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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
QUINTILES TRANSNATIONAL CORP.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[QUINTILES TRANSNATIONAL Logo]
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 200
DURHAM, NORTH CAROLINA 27703-8411
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 2001
You are cordially invited to attend the Annual Meeting of Shareholders
of Quintiles Transnational Corp. (the "Company") which will be held on
Wednesday, May 2, 2001 at 5:30 p.m., Eastern Daylight Saving Time, at the
Sheraton Imperial Hotel and Convention Center, 4700 Emperor Blvd., Durham, North
Carolina 27703 for the following purposes:
(1) To elect three nominees to serve as Class I directors with
terms continuing until the Annual Meeting of Shareholders in
2004;
(2) To ratify the appointment of Arthur Andersen LLP as
independent public accountants for the Company and its
subsidiaries for the fiscal year ending December 31, 2001; and
(3) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on March 1, 2001 are
entitled to notice of and to vote at the Annual Meeting and any and all
adjournments or postponements thereof.
IT IS DESIRABLE THAT YOUR SHARES OF STOCK BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING YOU
MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
John S. Russell
Senior Vice President and General Counsel
Head Global Human Resources,
Corporate Secretary
Durham, North Carolina
April 4, 2001
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QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 200
DURHAM, NORTH CAROLINA 27703-8411
PROXY STATEMENT
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement and the accompanying proxy card are being mailed
to shareholders on or about April 4, 2001, by the Board of Directors of
Quintiles Transnational Corp. (the "Company") in connection with the
solicitation of proxies for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held at the Sheraton Imperial Hotel and Convention
Center, 4700 Emperor Blvd., Durham, North Carolina 27703 on May 2, 2001, at 5:30
p.m., Eastern Daylight Saving Time, and at all adjournments or postponements
thereof. The Company will pay all expenses incurred in connection with this
solicitation, including postage, printing, handling and the actual expenses
incurred by custodians, nominees and fiduciaries in forwarding proxy materials
to beneficial owners. In addition to solicitation by mail, certain officers,
directors and regular employees of the Company, who will receive no additional
compensation for their services, may solicit proxies by telephone, personal
communication or other means. The Company has retained Corporate Investor
Communications, Inc. to aid in the search for shareholders and delivery of proxy
materials.
PURPOSES OF MEETING
The principal purposes of the meeting are to: (1) elect three Class I
directors for a term of three years; (2) ratify the action of the Board of
Directors pursuant to the recommendation of the Audit Committee in appointing
Arthur Andersen LLP as independent public accountants for the Company and its
subsidiaries for the 2001 fiscal year; and (3) transact such other business as
may properly come before the meeting or any adjournment or postponement thereof.
The Board of Directors knows of no other matters other than those stated above
to be brought before the meeting.
VOTING RIGHTS
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. If the proxy card is signed and returned, but voting
directions are not made, the proxy will be voted in favor of the proposals set
forth in the accompanying "Notice of Annual Meeting of Shareholders" and in such
manner as the proxyholders named on the enclosed proxy card in their discretion
determine upon such other business as may properly come before the meeting or
any adjournment or
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postponement thereof. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before it is voted by (1) filing
written notice of revocation with the Secretary of the Company which is actually
received prior to the vote of shareholders, (2) filing a duly executed proxy
bearing a later date with the Secretary of the Company before the vote of
shareholders or (3) attending the Annual Meeting and voting in person.
The Board of Directors has fixed the close of business on March 1,
2001, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and all adjournments or
postponements thereof. As of the close of business on March 1, 2001, the Company
had outstanding 116,422,448 shares of Common Stock. On all matters to come
before the Annual Meeting, each holder of Common Stock will be entitled to vote
at the Annual Meeting and will be entitled to one vote for each share owned.
SHARE OWNERSHIP OF MANAGEMENT
SHARE OWNERSHIP OF MANAGEMENT
The following table provides information, as of January 31, 2001,
regarding shares of Common Stock of the Company owned of record or known to the
Company to be owned beneficially by each director, each executive officer named
in the Summary Compensation Table on page 12 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 Percent
Name Beneficially Owned(1) of Class
- ---- ------------------ --------
Dennis B. Gillings, Ph.D. (2) 6,836,842 5.9%
Santo J. Costa (3) 350,244 *
James L. Bierman (4) 108,014 *
John S. Russell (5) 41,536 *
Ludo Reynders, Ph.D. (6) 257,664 *
Jim D. Kever (7) 1,124,885 *
Robert C. Bishop, Ph.D. (8) 44,651 *
Chester W. Douglass, Ph.D. (9) 461,399 *
Arthur M. Pappas (10) 87,749 *
Vaughn D. Bryson (11) 55,891 *
Virginia V. Weldon, M.D. (12) 29,907 *
Eric J. Topol, M.D. (13) 29,033 *
E.G.F. Brown (14) 36,907 *
All current directors and executive officers as a
group (13 persons) (15) 9,207,058 7.8%
- -------------------------
*Less than one percent
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(1) Pursuant to the rules of the Securities and Exchange Commission,
certain shares of the Company's Common Stock which a person has the
right to acquire within 60 days of the date shown above pursuant to the
exercise of stock options are deemed to be outstanding for the purpose
of computing the percentage ownership of such person but are not deemed
outstanding for the purpose of computing the percentage ownership of
any other person. Such shares are described below as being subject to
presently exercisable stock options. A beneficial owner of shares held
in the Company's Employee Stock Ownership Plan (the "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
plan trustee.
