described in Section 12(a) hereof.
(v) Non-Transferability of Incentive Stock Options.
Notwithstanding any other provision of this Plan, no Incentive Stock
Option shall be transferable by the optionee otherwise than by will or
by the laws of descent and distribution, and all
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Incentive Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
(vi) Bonus for Taxes. In the case of a Non-Qualified Stock
Option, the Committee in its discretion may award at the time of grant
or thereafter the right to receive upon exercise of such Option a cash
bonus calculated to pay part or all of the federal and state, if any,
income tax incurred by the optionee upon such exercise.
(vii) Termination by Death. Subject to Section 5(b)(xi)
hereof, if an optionee's employment by the Corporation and any
Subsidiary or (except in the case of an Incentive Stock Option)
Affiliate terminates by reason of death, any Option held by such
optionee may thereafter be exercised, to the extent such Option was
exercisable at the time of death or (except in the case of an Incentive
Stock Option) on such accelerated basis as the Committee may determine
at or after grant (or except in the case of an Incentive Stock Option,
as may be determined in accordance with procedures established by the
Committee) by the legal representative of the estate or by the legatee
of the optionee under the will of the optionee, for a period of one
year (or such shorter period as the Committee may specify at grant)
from the date of such death or until the expiration of the stated term
of such Option, whichever period is the shorter.
(viii) Termination by Reason of Disability. Subject to Section
5(b)(xi) hereof, if an optionee's employment by the Corporation and any
Subsidiary or (except in the case of an Incentive Stock Option)
Affiliate terminates by reason of Disability, any Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or (except in the case of an
Incentive Stock Option) on such accelerated basis as the Committee may
determine at or after grant (or, except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee), for a period of (A) three years (or such
shorter period as the Committee may specify at grant) from the date of
such termination of employment or until the expiration of the stated
term of such Option, whichever period is the shorter, in the case of a
Non-Qualified Stock Option and (B) one year from the date of
termination of employment or until the expiration of the stated term of
such Option, whichever period is shorter, in the case of an Incentive
Stock Option; provided, however, that, if the optionee dies within the
period specified in clause (A) above (or such other period as the
Committee shall specify at grant), any unexercised Non-Qualified Stock
Option held by such optionee shall thereafter be exercisable to the
extent to which it was exercisable at the time of death for a period of
twelve months from the date of such death or until the expiration of
the stated term of such Option, whichever period is the shorter. In the
event of termination of employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the
exercise period applicable to Incentive Stock Options, but before the
expiration of any period that would apply if such Stock Option
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were a Non-Qualified Stock Option, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(ix) Termination by Reason of Retirement. Subject to Section
5(b)(xi) hereof, if an optionee's employment by the Corporation and any
Subsidiary or (except in the case of an Incentive Stock Option)
Affiliate terminates by reason of Normal or Early Retirement, any
Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of such
Retirement or (except in the case of an Incentive Stock Option) on such
accelerated basis as the Committee may determine at or after grant (or,
except in the case of an Incentive Stock Option, as may be determined
in accordance with procedures established by the Committee), for a
period of (A) three years (or such shorter period as the Committee may
specify at grant) from the date of such termination of employment or
the expiration of the stated term of such Option, whichever period is
the shorter, in the case of a Non-Qualified Stock Option and (B) three
months from the date of such termination of employment or the
expiration of the stated term of such Option, whichever period is the
shorter, in the event of an Incentive Stock Option; provided, however,
that, if the optionee dies within the period specified in clause (A)
above (or such shorter period as the Committee may specify at grant),
any unexercised Non-Qualified Stock Option held by such optionee shall
thereafter be exercisable, to the extent to which it was exercisable at
the time of death, for a period of 12 months from the date of such
death or until the expiration of the stated term of such Option,
whichever period is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise period applicable to
Incentive Stock Options, but before the expiration of the period that
would apply if such Stock Option were a Non-Qualified Stock Option, the
option will thereafter be treated as a Non-Qualified Stock Option.
(x) Other Termination. Unless otherwise determined by the
Committee (or pursuant to procedures established by the Committee) at
or (except in the case of an Incentive Stock Option) after grant, if an
optionee's employment by the Corporation and any Subsidiary or (except
in the case of an Incentive Stock Option) Affiliate is involuntarily
terminated for any reason other than death, Disability or Normal or
Early Retirement, the Option shall thereupon terminate, except that
such Option may be exercised, to the extent otherwise then exercisable,
for the lesser of three months or the balance of such Option's term if
the involuntary termination is without Cause. For purposes of this
Plan, "Cause" means (A) a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony, or (B) a
participant's willful misconduct or dishonesty, which is directly and
materially harmful to the business or reputation of the Corporation or
any Subsidiary or Affiliate. If an optionee voluntarily terminates
employment with the Corporation and any Subsidiary or (except in the
case of an Incentive Stock Option) Affiliate (except for Disability,
Normal or Early Retirement), the Option shall thereupon terminate;
provided, however, that the
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Committee at grant or (except in the case of an Incentive Stock Option)
thereafter may extend the exercise period in this situation for the
lesser of three months or the balance of such Option's term.
(xi) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the Code, or, without the
consent of the optionee(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
No Incentive Stock Option shall be granted to any participant
under the Plan if such grant would cause the aggregate Fair Market
Value (as of the date the Incentive Stock Option is granted) of the
shares of Common Stock with respect to which all Incentive Stock
Options are exercisable for the first time by such optionee during any
calendar year (under all such plans of the Corporation and any
Subsidiary) to exceed $100,000.
To the extent permitted under Section 422 of the Code or the
applicable regulations thereunder or any applicable Internal Revenue
Service pronouncement:
a. if the exercise of an Incentive Stock Option
is accelerated by reason of a Change in Control, any portion
of such option that is not exercisable as an "incentive stock
option" under Section 422 of the Code by reason of the
$100,000 limitation contained in Section 422(d) of the Code
shall be treated as a Non-Qualified Stock Option;
b. if for any other reason the portion of any
Incentive Stock Option that is otherwise exercisable without
regard to the $100,000 limitation contained in Section 422(d)
of the Code, is greater than the portion of such option that
is immediately exercisable as an "incentive stock option"
under Section 422 of the Code, such excess shall be treated as
a Non-Qualified Stock Option; and
c. the Committee shall have the right, with the
consent of the optionee, to treat an Incentive Stock Option
that cannot be exercised, for any other reason, as an
"incentive stock option" under Section 422 of the Code as a
Non-Qualified Stock Option.
(xii) Performance and Other Conditions. The Committee may
condition the exercise of any Option upon the attainment of specified
performance goals or other factors as the Committee may determine, in
its sole discretion. Unless specifically provided in the option
agreement, any such conditional Option shall vest immediately
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<PAGE> 11
prior to its expiration if the conditions to exercise have not
theretofore been satisfied. The shares of Common Stock acquired
pursuant to any conditional Option shall not be transferable by an
optionee subject to Section 16(a) of the Exchange Act within six months
of the date such Option first becomes exercisable.
(xiii) Settlement Provisions. If the option agreement so
provides at grant or (except in the case of an Incentive Stock Option)
is amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the
shares to be issued with respect to the spread value of an exercised
Option take the form of Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value (as determined
by the Committee) of such Restricted Stock determined without regards
to the forfeiture restrictions involved.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted alone
or in conjunction with all or part of any Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of such Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, subject to such provisions as the
Committee may specify at grant where a Stock Appreciation Right is granted with
respect to less than the full number of shares covered by a related Option.
A Stock Appreciation Right may be exercised by the grantee, subject to
Section 6(b) hereof, in accordance with the procedures established by the
Committee for such purpose. Upon such exercise, the grantee shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b) hereof.