(2) Includes 354,224 shares subject to presently exercisable stock options
and 161,413 shares held by the ESOP for Dr. Gillings' account. Includes
13,343 shares owned by Dr. Gillings' daughter, 240,000 shares owned by
the Gillings Family Limited Partnership, of which Dr. Gillings and his
wife are the general partners, 10,200 shares held by the GFEF Limited
Partnership, of which Dr. Gillings is the general partner, 259,278
shares owned by Dr. Gillings' wife and an aggregate of 834,766 shares
owned by two Grantor Retained Annuity Trusts under which Dr. Gillings
is the beneficiary. Dr. Gillings shares voting power over 522,821
shares and shares investment power over 1,519,000 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
GRATs, except to the extent of his interest therein.
(3) Includes 323,454 shares subject to presently exercisable stock options
and 3,840 shares held by the ESOP for Mr. Costa's account. Includes
1,000 shares owned by Mr. Costa's wife and 100 shares owned by Mr.
Costa's children. Mr. Costa disclaims beneficial ownership of the
shares held by his wife.
(4) Includes 106,243 shares subject to presently exercisable stock options
and 360 shares held by the ESOP for Mr. Bierman's account.
(5) Includes 40,147 shares subject to presently exercisable stock options
and 360 shares held by the ESOP for Mr. Russell's account.
(6) Includes 143,411 shares subject to presently exercisable stock options,
702 shares held by Quintiles (UK) Limited Approved Profit Sharing
Scheme for Dr. Reynders' account, 10,000 shares owned by Dr. Reynders'
wife and 305 shares held by the ESOP for Dr. Reynders' account. Dr.
Reynders disclaims beneficial ownership of all shares owned by his
wife. As of February 3, 2000, Dr. Reynders no longer served as an
executive officer of the Company.
(7) Includes 763,341 shares subject to presently exercisable stock options
and 63,960 shares in a trust for the benefit of Mr. Kever's minor
children. As of May 26, 2000, Mr. Kever no longer served as an
executive officer of the Company, however he continues to serve on the
Board of Directors.
(8) Includes 42,151 shares subject to presently exercisable stock options.
(9) Includes 56,899 shares subject to presently exercisable stock options.
Includes 117,000 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.
(10) Includes 54,149 shares subject to presently exercisable stock options.
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(11) Includes 20,891 shares subject to presently exercisable stock options.
(12) Includes 28,907 shares subject to presently exercisable stock options.
Includes 1,000 shares held in a trust under which Dr. Weldon is a
beneficiary and a trustee.
(13) Includes 29,033 shares subject to presently exercisable stock options.
(14) Includes 28,907 shares subject to presently exercisable stock options.
(15) Does not include shares beneficially owned by Dr. Reynders who is no
longer an executive officer. Includes 1,848,346 shares subject to
presently exercisable stock options and 165,973 shares held by the ESOP
for the accounts of individual executive officers.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table provides information regarding shares of the
Company's Common Stock known to be beneficially owned by persons holding more
than five percent of the Company's outstanding Common Stock (other than
directors and executive officers shown in the preceding table) as of March 12,
2001. The percentage is calculated based on 116,422,448 total shares outstanding
of the Company as of March 1, 2001.
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED CLASS
- ------------------------------------ ------------------------- -----
Capital Group International, Inc. (1) 12,298,040 10.6%
Capital Guardian Trust Company
11100 Santa Monica Blvd.
Los Angeles, California 90025
Wellington Management Company, LLP (2) 10,085,240 8.7%
75 State Street
Boston, MA 02109
Vanguard Specialized Funds - 7,308,200 6.3%
Vanguard Health Care Fund (3)
PO Box 2600
Valley Forge, PA 19482
Capital Research and Management Company (4) 6,252,800 5.4%
333 South Hope Street
Los Angeles, California 90071
WebMD Corporation (5) 10,000,000 7.9%
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, GA 30326
- ---------------------
(1) Based on a Schedule 13G/A filed with the Securities and Exchange
Commission on March 12, 2001. Capital Group International, a holding
company, reports sole voting
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power over 10,433,440 shares and sole dispositive power over 12,298,040
shares held by its subsidiaries. Capital Guardian Trust Company, a bank
subsidiary of Capital Group International, reports sole voting power
over 6,406,180 shares and sole dispositive power over 8,270,780 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 13, 2001. Wellington Management Company, LLP
("WMC"), an investment adviser, reports shared voting power over
2,662,040 shares and shared dispositive power over 10,085,240 shares
held by its clients, including Vanguard Health Care Fund. WMC is the
parent holding company of Wellington Trust Company, NA, a bank which is
deemed to have acquired the securities being reported.
(3) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 9, 2001. Vanguard Specialized Funds - Vanguard
Health Care Fund, an investment company, reports sole voting and shared
dispositive power over the shares.
(4) Based on a Schedule 13G/A filed with the Securities and Exchange
Commission on February 12, 2001. Capital Research and Management
Company, an investment company, reports sole dispositive power over the
shares, but no voting power over the shares, and disclaims beneficial
ownership of the shares.
(5) Based on a Schedule 13D filed with the Securities and Exchange
Commission on June 6, 2000. Includes 10,000,000 shares of Common Stock
of the Company held beneficially by WebMD Corporation pursuant to a
warrant to purchase such shares granted by the Company on May 26, 2000,
which warrant is exercisable at any time on or before May 25, 2004 for
an exercise price of $40.00 per share, subject to certain adjustments.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, as
nearly equal in number as possible. Each year the shareholders will elect the
members of one of the three classes to a three year term of office.
The term of office of the Class I directors expires at the Annual
Meeting; the term of office of the Class II directors expires at the 2002 Annual
Meeting of Shareholders; and the term of office of the Class III directors
expires at the 2003 Annual Meeting of Shareholders, or in any event at such time
as their respective successors are duly elected and qualified or their earlier
resignation, death or removal from office.
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The following table lists the directors of the Company and the classes
in which they serve as of the date of this Proxy Statement:
CLASS I CLASS II CLASS III
(Term Expiring 2001) (Term Expiring 2002) (Term Expiring 2003)
Robert C. Bishop, Ph.D. Vaughn D. Bryson Dennis B. Gillings, Ph.D.
Santo J. Costa Eric J. Topol, M.D. Chester W. Douglass, Ph.D.
Arthur M. Pappas Jim D. Kever Virginia V. Weldon, M.D.
E.G.F. Brown
The Board of Directors has approved the nomination of the Class I
directors indicated above, other than Santo J. Costa, for election at the Annual
Meeting to serve until the Annual Meeting of Shareholders in the year 2004 (or
until such time as their respective successors are elected and qualified or
their earlier resignation, death or removal from office). Santo J. Costa is not
standing for re-election at the Annual Meeting.
The Board of Directors has no reason to believe that the persons named
above as nominees for directors will be unable or will decline to serve if
elected. In the event of death or disqualification of any nominee or the refusal
or inability of any nominee to serve as a director, the proxy may be voted with
discretionary authority for a substitute or substitutes as shall be designated
by the Board of Directors.
Pursuant to North Carolina law, the three candidates who receive the
highest number of votes as Class I directors will be elected as Class I
directors of the Company. Abstentions and shares held in street name that are
not voted in the election of directors will not be included in determining which
nominees received the highest number of votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF
THESE NOMINEES.
Set forth below are the names and other information pertaining to the
Board's nominees and other directors whose terms of office will continue after
the Annual Meeting:
FIRST YEAR
ELECTED
NAME POSITION WITH COMPANY AGE DIRECTOR
- ---- --------------------- --- ----------
CLASS I
Robert C. Bishop, Ph.D. (1)(3) Director 58 1994
Arthur M. Pappas (1)(5) Director 53 1994
E.G.F. Brown (1)(2) Director 56 1998
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CLASS II
Vaughn D. Bryson (1)(2)(4) Director 62 1997
Eric J. Topol, M.D. (1)(4) Director 46 1997
Jim D. Kever (4) Director 48 1999
CLASS III
Dennis B. Gillings, Ph.D. (1) Chairman 56 1982
Chester W. Douglass, Ph.D. (1)(3)(4) Director 60 1983
Virginia V. Weldon, M.D. (1)(3)(5) Director 65 1997
- -------------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Quality Committee
(5) Member of Human Resources Committee
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.
E. G. F. BROWN has served as a director since January 1998. Mr. Brown
was 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.
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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 is President and founder of Clinical Products, a medical foods
company. 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 company
dedicated to the development of gene, cell and protein therapy products
featuring dose dependent regulation by small molecule drugs, as well as small
molecule inhibitor of signal transmodulation; AtheroGenics, Inc., a
biopharmaceutical company focused on research and development of genes that
regulate atheroscleosis and cancer; Chiron Corporation, a global healthcare
company participating in biopharmaceuticals, vaccines and blood testing; and
Amylin Pharmaceuticals, Inc., a developmental stage biopharmaceutical company
focusing on metabolic disorders.
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.
DENNIS B. GILLINGS, PH.D. founded the Company in 1982 and has served as
Chairman of the Board of Directors since its inception and Chief Executive
Officer from its inception until April 2, 2001. 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. He also serves as a director of The
Medicines Company, a company that develops and commercializes selected
pharmaceutical products in late stages of development, and WebMD Corporation, a
company providing online services to the health care industry ("WebMD").
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JIM D. KEVER has served as a director since June 1999. Mr. Kever
currently serves as Co-Chief Executive Officer of Transaction Services Division
of WebMD. Mr. Kever served as Chief Executive Officer of ENVOY Corporation
("ENVOY") from the Company's acquisition of ENVOY in March 1999 as a
wholly-owned subsidiary until its sale in May 2000. Mr. Kever served as
President and Co-Chief Executive Officer of ENVOY from August 1995 until March
1999 and as a director of ENVOY from its 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
previously 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, a food production
company, 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 Officer 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; KeraVision, Inc., a company developing
products for reversible vision correction surgery; and AtheroGenics Inc., a
biopharmaceutical company focused on research and development of genes that
regulate atheroscleosis and cancer. He is also a director of privately-held
ArgoMed, Inc., EBM Solutions, Inc. and Elitra Pharmaceuticals. Mr. Pappas
received a B.S. in biology from Ohio State University and an M.B.A. in finance
from Xavier University.
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.