Options relating to exercised Stock Appreciation Rights shall no longer be
exercisable to the extent that the related Stock Appreciation Rights have been
exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Exercise Provisions for Tandem Grants. A Stock
Appreciation Right granted in conjunction with all or part of any
Option shall be exercisable only at such time or times and to the
extent that the Option to which it relates shall be exercisable in
accordance with the provisions of Section 5 and this Section 6 of the
Plan; provided,
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however, that any Stock Appreciation Right granted to a grantee subject
to Section 16(a) of the Exchange Act shall be subject to the further
limitations set forth in Section 6(b)(v) and, if applicable, Section
6(b)(vi) below.
(ii) Payment on Exercise. Upon the exercise of a Stock
Appreciation Right, a grantee shall be entitled to receive an amount in
cash or shares of Common Stock (or a combination of cash and shares of
Common Stock) equal in value to the excess of the Fair Market Value of
one share of Common Stock over the price per share specified in the
Stock Appreciation Right or related Option multiplied by the number of
shares in respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment.
(iii) Use of Authorized Shares. Upon the exercise of a Stock
Appreciation Right, any shares of Common Stock issued thereunder or
with respect to which a cash payment was made shall be deemed to have
been issued for the purpose of the limitation set forth in Section 3 of
the Plan on the number of shares of Common Stock to be issued under the
Plan.
(iv) Payment based on Change in Control Price. Unless
otherwise determined by the Committee at grant, in the event of a
Change in Control or a Potential Change in Control, the amount to be
paid upon the exercise of a Stock Appreciation Right shall be based on
the Change in Control Price, subject to such terms and conditions as
the Committee may specify at grant.
(v) Restrictions on Exercise by Persons Subject to Section
16(a). The exercise of Stock Appreciation Rights held by grantees who
are subject to Section 16(a) of the Exchange Act shall comply with Rule
16b-3(e) thereunder. In particular, such Stock Appreciation Rights
shall be exercisable only pursuant an irrevocable election made at
least six months prior to the date of exercise or within the applicable
ten business day "window" periods specified in Rule 16b-3(e)(3). Stock
Appreciation Rights held by grantees who are subject to Section 16(a)
of the Exchange Act shall not be exercisable for the first six months
after the date of grant.
(vi) Performance and Other Conditions. The Committee may
condition the exercise of any Stock Appreciation Right upon the
attainment of specified performance goals or other factors as the
Committee may determine, in its sole discretion. Unless specifically
provided in the applicable award agreement, any such conditional Stock
Appreciation Right shall vest immediately prior to its expiration, if
the conditions to exercise have not theretofore been satisfied. A
conditional Stock Appreciation Right held by a grantee subject to
Section 16(a) of the Exchange Act shall not be exercisable until the
expiration of six months following the satisfaction of the condition
giving rise to such Stock Appreciation Right.
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SECTION 7. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either
alone, in addition to or in tandem with other awards granted under the Plan. The
Committee shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares of
Restricted Stock to be awarded to any person, the price (if any) to be paid by
the recipient of Restricted Stock (subject to Section 7(b) hereof), the time or
times within which such awards may be subject to forfeiture, and the other
terms, restrictions and conditions of the awards in addition to those set forth
in Section 7(c) hereof.
The Committee may condition the grant or vesting of Restricted Stock
upon the attainment of specified performance goals or other factors as the
Committee may determine, in its sole discretion.
(b) AWARDS AND CERTIFICATES. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award, unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Corporation, and has otherwise
complied with the applicable terms and conditions of such award.
(i) Purchase Price. The purchase price for shares of
Restricted Stock shall be established by the Committee and may be zero.
(ii) Acceptance of Awards. Awards of Restricted Stock must be
accepted within a period of 60 days (or such shorter period as the
Committee may specify at grant) after the award date, by executing a
Restricted Stock award agreement and paying whatever price (if any) is
required under Section 7(b)(i) hereof.
(iii) Stock Certificates. Each participant receiving a
Restricted Stock award shall be issued a stock certificate in respect
of such shares of Restricted Stock. Such certificate shall be
registered in the name of such participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
(iv) Custody of Stock Certificates. The Committee shall
require that the stock certificates evidencing such shares be held in
custody by the Corporation until the restrictions thereon shall have
lapsed, and that, as a condition of any Restricted Stock award, the
participant shall have delivered a stock power, endorsed in blank,
relating to the shares of Common Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
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(i) Restriction Period. Subject to the provisions of this Plan
and the award agreement, during a period set by the Committee
commencing with the date of such award (the "Restriction Period"), the
participant shall not be permitted to sell, transfer, pledge, assign or
otherwise encumber shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee, in its sole discretion, may provide
for the lapse of such restrictions in installments and may accelerate
or waive such restrictions in whole or in part, based on service,
performance or other factors or criteria as the Committee may
determine, in its sole discretion.
(ii) Dividends. Except as provided in this paragraph (ii),
Section 7(c)(i) hereof and the award agreement, the participant shall
have, with respect to the shares of Restricted Stock, all of the rights
of a shareholder of the Corporation, including the right to vote the
shares, and the right to receive any cash dividends. The Committee, in
its sole discretion, as determined at the time of award, may permit or
require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested, subject to Section 12(e) hereof,
in additional Restricted Stock to the extent shares are available under
Section 3 hereof, or otherwise reinvested. Pursuant to Section 3
hereof, stock dividends issued with respect to Restricted Stock shall
be treated as additional shares of Restricted Stock that are subject to
the same restrictions and other terms and conditions that apply to the
shares of Restricted Stock with respect to which such dividends are
issued.
(iii) Vesting and Forfeiture. Subject to the applicable
provisions of the award agreement and this Section 7, upon termination
of a participant's employment with the Corporation and any Subsidiary
or Affiliate for any reason during the Restriction Period, all shares
still subject to restriction will vest, or be forfeited, in accordance
with the terms and conditions established by the Committee at or after
grant.
(iv) Delivery of Shares on Termination of Restriction Period.
If and when the Restriction Period expires without a prior forfeiture
of the Restricted Stock subject to such Restriction Period,
certificates for an appropriate number of unrestricted shares shall be
delivered to the participant promptly.
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) ADMINISTRATION. Other Stock-Based Awards valued by reference to
shares of Common Stock may be granted either alone or in addition to or in
tandem with Options, Stock Appreciation Rights or Restricted Stock granted under
the Plan; provided that no such Other Stock-Based Awards may be granted in
tandem with Incentive Stock Options if that would cause such Incentive Stock
Options not to qualify as "incentive stock options" pursuant to Section 422 of
the Code.
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Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the number of shares of Common Stock to be awarded
pursuant to such awards, and all other conditions of the awards. The Committee
may also provide for the grant of shares of Common 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.
(b) TERMS AND CONDITIONS. Other Stock-Based Awards made pursuant to
this Section 8 shall be subject to the following terms and conditions:
(i) Restriction on Transfer. Subject to the provisions of this
Plan and the award agreement referred to in Section 8(b)(v) below,
shares subject to awards under this Section 8 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.
(ii) Dividends and Interest. Subject to the provisions of this
Plan and the award agreement and unless otherwise determined by the
Committee at grant, the recipient of an award under this Section 8
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 shares of Common Stock or otherwise
reinvested.
(iii) Vesting and Forfeiture. Any award under this Section 8
and any shares of Common 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.
(iv) Waiver of Vesting or Forfeiture Provisions. In the event
of 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
Section 8.
(v) Awards Agreements. Each award under this Section 8 shall
be confirmed by, and subject to the terms of, an agreement between the
Corporation and the participant.
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(vi) Purchase Price. Shares of Common Stock (including
securities convertible into shares of Common Stock) issued on a bonus
basis under this Section 8 may be issued for no cash consideration. The
purchase price of shares of Common Stock (including securities
convertible into shares of Common Stock) purchased pursuant to a
purchase right awarded under this Section 8 shall be determined by the
Committee in its sole discretion on the date of grant.
SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. In the event of a Change in Control or Potential
Change in Control, the following acceleration and valuation provisions shall
apply if so determined by the Committee in its sole discretion:
(i) Acceleration of Vesting. Any Stock Appreciation Rights and
any Option awarded under the Plan not previously exercisable and vested
shall become fully exercisable and vested; provided, however, that
Stock Appreciation Rights held by persons subject to Section 16(a)
under the Exchange Act shall not become exercisable until six months
after the date of grant.
(ii) Lapse of Other Restrictions. The restrictions and
deferral limitations applicable to any Restricted Stock and Other
Stock-Based Awards, in each case to the extent not already vested under
the Plan, shall lapse and such shares and awards shall be deemed fully
vested.
(iii) Cash-Out Provisions. Except as otherwise provided in
Section 9(a)(iv) below, the value of all outstanding Options, Stock
Appreciation Rights, Restricted Stock and Other Stock-Based Awards
shall, unless otherwise determined by the Committee in its sole
discretion at or (except in the case of an Incentive Stock Option)
after grant but prior to any Change in Control, be cashed out on the
basis of the Change in Control Price 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.
(iv) Cash-Out Provisions for Statutory Insiders. In the case
of any Options, Stock Appreciation Rights, Restricted Stock and Other
Stock-Based Awards held by any person subject to Section 16(a) of the
Exchange Act, the value of all such Options, Stock Appreciation Rights,
Restricted Stock or Other Stock-Based Awards, in each case to the
extent that they have been held for at least six months, shall be
cashed out on the basis of the Change in Control Price as of the date
of such Change in Control or such Potential Change in Control is
determined to have occurred. The Committee shall have the right (A) to
cause any right to receive the Change in Control Price to be canceled
with respect to all or any grantee(s) who are subject to Section 16(a)
of the
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Exchange Act if payment of the Change in Control Price to such
grantee(s) would cause liability under Section 16 of the Exchange Act,
and (B) to determine whether the change in Control Price shall be paid
in cash or in shares of capital stock (including the capital stock of
any acquiring corporation) to grantees who are subject to Section 16(a)
of the Exchange Act.
(b) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" means the
happening of any of the following:
(i) any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than the Corporation or a
wholly-owned subsidiary thereof or any employee benefit plan of the
Corporation or any of its Subsidiaries, becomes the beneficial owner of
the Corporation's securities having 20% or more of the combined voting
power of the then outstanding securities of the Corporation that may be
cast for the election of directors of the Corporation (other than as a
result of an issuance of securities initiated by the Corporation in the
ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender
or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing
transactions, less than a majority of the combined voting power of the
then outstanding securities of the Corporation or any successor
corporation or entity entitled to vote generally in the election of the
directors of the Corporation or such other corporation or entity after
such transaction are held in the aggregate by the holders of the
Corporation's securities entitled to vote generally in the election of
directors of the Corporation immediately prior to such transaction; or
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Corporation's shareholders, of
each director of the Corporation first elected during such period was
approved by a vote of at least two-thirds of the directors of the
Corporation then still in office who were directors of the Corporation
at the beginning of such period.
(c) DEFINITION OF POTENTIAL CHANGE IN CONTROL. A "Potential Change in
Control" means the happening of any one of the following:
(i) The approval by shareholders of an agreement by the
Corporation, the consummation of which would result in a Change in
Control of the Corporation; or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Corporation
or a Subsidiary or any Corporation employee benefit plan (including any
trustee of such plan acting as such trustee)) of
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securities of the Corporation representing 10% or more of the combined
voting power of the Corporation's outstanding securities and the
adoption by the Committee of a resolution to the effect that a
Potential Change in Control of the Corporation has occurred for
purposes of this Plan.
(d) CHANGE IN CONTROL PRICE. The "Change in Control Price" means the
highest price per share paid in any transaction reported on The Nasdaq Stock
Market's National Market or such other exchange or market as is the principal
trading market for the Common Stock, or paid or offered in any bona fide
transaction related to a Change in Control or Potential Change in Control of the
Corporation 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 relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such
Incentive Stock Option or Stock Appreciation Rights or, where applicable, the
date on which a cash out occurs under Section 9(a)(iii) or (iv) hereof.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under an Option, Stock Appreciation Right, Restricted
Stock award or Other Stock-Based Award theretofore granted, without the
optionee's or participant's consent. In addition, no amendment or alteration
shall be made without the approval of the Corporation's shareholders, if such
amendment or alteration would:
(a) except as provided in Section 3(b) of the Plan, increase
the total number of shares of Common Stock reserved for the purpose of
the Plan;
(b) materially increase the benefits accruing to participants
under the Plan; or
(c) materially modify the requirements as to eligibility for
participation in the Plan.
The Committee may amend the terms of any Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section
3(b) above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Options for previously
granted Options (on a one for one or other basis), including previously granted
Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
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SECTION 11. UNFUNDED STATUS OF PLAN.
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 or optionee by the Corporation, nothing contained herein shall give
any such participant or optionee any rights that are greater than those of a
general creditor of the Corporation. 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 Common 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.
SECTION 12. GENERAL PROVISIONS.
(a) SECURITIES LAW RESTRICTIONS. The Committee may require each person
purchasing shares of Common Stock pursuant to an Option or other award under the
Plan to represent to and agree with the Corporation in writing that the optionee
or participant is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock or other securities
delivered under the Plan shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Commission, any stock exchange upon
which the Common Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(b) OTHER COMPENSATION ARRANGEMENTS. Nothing contained in this Plan
shall prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
(c) NO RIGHT TO CONTINUED EMPLOYMENT. The adoption of the Plan shall
not confer upon any employee of the Corporation or any Subsidiary or Affiliate
any right to continued employment with the Corporation or a Subsidiary or
Affiliate, as the case may be, nor shall it interfere in any way with the right
of the Corporation or a Subsidiary or Affiliate to terminate the employment of
any of its employees at any time.
19
<PAGE> 20
(d) WITHHOLDING. No later than the date as of which an amount first
becomes includible in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Corporation, or make arrangements satisfactory to the Committee regarding
the payment of, any Federal, state, or local taxes of any kind required by law
to be withheld with respect to such amount. The Committee may require
withholding obligations to be settled with shares of Common Stock, including
shares of Common Stock that are part of the award that gives rise to the
withholding requirement. The obligations of the Corporation under the Plan shall
be conditional on such payment or arrangements and the Corporation and its
Subsidiaries or Affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(e) DIVIDENDS. The actual or deemed reinvestment of dividends or
dividend equivalents in additional Restricted Stock (or other types of Plan
awards) at the time of any dividend payment shall only be permissible if
sufficient shares of Common Stock are available under Section 3 hereof for such
reinvestment (taking into account then outstanding Options and other Plan
awards).
(f) RESTRICTIONS ON TRANSFER. Unless determined otherwise by the
Committee, in addition to any other restrictions on transfer that may be
applicable under the terms of this Plan or the applicable award agreement, no
Option, Stock Appreciation Right, Restricted Stock award, or Other Stock-Based
Award or other right issued under this Plan is transferable by the participant
other than by will or the laws of descent and distribution or pursuant to a
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended. The designation of a
beneficiary will not constitute a transfer. If the Committee makes a
Non-Qualified Stock Option (including any currently outstanding Non-Qualified
Stock Option) transferable, such Non-Qualified Stock Option shall contain such
additional terms and conditions as the Committee deems appropriate.