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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.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors met 10 times during 2000. The Board has an
Executive Committee, Audit Committee, Compensation Committee, Quality Committee,
Nominations Committee, and Human Resources Committee. The Executive Committee
has the authority to exercise all powers of the Board of Directors during
intervals between meetings of the Board. The Executive Committee met four times
during 2000. The Audit Committee reviews the results and scope of the audit and
other services provided by the Company's independent public accountants. The
Audit Committee also recommends to the Board the appointment of independent
public accountants. The Audit Committee met four times during 2000. The
Compensation Committee is responsible for the approval of compensation
arrangements for officers of the Company and the review of the Company's
compensation plans and policies. The Compensation Committee met five times
during 2000. The Quality Committee oversees the reporting of serious adverse
events for the Company's studies, establishes policies regarding scientific
integrity and quality assurance, and is responsible for reviewing conflicts of
interest arising from the provision of services to a wide variety of clients and
overseeing the conflicts resolution process. During 2000, the Quality Committee
met four times. The Nominations Committee meets from time to time to nominate
individuals to serve on the Board of Directors for shareholder approval or, in
the case of filling a vacancy, for Board approval. The Nominations Committee met
one time during 2000. The Nominations Committee was discontinued in 2001 and the
Board of Directors has assumed these duties. The Human Resources Committee
oversees strategic global human resources issues. During 2000, the Human
Resources Committee met five times.
The Company's Bylaws provide procedures for the nomination of
directors. The Bylaws provide that nominations for the election of directors may
only be made by the Board of Directors or a designated committee thereof, or by
any shareholder entitled to vote generally in elections of directors if the
shareholder follows certain procedures. Any shareholder of record entitled to
vote generally in the election of directors may nominate one or more persons for
election as director(s) at a meeting of shareholders only if written notice of
such shareholder's intent to make such nomination or nominations has been given,
either by personal delivery or certified mail, postage prepaid, to the Secretary
of the Company (i) with respect to an election to
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be held at an annual meeting of shareholders, not more than ninety (90) days nor
less than fifty (50) days in advance of such meeting; and (ii) with respect to
an election to be held at a special meeting of shareholders called for the
purpose of the election of directors, not later than the close of business on
the tenth business day following the date on which notice of such meeting is
first given to shareholders. Each such notice of a shareholder's intent to
nominate a director must set forth certain information as specified in the
Company's Bylaws.
Each director attended 75% or more of the aggregate meetings of the
Board (held during the period for which the director was in office) and
committee meetings of the Board of which the director was a member; except for
Messrs. Costa and Bryson who each attended 70% of the aggregate meetings of the
Board and Ms. Weldon who attended 50% of the aggregate meetings of the Board,
60% of the aggregate meetings of the Compensation Committee and 60% of the
aggregate meetings of the Human Resources Committee, both of which she was a
member.
DIRECTOR COMPENSATION
Each non-officer director receives annually a grant of stock options
valued at $100,000 with the number of options determined in accordance with the
Black-Scholes method. 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. Committee chairs also receive
an extra $5,000 per year in compensation for their additional responsibilities.
The Company reimburses each director for out-of-pocket expenses incurred in
connection with the rendering of services as a director. Certain other financial
relationships with directors are described in "Certain Relationships and Related
Transactions."
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EXECUTIVE COMPENSATION
The following tables show annual and long-term compensation paid or
accrued by the Company for services rendered for the fiscal years indicated by
the Company's former Chief Executive Officer and the next three most highly
compensated executive officers whose total salary and bonus exceeded $100,000
individually during the year ended December 31, 2000, as well as two individuals
who served as executive officers during the year but who no longer served as
such at the end of the year and whose total compensation in 2000 exceeded
$100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
----------------------------------------------------- ------------
No. Of
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ----------- ------------ ------------ ------------ --------------
Dennis B. Gillings (1) 2000 $600,000 (2) $ -- $ (3) 553,403 (4) $ 604,027 (5)
Chairman and former 1999 568,749 (6) -- (3) 169,316 (7) 472,070 (8)
Chief Executive Officer 1998 474,996 (9) -- (3) 25,048 (10) 349,236 (11)
Santo J. Costa 2000 $301,632 $482,600(12) $ (3) 250,802 (13) $ 72,151 (14)
Vice Chairman 1999 474,453 -- (3) 201,650 (15) 5,853 (16)
1998 450,000 -- (3) 22,553 (17) 760,552 (18)
James L. Bierman (19) 2000 $261,252 $ -- $ (3) 427,726 (20) $ 4,765 (21)
Chief Financial Officer
John S. Russell (22) 2000 $247,503 (23) $ -- $ (3) 154,226 (24) $ 7,279 (25)
Senior Vice President and 1999 210,000 (26) $ -- (3) 39,177 (27) 4,122 (28)
General Counsel, Head
Global Human Resources
Ludo J. Reynders 2000 $350,004 $ -- $ (3) 154,747 (29) $ 7,783 (30)
Chief Executive Officer, 1999 341,253 $ -- (3) 46,521 (31) 4,566 (32)
Clinical Development 1998 315,000 -- (3) 23,803 (33) 6,837 (34)
Services
Jim D. Kever 2000 (35) $110,846 $274,231 (36) $ (3) 471,841 (37) $ 2,550 (38)
Former Chief Executive 1999 196,500 $178,500 (39) (3) 127,871 (40) 4,053 (41)
Officer, ENVOY
- -------------------
(1) Dr. Gillings resigned as Chief Executive Officer effective April 2,
2001 and retained the office of Chairman.
(2) Includes $300,000 deferred during 2000 pursuant to the Company's
Elective Deferred Compensation Plan.
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(3) 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.
(4) Includes 166,708 shares subject to options granted pursuant to the 2000
bonus.
(5) Includes contributions to the Company's 401(k) Plan on behalf of Dr.