(g) GOVERNING LAW. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Tennessee, without regard to the principles of conflicts of law
thereof.
(h) BUYOUT PROVISIONS. The Committee may at any time offer to buy out
for a payment in cash, shares of Common Stock, or Restricted Stock an Option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the optionee at the time that such offer is made.
(i) AWARD PROVISIONS MAY DIFFER. The provisions of awards need not be
the same with respect to each recipient.
(j) LIABILITY AND INDEMNIFICATION OF BOARD AND COMMITTEE MEMBERS. The
members of the Committee and the Board shall not be liable to any employee or
other person
20
<PAGE> 21
with respect to any determination made hereunder in a manner that is not
inconsistent with their legal obligations as members of the Board. In addition
to such other rights of indemnification a they may have as directors or as
members of the Committee, the members of the Committee shall be indemnified by
the Corporation against the reasonable expenses, including attorneys' fees
actually and necessarily incurred in connection with the defense of any action,
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 option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence or misconduct in
the performance of his duties; provided that within 60 days after institution of
any such action, suit or proceeding, the Committee member shall in writing offer
the Corporation the opportunity, at its own expense, to handle and defend the
same.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board and approved by the sole shareholder
of the Corporation on February 2, 1995. The Plan was subsequently amended as of
March 6, 1996 by the Company's shareholders and by the Board of Directors on
February 21, 1997. The Plan became effective June 7, 1995.
SECTION 14. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock award or
Other Stock-Based Award shall be granted pursuant to the Plan on or after the
tenth anniversary of the date of adoption of the Plan by the Board, but awards
granted prior to such tenth anniversary may be extended beyond that date.
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<PAGE> 1
EXHIBIT 10.19
[*] --Certain information omitted and filed separately with the Commission
pursuant to a confidential treatment request under Commission Rule 24b-2.
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made as of the 1st day
of January, 2000 by and between Quintiles Transnational Corp., a North Carolina
corporation (the "Company") and A. M. Pappas & Associates, LLC, a North Carolina
limited liability company ("AMP&A").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the international contract
healthcare services business (the "Business"); and
WHEREAS, AMP&A has experience beneficial to the Company's
Business and has access to a network of business associates and consultants
("Associates") with experience beneficial to the Company's Business; and
WHEREAS, the Company desires to engage AMP&A to provide
certain consulting services to the Company on the terms and conditions set forth
herein; and
WHEREAS, AMP&A desires to provide consulting services to the
Company as an independent contractor and is willing to do so on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the Company and AMP&A agree as follows:
ARTICLE I
CONSULTING SERVICES
Section 1.01 Engagement. On the terms and subject to the conditions
hereinafter set forth, the Company hereby engages AMP&A to perform consulting
services with respect to the operational, strategic and organizational
development aspects of the Company's Business and on such basis AMP&A hereby
agrees to provide advice and consultation to the Company as set forth on
Schedule A hereto. Notwithstanding any provision in this Agreement to the
contrary, neither AMP&A nor Arthur M. Pappas makes any commitment herein to
invest in or provide financing to the Company. AMP&A is not an investment
company or a broker dealer, and shall not engage hereunder in effecting or
attempting to effect purchases or sales of the Company's securities.
Section 1.02 Status of AMP&A. The Parties hereby acknowledge and agree
that AMP&A will be an independent contractor to the Company and shall have the
responsibility to provide all necessary employees, agents or consultants to
properly perform its obligations hereunder.
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<PAGE> 2
(a) AMP&A understands that it is responsible to pay its own
income tax in accordance with United States law as well as all applicable state
and local taxes. AMP&A further understands that it may be liable for Social
Security ("FICA") tax, to be paid in accordance with all applicable laws with
respect to its own employees.
(b) The Company will not be required to withhold state and
Federal income taxes, or to make payments for FICA, unemployment insurance or
any other payroll taxes, with regard to any employees, agents or consultants of
AMP&A.
(c) Consistent with its duties and obligations under this
Agreement, AMP&A shall at all times maintain sole and exclusive control and
discretion over its business, operations, employees, agents, and consultants and
the manner of performance of the services required to be rendered by AMP&A
hereunder, including with respect to staffing and resource allocation. All
decisions regarding whether or what assistance AMP&A will enlist in performing
services pursuant to this Agreement will be entirely within the discretion of
AMP&A, which will be free to employ or engage any person, firm, corporation or
other entity to assist AMP&A in performing services pursuant to this Agreement,
subject only to the requirements of Section 3.01 hereof regarding the disclosure
of confidential information, and to the requirements of Section 2.01(c)
regarding the services of AMP&A employees.
(d) The Company shall not be responsible for and shall not
obtain worker's compensation, disability benefits insurance, unemployment or
employment security insurance coverage for any person whom AMP&A shall employ or
engage to assist AMP&A in performing services pursuant to this Agreement. To the
extent that any such insurance coverage, or any other type of insurance
coverage, is or shall become required by law, it will be obtained by AMP&A at
its own expense.
(e) AMP&A is not eligible for, nor entitled to, and shall not
participate in, any of the Company's pension, health or other fringe benefit
plans, if any such plans exist, such participation in these fringe benefit plans
being limited solely to the Company's employees.
(f) At no time will either party hold itself out to be the
employer, employee, lessee, sublessee, partner or joint venturer of the other
party. Neither party hereto shall have the express or implied right or authority
to assume or create any obligation on behalf of or in the name of the other
party, or to bind the other party in regard to any contract, agreement or
undertaking with any third party, unless otherwise agreed in a writing signed by
both parties.
(g) AMP&A and its agents, employees and contractors retain the
right to perform work for others during the term of this Agreement, including
work of the same kind as contemplated hereunder, pursuant to Section 3.03
hereof.
Section 1.03. Information about the Company. The Company shall
cooperate with AMP&A and provide to AMP&A all such materials and information
regarding the Company and its business and financial condition as AMP&A may
request from time to time during and in connection with AMP&A's engagement
hereunder. The Company acknowledges that AMP&A will rely primarily upon
information so provided, without any independent investigation, and that AMP&A
does not assume any responsibility for the accuracy or completeness thereof.
Section 1.04. Attendance at Meetings. At the Company's request, AMP&A
shall use its reasonable best efforts to cause Arthur M. Pappas, President of
AMP&A, or another employee
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<PAGE> 3
or consultant acceptable to the Company to attend the Company's Board of
Directors meetings and other meetings and conferences.
ARTICLE II
COMPENSATION AND INDEMNIFICATION
Section 2.01 Consulting Fee.
(a) The Company shall pay AMP&A for the direct services of its
President, Arthur M. Pappas, ************ for each day of consulting work in the
United States (each, a "USA Work Day") and ************* for each day of
consulting work in markets other than the United States (each, an "International
Work Day"); provided, however, that (i) the minimum aggregate consulting fee
(exclusive of expenses) payable by the Company to AMP&A per Contract Year shall
be Two Hundred Thousand Dollars ($200,000); and (ii) AMP&A shall not invoice the
Company for (or be required to render services of Arthur M. Pappas in respect
of) such fees in excess of $220,000 during any Contract Year without the prior
approval of the person designated by the Company to receive notices under
Section 4.03 of this Agreement (or by any other person so designated by the
Company). Collectively, USA Work Days and International Work Days shall be
referred to herein as "Work Days". Each USA Work Day shall consist of eight (8)
accumulated hours of consulting time and each International Work Day shall
consist of ten (10) accumulated hours of consulting time, which shall include
travel on behalf of or at the request of the Company. As used in this Agreement,
the term "Contract Year" shall mean any twelve (12) month period beginning on
the date of this Agreement or on any anniversary thereof. The Company and AMP&A
shall review and renegotiate in good faith on a semi-annual basis the consulting
fees set forth above in this Section 2.01(a).