Gillings in the amount of $2,550, the estimated value of contributions
made to the ESOP on Dr. Gillings' behalf in the amount of $4,063, the
present value of the benefit to Dr. Gillings of the premiums the
Company paid under a split-dollar life insurance arrangement in the
amount of $591,480 (see "Employment Agreements" below for a description
of this arrangement), and other life insurance premiums that the
Company paid in the amount of $5,934. In 2000, with the use of his own
plane, Dr. Gillings provided extensive business-related travel services
for himself and other Company employees. The Compensation Committee
approved reimbursing Dr. Gillings for these services by authorizing
cash payments of $1.4 million. This payment is not included in this
table. The Company also granted options to Dr. Gillings with a
Black-Scholes value of $1.4 million at an exercise price of $13.44 per
share. These options are included in the table as long-term
compensation. The cash payments and stock option grants were estimated
to be less than the cost of operating the plane for Company business
purposes.
(6) Includes $284,375 deferred during 1999 pursuant to the Company's
Elective Deferred Compensation Plan.
(7) Includes 12,792 shares subject to options granted pursuant to the 1999
bonus.
(8) Includes contributions to the Company's 401(k) Plan on behalf of Dr.
Gillings in the amount of $2,375, the estimated value of contributions
made to the ESOP on Dr. Gillings' behalf in the amount of $1,038, the
present value of the benefit to Dr. Gillings of the premiums the
Company 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 the
Company paid in the amount of $5,074. In 1999, with the use of his own
plane, Dr. Gillings provided extensive business-related travel services
for himself and other Company employees. The Compensation Committee
approved reimbursing Dr. Gillings for these services by authorizing a
cash payment of $1.4 million. This payment is not included in this
table. The Company also granted options to Dr. Gillings with a
Black-Scholes value of $1.4 million at an exercise price of $42.44.
These options are included in the table as long term compensation. The
cash payment and stock option grant were estimated to be less than the
cost of operating the plane for Company business purposes.
(9) Includes $236,348 deferred during 1998 pursuant to the Company's
Elective Deferred Compensation Plan.
(10) Includes 6,053 shares subject to options granted pursuant to the 1998
bonus.
(11) Includes contributions to the Company's 401(k) Plan on behalf of Dr.
Gillings in the amount of $2,364, the estimated value of contributions
made to the ESOP on Dr. Gillings' behalf in the amount of $6,031, the
present value of the benefit to Dr. Gillings of the premiums the
Company paid under a split-dollar life insurance arrangement in the
amount of $335,686 (see "Employment Agreements" below for a description
of this arrangement), and other life insurance premiums that the
Company paid in the amount of $5,155.
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(12) Amount represents payments made in 2000 pursuant to Mr. Costa's current
employment contract.
(13) Includes 2,035 shares subject to options granted pursuant to the 2000
bonus.
(14) Includes $65,379, which represents the appreciation of non-qualified
stock options exercised and shares sold in 2000. Also includes $2,709
representing the value of life insurance premiums paid in 2000 and
$4,063, which represents the estimated value of contributions made to
the ESOP on behalf of Mr. Costa.
(15) Includes 9,443 shares subject to options granted pursuant to the 1999
bonus.
(16) Includes $1,038, which represents the estimated value of contributions
made to the ESOP on behalf of Mr. Costa. Also includes $4,815
representing the value of life insurance premiums paid in 1999.
(17) Includes 5,299 shares subject to options granted pursuant to the 1998
bonus.
(18) 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 the ESOP on behalf of Mr. Costa. Also
includes $4,896 representing the value of life insurance premiums paid
in 1998.
(19) Mr. Bierman became the Company's Chief Financial Officer on February
25, 2000. The Company has not provided information about any
compensation paid to Mr. Bierman for any periods in which he did not
serve as an executive officer.
(20) Includes 598 shares subject to options granted pursuant to the 2000
bonus.
(21) Includes $4,063, which represents the estimated value of contributions
made to the ESOP on behalf of Mr. Bierman and $702 representing the
value of life insurance premiums paid in 2000.
(22) Mr. Russell became the Company's Senior Vice President and General
Counsel, Head Global Human Resources on November 4, 1999. The Company
has not provided information about any compensation paid to Mr. Russell
for any periods in which he did not serve as an executive officer.
(23) Includes $24,750 deferred during 2000 pursuant to the Company's
Elective Deferred Compensation Plan.
(24) Includes 567 shares subject to options granted pursuant to the 2000
bonus.
(25) Includes $2,550 in contributions to the Company's 401(k) Plan on behalf
of Mr. Russell, $4,063, which represents the estimated value of
contributions made to the ESOP on behalf of Mr. Russell and $666
representing the value of life insurance premiums paid in 2000.
(26) Includes $20,667 deferred during 1999 pursuant to the Company's
Elective Deferred Compensation Plan.
(27) Includes 2,698 shares subject to options pursuant to the 1999 bonus.
(28) Includes $2,375 in contributions to the Company's 401(k) Plan on behalf
of Mr. Russell, life insurance premiums that the Company paid in the
amount of $709 and $1,038 representing the estimated value of
contributions made to the ESOP on behalf of Mr. Russell.
(29) Includes 1,096 shares subject to options granted pursuant to the 2000
bonus.
(30) Includes $2,550 in contributions to the Company's 401(k) Plan on behalf
of Dr. Reynders, life insurance premiums that the Company paid in the
amount of $1,170 and
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$4,063 representing the estimated value of contributions made to the
ESOP on behalf of Dr. Reynders.
(31) Includes 5,259 shares subject to options granted pursuant to the 1999
bonus.
(32) Includes $2,375 in contributions to the Company's 401(k) Plan on behalf
of Dr. Reynders, life insurance premiums that the Company paid in the
amount of $1,153 and $1,038 representing the estimated value of
contributions made to the ESOP on behalf of Dr. Reynders.
(33) Includes 3,514 shares subject to options granted pursuant to the 1998
bonus.
(34) Includes $806 in contributions to the Company's 401(k) Plan on behalf
of Dr. Reynders and $6,031 representing the estimated value of
contributions made to the ESOP on behalf of Dr. Reynders.
(35) Between March 1999 and May 2000, Mr. Kever served as Chief Executive
Officer of ENVOY, following the Company's acquisition of ENVOY in March
1999. As a result of the Company's sale of ENVOY in May 2000, Mr. Kever
no longer serves as one of the Company's executive officers.
(36) Amount represents payments made in 2000 pursuant to Mr. Kever's
employment contract with ENVOY in effect prior to the Company's sale of
ENVOY.
(37) Includes 471,841 shares subject to options that were repriced pursuant
to the ENVOY Repricing Plan (defined below).
(38) Includes $2,550 representing the value of contributions made to the
Company's 401(k) Plan on behalf of Mr. Kever in 2000 prior to the
Company's sale of ENVOY.
(39) Amount represents payments made in 1999 pursuant to Mr. Kever's then
current employment contract with ENVOY.
(40) Includes 64,271 shares subject to options granted pursuant to the 1999
bonus. Includes 127,871 shares subject to options that were repriced
pursuant to the ENVOY Repricing Plan.
(41) Includes $1,875 representing the value of contributions made to the
Company's 401(k) Plan on behalf of Mr. Kever in 1999 and $2,345 which
represents the value of life insurance premiums paid for Mr. Kever in
1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table reflects the stock options granted during the past
fiscal year to the named executive officers pursuant to the Company's Equity
Compensation Plan and Nonqualified Stock Option Plan. No stock appreciation
rights were granted to the named executive officers during 2000. Unless
otherwise noted, all options expire 10 years from the date of grant or, if
sooner, three months after termination of employment, unless employment is
terminated because of (1) death or disability in which case the options expire
one year after the date of such termination, (2) retirement as determined by the
administrator of the Plan, in which case the options expire 10 years after such
termination, if the holder has agreed to a non-compete; otherwise, the options
expire one year after such termination or (3) termination as a result of a
Special Program, as determined by the administrator of the Plan, in which case
the options expire three years after the date of such termination.
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POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
------------------------------------------------------ -----------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR (2) PER SHARE ($) DATE 5% ($) 10% ($)
Dennis B. Gillings 32,787(3) 0.2% 29.94 2/15/2010 617,298 1,564,355
2,350(4) 0.0% 29.94 2/15/2010 44,245 112,125
539(5) 0.0% 14.25 4/15/2010 4,830 12,241
293,496(6) 1.6% 13.44 5/4/2010 2,480,268 6,285,485
59,873(7) 0.3% 13.44 5/4/2010 505,973 1,282,235
164,358(8) 0.9% 13.44 5/4/2010 1,388,952 3,519,877
Santo J. Costa 22,951(3) 0.1% 29.94 2/15/2010 432,111 1,095,053
2,035(4) 0.0% 29.94 2/15/2010 38,314 97,095
539(5) 0.0% 14.25 4/15/2010 4,830 12,241
205,447(6) 1.2% 13.44 5/4/2010 1,736,186 4,399,835
19,830(7) 0.1% 13.44 5/4/2010 167,579 424,678
James L. Bierman 3,934(3) 0.0% 29.94 2/15/2010 74,068 187,702
598(4) 0.0% 29.94 2/15/2010 11,259 28,532
539(5) 0.0% 14.25 4/15/2010 4,830 12,241
15,000(10) 0.1% 14.38 4/24/2010 135,605 343,651
117,398(6) 0.7% 13.44 5/4/2010 992,104 2,514,186
17,757(7) 0.1% 13.44 5/4/2010 150,060 380,282
272,500(11) 1.5% 16.06 10/13/2010 2,752,691 6,975,861
John S. Russell 3,934(3) 0.0% 29.94 2/15/2010 74,068 187,702
567(4) 0.0% 29.94 2/15/2010 10,675 27,053
539(5) 0.0% 14.25 4/15/2010 4,830 12,241
15,000(10) 0.1% 14.38 4/24/2010 135,605 343,651
117,398(6) 0.7% 13.44 5/4/2010 992,104 2,514,186
16,788(7) 0.1% 13.44 5/4/2010 141,872 359,530
Jim D. Kever 291,500(9) 1.6% 6.84 5/26/2003 314,282 659,968
52,470(9) 0.3% 6.84 5/26/2003 56,571 118,794
64,271(9) 0.4% 6.84 5/26/2003 69,294 145,512
63,600(9) 0.4% 6.84 5/26/2003 68,571 143,993
Ludo J. Reynders 13,115(3) 0.1% 29.94 2/15/2010 246,923 625,752
1,096(4) 0.0% 29.94 2/15/2010 20,635 52,293
539(5) 0.0% 14.25 4/15/2010 4,830 12,241
117,398(6) 0.7% 13.44 5/4/2010 992,104 2,514,186
22,599(7) 0.1% 13.44 5/4/2010 190,979 483,978
- -------------------
(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 respective 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 $48.77 and $77.65 per share,
respectively, for the options expiring February 15, 2010, $23.21 and
$36.96 per share, respectively, for the options expiring April 15,
2010, $23.42 and 37.29 per share,
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19
respectively, for the options expiring April 24, 2010, $21.89 and
$34.85 per share, respectively, for the options expiring May 4, 2010,
$7.92 and $9.10 per share, respectively, for the options expiring May
26, 2003, and $26.16 and $41.66 per share, respectively, for the
options expiring October 13, 2010.