(b) At the Company's reasonable request, as evidenced by the
prior approval of the person designated by the Company to receive notices under
Section 4.03 of this Agreement (or by any other person so designated by the
Company), AMP&A will provide the services of other AMP&A employees and
associates (in addition to Arthur M. Pappas) and the Company shall pay AMP&A for
such services at AMP&A's normal and customary billing rates. Payment for
services provided by AMP&A employees and associates other than Arthur M. Pappas
shall not apply toward the minimum aggregate consulting fee set forth in Section
2.01(a), nor shall such services be subject to the maximum aggregate consulting
fee that can be billed without the Company's prior consent.
(c) The Company upon receipt of an invoice shall pay AMP&A
SIXTEEN THOUSAND SIX HUNDRED SIXTY-SIX DOLLARS ($16,666.00) per month, payable
in advance on the first day of each month (the "Retainer Fee"). Promptly
following the end of each month, AMP&A shall provide the Company with a
statement showing the total fee for services rendered during such month. Such
fees shall be calculated in accordance with the consulting rates specified in
this Section 2.01. In the event that the fee based upon services rendered
exceeds the Retainer Fee, the Company shall pay AMP&A the difference within
fifteen (15) days of receipt of invoice. In the event that the aggregate
Retainer Fee for a calendar quarter exceeds the total fees invoiced based upon
services rendered during such period, AMP&A shall (i) credit the difference to
the Company in the form of services that AMP&A shall perform without further
charge during the succeeding six month period or (ii) in the event of
termination of this Agreement for any reason, AMP&A shall promptly refund the
difference to the Company.
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<PAGE> 4
(d) In the event of termination of this Agreement for any
reason, AMP&A shall render a final invoice, due and payable promptly following
receipt by the Company, for all services performed by AMP&A prior to termination
and for all expenses incurred or committed to by AMP&A prior to termination.
(e) Except as otherwise provided, the Company shall pay all
compensation to AMP&A pursuant to this Agreement in United States dollars.
Section 2.02 Expenses. The Company shall reimburse AMP&A within fifteen
(15) days of receipt of AMP&A's invoice for all reasonable out-of-pocket and
administrative expenses incurred by AMP&A in performing services pursuant to
this Agreement, including, without limitation, travel, food, lodging, telephone
and telecopier expenses, as well as the fees and expenses of any third party
consultants engaged by AMP&A in connection with rendering services hereunder.
Section 2.03 Limited Liability. With regard to the services to be
performed by AMP&A (which term shall include its affiliates and its and their
respective officers, directors, employees, agents and consultants in this
Section 2.03) pursuant to the terms of this Agreement, AMP&A shall not be liable
in any manner whatsoever under this Agreement or otherwise to the Company, or to
anyone who may claim any right due to AMP&A's relationship with the Company,
except for damages determined in a final judgment by a court of competent
jurisdiction to have resulted from actions taken or omitted due to AMP&A's
willful misconduct, gross negligence or knowing violation of law.
Notwithstanding the foregoing, AMP&A shall not have any liability for any
special, incidental or consequential damages, including without limitation
damages for any loss of opportunity, revenue or profit, for or in connection
with the engagement contemplated hereby or the existence, furnishing,
functioning, use or application of any information, data, documentation, work
product, conclusion, recommendation or report provided pursuant to this
Agreement, regardless of whether AMP&A shall have been advised or should have
known of the possibility of such damages. **************** The parties agree
that this limitation of liability shall apply to services performed by AMP&A
hereunder, and not to provisions of this Agreement generally, including, without
limitation, observance of Section 3.01 below.
Section 2.04 Indemnification.
(a) The Company shall indemnify and hold AMP&A (which term
shall include its affiliates and its and their employees, agents and consultants
in this Section 2.04) free and harmless to the full extent permitted by law or
in equity, for and from any and all losses, obligations, liabilities, damages,
costs, expenses, claims, actions, judgments, attorneys' fees and attachments,
joint or several, arising from or in connection with third-party claims under
this Agreement or any third-party claim, matter or transaction occurring prior
to the date hereof related to AMP&A's services hereunder, except to the extent
the same shall be determined in a final judgment by a court of competent
jurisdiction to have resulted from actions taken or omitted due to AMP&A's
willful misconduct, gross negligence or knowing violation of law.
(b) Subject to Section 2.03, AMP&A shall indemnify and hold
the Company (which term shall include its affiliates and its and their
employees, agents and consultants in this Section 2.04) free and harmless to the
full extent permitted by law or in equity, for and from any and all losses,
obligations, liabilities, damages, costs, expenses, claims, actions,
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<PAGE> 5
judgments, attorneys' fees and attachments, joint or several, arising from or in
connection with third-party claims under this Agreement or any third-party
claim, matter or transaction occurring prior to the date hereof related to
AMP&A's services hereunder, but only to the extent the same shall be determined
in a final judgment by a court of competent jurisdiction to have resulted from
actions taken or omitted due to AMP&A's willful misconduct, gross negligence or
knowing violation of law.
(c) At its option, the Company shall defend AMP&A against any
such claim or action or obtain separate counsel for AMP&A. If AMP&A is provided
separate counsel, the fees and expenses of such counsel shall be indemnified
expenses hereunder. The Company further agrees that it will not, without the
prior written consent of AMP&A, settle, compromise, or consent to entry of
judgment in respect of any matter for which AMP&A may seek indemnification
hereunder unless AMP&A is the beneficiary of a general release from any and all
liability in connection therewith.
(d) At its option, AMP&A shall defend the Company against any
such claim or action or obtain separate counsel for the Company. If the Company
is provided separate counsel, the fees and expenses of such counsel shall be
indemnified expenses hereunder. AMP&A further agrees that it will not, without
the prior written consent of the Company, settle, compromise, or consent to
entry of judgment in respect of any matter for which the Company may seek
indemnification hereunder unless the Company is the beneficiary of a general
release from any and all liability in connection therewith.
Section 2.05 Certain Acts. The parties understand and agree that the
limitations on liability contained in Section 2.03 and the Company's
indemnification contained in Section 2.04(a), as well as the limitation of
AMP&A's indemnification in Section 2.04(b), shall not apply to acts arising from
AMP&A's violation of Section 3.01 hereof or to any AMP&A employee's violation of
duties of a director of the Company.
Section 2.06 Force Majeure. AMP&A shall not be liable to the Company
nor be deemed to have defaulted under or breached this Agreement for any
failures, errors, delays or other conditions or consequences arising from or
caused by events beyond AMP&A's control, including, without limitation,
sabotage, failures or delays in transportation, equipment or communication,
labor disputes, accidents or acts of nature.
ARTICLE III
DISCLOSURE AND BUSINESS OPPORTUNITIES
Section 3.01 Disclosure of Confidential Information.
(a) In the course of AMP&A's engagement hereunder, AMP&A may
have access to confidential information and trade secrets relating to the
Company's business. During the term of this Agreement and thereafter for a
period of five (5) years, AMP&A shall not directly or indirectly disclose to any
third person any such confidential information or trade secrets without the
Company's prior consent, except as required by law or in the course of AMP&A's
engagement hereunder.
(b) The following information shall not be considered
confidential or secret:
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<PAGE> 6
(i) Information which is already or hereafter becomes
generally available to the public, except as a result of the
breach of AMP&A's duty of confidentiality hereunder.
(ii) Information which AMP&A received from a third
party which had the right to possess and to disclose the
information.
(iii) The existence of this Agreement and the
consulting relationship between AMP&A and the Company.
Section 3.02 Disclosure of Consulting Relationship. AMP&A shall have
the right to disclose the existence of this consulting relationship with the
Company pursuant to this Agreement; provided, however, that AMP&A shall not
disclose any confidential information or trade secrets of the Company covered by
Section 3.01 hereof, and that any disclosures to the media shall be made only
with the consent of the Company.
Section 3.03 Other Business Opportunities. Neither this Agreement nor
any policy of the Company shall prevent or restrict AMP&A from engaging in any
other business activities for its own account or on behalf of others including,
without limitation, business activities of the type conducted by the Company, or
from investing in or performing any consultation services for any other
individual or entity including, without limitation, investing in or performing
the type of consultation provided under or contemplated by this Agreement for
any individual or entity engaged in business activities of the type conducted by
the Company. AMP&A shall inform the Company of all other individuals and
entities engaged in business activities of the type conducted by the Company for
whom AMP&A provides or intends to provide consultation services, or with whom
AMP&A holds a directorate. The Company acknowledges and agrees that (a) AMP&A
may obtain information about other companies and persons in the course of
AMP&A's activities therewith; (b) except with such companies' or persons'
consent, AMP&A will not make such information available to the Company, nor will
AMP&A make any such information about the Company available to such companies or
persons except as permitted by this Agreement; and (c) the Company shall not
assert any claim or defense against AMP&A for AMP&A's failure to furnish any
such information to the Company or by reason of AMP&A's activities with such
other companies and persons.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Termination. This Agreement shall remain in effect for one
(1) year from the date hereof, provided, however, that either party may
terminate this Agreement upon two (2) weeks' written notice to the other if the
parties are unable to renegotiate AMP&A's consulting fee rates to the parties'
mutual good faith satisfaction pursuant to Section 2.01(a) above. AMP&A shall
render a final invoice upon termination as provided in Section 2.01 above.
Section 4.02 Severability. If any provision or portion of this
Agreement is judicially or administratively interpreted or construed as being in
violation of controlling law in any jurisdiction, such provision or portion
shall be inoperative in such jurisdiction and the remainder
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of this Agreement shall remain binding upon the parties hereto in such
jurisdiction with the Agreement as a whole unaffected elsewhere.
Section 4.03 Notices and Other Communications. Every notice required
under or contemplated by this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
one (1) day after deposit with any nationally recognized overnight carrier or
three (3) days after deposit with the U.S. Post Office by registered or
certified mail, postage prepaid and addressed to the party to be notified as
follows:
To AMP&A: A. M. Pappas & Associates, LLC
Chapel Hill-Nelson Hwy.
Beta Building, Suite 420
Durham, NC 27713
Attn.: Mr. Arthur M. Pappas
To the Company: Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Morrisville, NC 27560
Attn: John S. Russell
Senior Vice President and General Counsel
or at such other address as the intended recipient previously shall have
designated by written notice to the other party in like manner. It is the
responsibility of the party giving notice to obtain a receipt for delivery of
the notice, if that party considers such a receipt advisable.
Section 4.04 Counterparts. This Agreement may be executed in any number
of counterparts and each counterpart shall constitute an original instrument,
but all such separate counterparts shall constitute one and the same instrument.
Section 4.05 Law to Govern. The validity, construction and
enforceability of this Agreement shall be governed in all respects by the law of
the State of North Carolina without regard to its conflicts of laws rules and
the parties hereby irrevocably consent to the non-exclusive jurisdiction and
venue of the State and Federal courts located within North Carolina.
Section 4.06 Written Agreement to Govern. This Agreement sets forth the
entire understanding and supersedes all prior and contemporaneous agreements
between the parties relating to the subject matter contained herein and merges
all prior and contemporaneous discussions between them, and no party shall be
bound by any definition, condition, representation, warranty, covenant or
provision other than as expressly stated in or contemplated by this Agreement or
as subsequently shall be set forth in writing and executed by a duly authorized
representative of the party to be bound thereby.
Section 4.07 Assignability. Neither this Agreement nor any right or
obligation hereunder is assignable in whole or in part, whether by operation of
law or otherwise, by either party hereto without the express written consent of
the other party and any such attempted assignment shall be void and
unenforceable. Notwithstanding the above, AMP&A may assign all of its rights
hereunder to or cause services required of AMP&A hereunder to be performed by
any entity or association owned or controlled by AMP&A without the Company's
prior written
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consent. This Agreement and the rights and obligations hereunder shall be
binding upon, and shall inure to the benefit of any proper successor or
assignee.
Section 4.08 No Waiver of Rights. All waivers hereunder must be made in
writing, and failure of any party at any time to require another party's
performance of any obligation under this Agreement shall not affect the right
subsequently to require performance of that obligation. Any waiver of any breach
of any provision of this Agreement shall not be construed as a waiver of any
continuing or succeeding breach of such provision or a waiver or modification of
the provision.
Section 4.09 Attorneys' Fees. If any obligation to compensate AMP&A
arising out of this Agreement shall not be paid when due and AMP&A shall engage
an attorney to collect that indebtedness, the Company shall be liable to pay to
the AMP&A reasonable attorneys' fees as well as all other costs and expenses
incurred with respect to the collection of that indebtedness.
Section 4.10 Subject Headings. The subject headings of the Articles and
Sections of this Agreement are included for the purposes of convenience only,
and shall not affect the construction or interpretation of any of the provisions
of this Agreement.
Section 4.11. Survival. Notwithstanding any provision in this Agreement
to the contrary, the provisions of Sections 2.01 (Consulting Fee) and 2.02
(Expenses) (but only as to amounts owing and accrued), 2.03 (Limited Liability),
2.04 (Indemnification), 3.01 (Disclosure of Confidential Information), 3.03
(Other Business Opportunities) and 4.12 (Non-Solicitation) hereof shall survive
any termination of this Agreement and AMP&A's engagement hereunder.
Section 4.12. Non-Solicitation. During the term of this Agreement and
for six (6) months after the termination hereof, the Company shall not, without
the payment to AMP&A of a separation fee in an amount equal to fifty percent
(50%) of such person's total compensation package being offered, but not less
than $1,000,000, directly or indirectly employ or otherwise engage any officer,
director, employee or agent of AMP&A or any of its affiliates.
Section 4.13. Dispute Resolution. Each party shall use its respective
best, good faith efforts to resolve amicably any dispute arising out of or in
any way relating to this Agreement or AMP&A's engagement by the Company. The
parties shall submit any such dispute not so resolved and concerning the
determination of AMP&A's fees hereunder to the accounting firm of Arthur
Andersen (or any other "Big Five" accounting firm upon which the parties shall
agree) for resolution, and such firm's determination shall be final and binding
upon the parties. The parties shall submit any other such dispute not so
resolved to mediation and, if necessary, binding arbitration administered in
Raleigh, North Carolina by the American Arbitration Association in accordance
with its then-current commercial rules. Subject to Section 4.05 above, any court
of competent jurisdiction may enter judgment upon any accounting determination
or arbitration award so made.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
COMPANY:
QUINTILES TRANSNATIONAL CORP.