(2) Options to purchase an aggregate of 17,856,578 shares were granted to
employees during 2000.
(3) Nonqualified stock options granted February 15, 2000. Shares subject to
the options granted vest over the next four years, with 25% of such
shares vesting on February 15 of each year beginning February 15, 2001.
(4) Nonqualified stock options granted February 15, 2000. Shares subject to
the options granted vest on May 15, 2000.
(5) Nonqualified stock options granted April 15, 2000. Shares subject to
the options granted vest on April 15, 2002.
(6) Nonqualified stock options granted May 4, 2000. 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, 2001.
(7) Nonqualified stock options granted May 4, 2000. Shares subject to the
options granted vest on May 15, 2001.
(8) Nonqualified stock options granted May 4, 2000. Shares subject to the
options granted vested immediately.
(9) Nonqualified stock options originally granted in 1999, cancelled and
replaced in 2000 pursuant to the ENVOY Repricing Plan. The replacement
options have an amended grant date of June 19, 2000. The per share
exercise prices for each option as granted prior to the ENVOY Repricing
Plan were $8.58 per share, $18.22 per share, $18.68 per share, and
$18.93 per share, respectively. Under the terms of the original options
and separate from the ENVOY Repricing Plan the options automatically
vested on May 26, 2000 due to the closing of the sale of ENVOY to WebMD
and expire on May 26, 2003. The ENVOY Repricing Plan did not alter the
vesting schedule.
(10) Nonqualified stock options granted April 24, 2000. Shares subject to
the options granted vest over the next four years, with 25% of such
shares vesting on April 24 of each year beginning April 24, 2000.
(11) Nonqualified stock options granted October 13, 2000. Shares subject to
the options granted vest over the next four years, with 25% of such
shares vesting on October 13 of each year beginning October 13, 2000.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table provides information about the stock options
exercised by the named executive officers during the year ended December 31,
2000 and held by them as of that date.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE
SHARES ACQUIRED VALUE UNDERLYING UNEXERCISED MONEY OPTIONS
NAME ON EXERCISE (#) REALIZED ($) OPTIONS AT FY-END AT FY-END (1)
---- --------------- ------------ --------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
----------- ------------- -------------- ----------------
Dennis B. Gillings 56,000 481,380 346,027 477,797 1,343,128 2,653,872
Santo J. Costa 5,658 65,379 317,716 314,993 71,254 1,693,182
James L. Bierman -- -- 104,009 386,397 375,819 2,106,523
John S. Russell -- -- 36,163 177,803 43,709 1,102,928
Ludo J. Reynders -- -- 140,132 197,656 386,059 1,053,582
Jim D. Kever -- -- 763,341 -- 10,816,585 --
- ----------------------
(1) The value of the options is based upon the difference between the
exercise price and the closing price per share on December 31, 2000,
$20.9375.
TEN YEAR OPTION REPRICING
In connection with the sale of ENVOY to WebMD, the Board of Directors
repriced all options granted to employees of ENVOY, effective as of June 19,
2000 (the "ENVOY Repricing Plan"). Mr. Kever was the only director or named
executive officer that benefited from the ENVOY Repricing Plan. The following
table summarizes the effect of the ENVOY Repricing Plan on Mr. Kever's options.
LENGTH OF
ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT NEW REMAINING AT
OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED REPRICING ($)(1) REPRICING ($) PRICE ($) REPRICING
---- ---- ---------- ---------------- ------------- --------- ---------
Jim D. Kever, 6/19/2000 291,500 14.0625 8.58 6.84 2 yrs. 11 mos.
Director and former 6/19/2000 52,470 14.0625 18.22 6.84 2 yrs. 11 mos.
executive officer 6/19/2000 64,271 14.0625 18.68 6.84 2 yrs. 11 mos.
6/19/2000 63,600 14.0625 18.93 6.84 2 yrs. 11 mos.
- --------------------
(1) Based on the per share closing price on the Nasdaq National Market on
the date of repricing.
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21
REPORT OF THE COMPENSATION COMMITTEE ON THE ENVOY REPRICING PLAN
In connection with the sale of ENVOY to WebMD and at the recommendation
of the Compensation Committee, effective as of June 19, 2000, the Board of
Directors repriced all outstanding options to purchase shares of the Company's
Common Stock held by employees of ENVOY, including Mr. Kever (the "ENVOY
Optionees"). None of the directors and named executive officers of the Company
other than Mr. Kever (and Messrs. Goad and Ford who no longer serve as directors
of the Company) were ENVOY Optionees. The new exercise price was fixed at $6.84
per share, which was less than the last reported sales price of the Common Stock
on the Nasdaq Stock Market on the preceding trading day. The last reported sales
price on June 16, 2000 was $14.625 per share.