By: /s/ John Russell
------------------------------------------
Name: John Russell
----------------------------------------
Title: Senior Vice President & General Counsel
---------------------------------------
A. M. PAPPAS & ASSOCIATES, LLC
By: /s/ Ford S. Worthy
------------------------------------------
Ford S. Worthy
Vice President
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SCHEDULE
A
SERVICES REQUESTED:
1. Assist in obtaining strategic referrals and developing Quintiles' core
business;
2. Assist in the development of Quintiles' business activities in the Asia
Pacific region and in other areas of the world as requested by the
Company.
3. Assist in the development of the emerging biotechnology company
strategy.
4. Assist in the general areas of operational, strategic and
organizational development and provide support as needed for
acquisitions, recruitment, etc.
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EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION
- --------------------------------------------------------------------------
<S> <C>
Action International Marketing Services Limited England
Alchemy Pharmaceuticals Pty. Limited Australia
AR-MED Limited England
Automated Revenue Management, Inc. Ohio
Benefit Canada Medico-Economic Studies, Inc. Canada
Benefit Holding, Inc. North Carolina
Benefit Research Italia S.r.l. Italy
Benefit Transnational Holding Corp. North Carolina
Benefit, Inc. North Carolina
BRI International Holdings N.V. Belgium
BRI International Limited England
BRI International N.V. Belgium
ClinData International (PTY) Limited South Africa
Envoy Corporation Tennessee
Envoy/Express Bill, Inc. Tennessee
G.D.R.U. Limited England
Healthcare Data Interchange Corporation Delaware
Histological Services Limited England
Innovex (Australia) Pty Limited Australia
Innovex (Benelux) BV Holland
Innovex (Biodesign) GmbH Germany
Innovex (DCCG) Holdings Pty. Limited Australia
Innovex (North America) Inc. Delaware
Innovex Spain S.L. Spain
Innovex (UK) Limited England
Innovex Belgium NV Belgium
Innovex Brasil Limitada Brazil
Innovex DAS, Inc. North Carolina
Innovex GmbH Germany
Innovex Holdings Limited England
Innovex Limited England
Innovex Medcom Marketing Group New Jersey
Innovex Merger Corp. North Carolina
Innovex Nordic AB Sweden
Innovex Overseas Holdings, Ltd./Limited England
Innovex SA France
Innovex S.r.l. Italy
Innovex South Africa PTY Limited [f/k/a PPMS] South Africa
Innovex Staff Services. S.r.l. Italy
Innovex Turkey S.A. Turkey
Laboratorie Novex Pharma Sarl France
Lewin-TAG, Inc. California
McPharma (Pty) Limited South Africa
Medical Action Communications Limited England
Medical Alliances Pty. Limited Australia
Medical Informatics KK Japan
Medical Technology Consultants England
Medicines Control Consultants Pty Limited South Africa
Meditrain Services BV The Netherlands
MedLab (Pty) Limited South Africa
Minerva Ireland Limited Ireland
Minerva Medical Limited United Kingdom
National Electronic Information Corporation Tennessee
Nexan PLC England
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Novex Pharma Ltd. England
Penderwood Limited England
PharmaBio Development, Inc. North Carolina
Pharma Informatics, Inc. Delaware
Phytotherapy Pty. Ltd. South Africa
PMSI Database Services, Inc. Delaware
PMSI Finance Limited Delaware
PMSI Holdings Limited Delaware
PMSI Limited England
PMSI Scott-Levin, Inc. Delaware
Professional Office Systems, Inc. District of Columbia
QED Communications, Inc. New York
QFinance, Inc. Delaware
Quintiles (Israel) Ltd. Israel
Quintiles (UK) Limited England
Quintiles AB Sweden
Quintiles Argentina S.A. Argentina
Quintiles Asia, Inc. North Carolina
Quintiles Benefit France SNC France
Quintiles Australia Pty. Limited Australia
Quintiles Brasil Ltda. Brazil
Quintiles BV The Netherlands
Quintiles Canada, Inc. Canada
Quintiles Cardiac Alert Limited England
Quintiles Clindepharm (Pty.) Limited South Africa
Quintiles East Asia Pte. Limited Singapore
Quintiles England Limited England
Quintiles European Holdings Limited England
Quintiles Finance Limited BV The Netherlands
Quintiles GesmbH Ltd. Austria
Quintiles GmbH Germany
Quintiles Holdings Limited England
Quintiles Holdings SNC France
Quintiles Hong Kong Limited Hong Kong
Quintiles Hungary Ltd. Hungary
Quintiles, Inc. North Carolina
Quintiles Ireland (Finance) Limited Ireland
Quintiles Ireland Limited Ireland
Quintiles Laboratories Limited North Carolina
Quintiles Latin America, Inc. North Carolina
Quintiles Medical Development (Shanghai)
Company Limited China
Quintiles Mexico, S. de R.L. de C.V. Mexico
Quintiles Mauritius Holdings, Inc. Mauritius
Quintiles NV/SA Belgium
Quintiles Oak Grove, Inc. North Carolina
Quintiles Oy Finland
Quintiles Pacific, Inc. North Carolina
Quintiles Philippines, Inc. Philippines
Quintiles Poland Sp. Zoo Poland
Quintiles Quality Regulatory Alliance, Inc. Virginia
Quintiles s.l. Spain
Quintiles, S.r.l. Italy
Quintiles Scotland Limited England
Quintiles Scott-Levin, Inc. Delaware
Quintiles South Africa (Pty.) Limited South Africa
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Quintiles Spectral Ltd. India
Quintiles Taiwan Limited Taiwan
Quintiles Technologies, Inc. North Carolina
Quintiles Thailand Ltd. Thailand
Quintiles Transnational Corp. North Carolina
Quintiles Transnational Japan KK Japan
Quintiles Uruguay S.A. Uruguay
Royce Recruitment Limited England
Servicios Clinicos, S.A. de C.V. Mexico
Simirex Inc. New Jersey
Simirex International New Jersey
SMG Marketing Group, Inc. North Carolina
Source Informatics European Finance, Inc. Delaware
Source Informatics European Holdings LLC Delaware
Source Informatics European Holdings, Inc. Delaware
Strategic Medical Publishing Limited England
Synapse Pharmaceuticals Pty. Limited Australia
Synergy Health Care, Inc. Delaware
The Clinical Research Foundation (UK) Ltd. England
The Lewin Group, Inc. North Carolina
The MSM Group, Inc. Delaware
The Royce Consultancy Scotland
Transforce, S.A. de C.V. Mexico
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quintiles Transnational Corp.:
As independent public accountants, we hereby consent to the incorporation of our
report dated January 26, 2000 (except with respect to the matter discussed in
Note 17, as to which the date is February 3, 2000) included in this Form 10-K,
into the Company's previously filed Registration Statements 33-91026 on Form
S-8, 333-03603 on Form S-8, 333-16553 on Form S-8, 333-40493 on Form S-8,
333-60797 on Form S-8, 333-75183 on Form S-8, 333-92987 on Form S-8, 333-19009
on Form S-3, 333-28919 on Form S-3, 333-38181 on Form S-3, 333-40497 on Form
S-3, 333-48403 on Form S-3, 333-65743 on Form S-3, 333-83051 on Form S-3.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
March 30, 2000.
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-91026, 333-16553, 333-03603, 333-40493, 333-60797, 333-75183
and 333-92987) and the Registration Statements on Form S-3 (Nos. 333-19009,
333-28919, 333-38181, 333-40497, 333-48403, 333-65743 and 333-83051) and
related Prospectuses of our report dated January 26, 1998, except for Notes 3
and 4, as to which the date is January 24, 2000, with respect to the
consolidated financial statements included in this Annual Report (Form 10-K) of
Quintiles Transnational Corp. for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 28, 2000
<PAGE> 1
EXHIBIT 23.03
Consent of Ernst & Young LLP Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-91026, 333-03603, 333-16553, 333-40493, 333-60797, 333-19009,
333-28919, 333-38181, 333-40497, 333-48403, 333-65743, 333-75183, 333-83051, and
333-92987) and related Prospectuses of Quintiles Transnational Corp. of our
report dated January 29, 1999, with respect to the financial statements of ENVOY
Corporation included in this Annual Report on Form 10-K to be filed with the
Securities and Exchange Commission on or about March 30, 2000.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 28, 2000
<TABLE> <S> <C>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 84,597
<SECURITIES> 44,372
<RECEIVABLES> 229,315
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<INVENTORY> 0
<CURRENT-ASSETS> 405,558
<PP&E> 275,587
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<TOTAL-ASSETS> 958,268
<CURRENT-LIABILITIES> 238,992
<BONDS> 170,925
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43
<COMMON> 613
<OTHER-SE> 516,221
<TOTAL-LIABILITY-AND-EQUITY> 958,268
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<INTEREST-EXPENSE> 8,865
<INCOME-PRETAX> 89,439
<INCOME-TAX> 31,376
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<EPS-BASIC> 0.49
<EPS-DILUTED> 0.46
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<SECURITIES> 48,584
<RECEIVABLES> 304,715
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33
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<TOTAL-REVENUES> 272,546
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<TOTAL-COSTS> 241,981
<OTHER-EXPENSES> (2,429)
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<INTEREST-EXPENSE> 2,958
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<INCOME-TAX> 8,897
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 52,043
<SECURITIES> 52,737
<RECEIVABLES> 323,894
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 121,405
<PP&E> 349,760
<DEPRECIATION> 123,587
<TOTAL-ASSETS> 1,055,105
<CURRENT-LIABILITIES> 282,554
<BONDS> 180,268
0
33
<COMMON> 1,035
<OTHER-SE> 567,079
<TOTAL-LIABILITY-AND-EQUITY> 1,055,105
<SALES> 0
<TOTAL-REVENUES> 570,493
<CGS> 0
<TOTAL-COSTS> 509,678
<OTHER-EXPENSES> (4,659)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,724
<INCOME-PRETAX> 59,750
<INCOME-TAX> 18,690
<INCOME-CONTINUING> 41,060
<DISCONTINUED> 572
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,632
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 94,825
<SECURITIES> 45,780
<RECEIVABLES> 307,983
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 615,507
<PP&E> 380,627
<DEPRECIATION> 134,869
<TOTAL-ASSETS> 1,092,644
<CURRENT-LIABILITIES> 287,106
<BONDS> 178,922
0
33
<COMMON> 1,037
<OTHER-SE> 597,723
<TOTAL-LIABILITY-AND-EQUITY> 963,808
<SALES> 0
<TOTAL-REVENUES> 886,051
<CGS> 0
<TOTAL-COSTS> 793,084
<OTHER-EXPENSES> (6,394)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,629
<INCOME-PRETAX> 90,732
<INCOME-TAX> 29,567
<INCOME-CONTINUING> 61,165
<DISCONTINUED> 2,452
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,617
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 128,621
<SECURITIES> 32,241
<RECEIVABLES> 310,044
<ALLOWANCES> 1,777
<INVENTORY> 0
<CURRENT-ASSETS> 657,793
<PP&E> 383,733
<DEPRECIATION> 128,402
<TOTAL-ASSETS> 1,170,108
<CURRENT-LIABILITIES> 330,330
<BONDS> 157,907
0
33
<COMMON> 1,057
<OTHER-SE> 645,042
<TOTAL-LIABILITY-AND-EQUITY> 1,170,108
<SALES> 0
<TOTAL-REVENUES> 1,221,776
<CGS> 0
<TOTAL-COSTS> 1,092,387
<OTHER-EXPENSES> (7,988)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,810
<INCOME-PRETAX> 125,567
<INCOME-TAX> 39,924
<INCOME-CONTINUING> 85,643
<DISCONTINUED> 2,926
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,569
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 162,816
<SECURITIES> 114,973
<RECEIVABLES> 352,040
<ALLOWANCES> 0
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<CURRENT-ASSETS> 822,513
<PP&E> 426,653
<DEPRECIATION> 135,785
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0
0
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<TOTAL-REVENUES> 359,705
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<TOTAL-COSTS> 321,188
<OTHER-EXPENSES> 18,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,414
<INCOME-PRETAX> 16,586
<INCOME-TAX> 13,222
<INCOME-CONTINUING> 3,364
<DISCONTINUED> 5,250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,614
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 105,806
<SECURITIES> 128,075
<RECEIVABLES> 370,276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 806,679
<PP&E> 460,600
<DEPRECIATION> 152,033
<TOTAL-ASSETS> 1,519,087
<CURRENT-LIABILITIES> 427,990
<BONDS> 154,833
0
0
<COMMON> 1,146
<OTHER-SE> 894,432
<TOTAL-LIABILITY-AND-EQUITY> 1,562,527
<SALES> 0
<TOTAL-REVENUES> 761,981
<CGS> 0
<TOTAL-COSTS> 681,009
<OTHER-EXPENSES> 16,686
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,552
<INCOME-PRETAX> 56,734
<INCOME-TAX> 28,231
<INCOME-CONTINUING> 28,503
<DISCONTINUED> 15,291
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,794
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 175,220
<SECURITIES> 34,958
<RECEIVABLES> 394,008
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 817,320
<PP&E> 498,853
<DEPRECIATION> 170,894
<TOTAL-ASSETS> 1,553,160
<CURRENT-LIABILITIES> 519,181
<BONDS> 12,398
0
0
<COMMON> 1,148
<OTHER-SE> 939,341
<TOTAL-LIABILITY-AND-EQUITY> 1,391,425
<SALES> 0
<TOTAL-REVENUES> 1,164,478
<CGS> 0
<TOTAL-COSTS> 1,055,509
<OTHER-EXPENSES> 14,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,966
<INCOME-PRETAX> 85,216
<INCOME-TAX> 36,213
<INCOME-CONTINUING> 49,003
<DISCONTINUED> 25,970
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,973
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 191,653
<SECURITIES> 32,476
<RECEIVABLES> 378,849
<ALLOWANCES> 1,571
<INVENTORY> 0
<CURRENT-ASSETS> 805,063
<PP&E> 574,090
<DEPRECIATION> 174,406
<TOTAL-ASSETS> 1,656,622
<CURRENT-LIABILITIES> 612,847
<BONDS> 15,879
0
0
<COMMON> 1,149
<OTHER-SE> 990,610
<TOTAL-LIABILITY-AND-EQUITY> 1,656,622
<SALES> 0
<TOTAL-REVENUES> 1,607,087
<CGS> 0
<TOTAL-COSTS> 1,470,732
<OTHER-EXPENSES> 9,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,233
<INCOME-PRETAX> 115,910
<INCOME-TAX> 42,742
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<DISCONTINUED> 36,123
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<EPS-DILUTED> 0.94
</TABLE>
<PAGE> 1
EXHIBIT 99.01
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
ENVOY Corporation
We have audited the consolidated balance sheet of ENVOY Corporation and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management and are not separately presented herein. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above and not separately
presented herein present fairly, in all material respects, the consolidated
financial position of ENVOY Corporation and subsidiaries at December 31, 1998,
and the consolidated results of their operations and their cash flows for the
year ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
---------------------------------
ERNST & YOUNG LLP
Nashville, Tennessee
January 29, 1999