In order to benefit from the repricing, the ENVOY Optionees were
required to elect to participate in the ENVOY Repricing Plan on or before June
12, 2000 with respect to any or all of their original option grants. Mr. Kever
elected to have options covering an aggregate of 471,841 shares of Common Stock
repriced pursuant to the ENVOY Repricing Plan. The replacement options have the
same terms as before the implementation of the ENVOY Repricing Plan with two
exceptions:
o The exercise price was set at $6.84 per share.
o Unless previously exercised, the repriced options will be automatically
exercised by means of a limit order placed on the options that will
cause a cashless exercise to occur once the fair market value of the
Company's Common Stock reaches $23.34 per share.
Unrelated to the ENVOY Repricing Plan and pursuant to the terms of the sale of
ENVOY to WebMD, the options held by the ENVOY Optionees automatically vested on
May 26, 2000 and will expire on May 26, 2003. Except as described in this
report, the replacement options issued in the ENVOY Repricing Plan are governed
by the stock option plan under which they were issued.
The ENVOY Repricing Plan was recommended by the Compensation Committee
and approved by the Board of Directors in order to satisfy certain obligations
of the Company to provide additional compensation or value to the ENVOY
Optionees which arose pursuant to the terms of the sale of ENVOY to WebMD. In
exchange for repricing the outstanding options, each ENVOY Optionee who elected
to participate in the ENVOY Repricing Plan agreed to release the Company from
all claims for extraordinary benefits in connection with the sale of ENVOY to
WebMD.
SUBMITTED BY THE COMPANY'S COMPENSATION COMMITTEE
ROBERT C. BISHOP, CHAIRMAN
CHESTER W. DOUGLASS
VIRGINIA V. WELDON
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COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors reviews and
oversees the general compensation plans and policies of the Company and approves
the individual compensation arrangements for the Company's executive officers.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company is committed to implementing a scheme of executive
compensation which will contribute to the achievement of the Company's business
objectives. Based on a study of the Company's executive compensation policies
and procedures by a nationally recognized consulting firm, the Company has an
executive compensation program which it believes:
o Fulfills the Company's business and operating needs, comports
with its general human resource strategies and enhances
shareholder value.
o Enables the Company to attract and retain the executive talent
essential to the Company's achievement of its business
objectives.
o Rewards executives for accomplishment of pre-defined business
goals and objectives.
o Provides rewards consistent with gains in shareholder wealth
so that executives will be financially advantaged when
shareholders are similarly financially advantaged.
o Reflects the evolving organizational structure of the Company,
directly motivates executives to accomplish results within
their range of influence and fosters team spirit among
executives working towards a common goal.
In implementing its compensation philosophy, the Company intends to
provide compensation opportunities which are perceived to be generally
comparable to those provided by similar companies in the contract research
organization, biotechnology and pharmaceutical industries. This "peer group" is
not the same group used for the industry comparison in the performance graph
found in the "Comparison of Cumulative Return" section of this Proxy Statement;
rather, it reflects the industry groups with which the Company competes for
personnel.
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ELEMENTS OF EXECUTIVE COMPENSATION
The Company's executive compensation program has four key components:
base salary, performance awards, long-term incentive awards and benefits.
Performance awards and long-term incentive awards are granted pursuant to the
Company's executive compensation plan. These components combine fixed and
variable elements to create a total compensation package which provides some
income predictability while linking a significant portion of compensation to
business performance.
BASE SALARY
Salary represents the fixed component of the Company's executive
compensation program. Base salaries are set within ranges which are targeted
around the competitive norm for similar companies in the contract research
organization, biotechnology and pharmaceutical industries. Individual salaries
may be above or below the competitive norm, depending on the executive's tenure
in his position and performance. The Compensation Committee considers the
following factors in approving adjustments to salary levels for the executive
officers: (i) the relationship between current salary and appropriate internal
and external salary comparisons, (ii) the average size of salary increases being
granted by competitors, (iii) whether the responsibilities of the position have
changed during the preceding year and (iv) the individual's performance as
reflected in the overall manner in which his assigned role is carried out.
PERFORMANCE AWARDS
Performance awards serve two functions in implementing the Company's
executive compensation philosophy. First, the incentives permit the Company to
compensate officers directly for performance as measured by objective standards.
Second, the incentives also serve to focus executives on those activities that
are most directly under their control and for which they should be held
accountable.
Each year, the Company establishes target performance award
opportunities (expressed as a percentage of salary), which participants can
expect to earn if all performance goals are fully achieved during the next
fiscal year. Performance awards are proportionately increased or decreased from
the target to reflect performance levels that exceed or fall below expectations.
At the beginning of each year, specific performance goals are set for
the Company and, each business unit and individual participant. For 2000, the
Company determined that the best criteria for measurement of Company and
business unit performance were operating surplus and net revenue, weighted at
60% and 40%, respectively. Individual performance goals are assigned annually
relating to quality, productivity, expense control, innovation, personal
management, etc. Individual performance is also assessed by subjective
evaluation.
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24
Performance awards are linked to specific performance goals established
by the Company. The executive compensation plan gives the Company's Compensation
Committee the authority to award performance awards or reduce or entirely
eliminate the performance awards. Performance awards may be made in cash, stock,
stock options or a combination of each. Generally, the Compensation Committee
awards cash awards to executive officers only to the extent operating surplus
for the Company as a whole is in excess of target levels. In 2000, executive
officer performance awards were awarded primarily in the form of nonqualified
stock options, as described below.
Relative to their performance during the fourth quarter of 1999, the
Company issued non-qualified stock options to executive officers on February 15,
2000.
Relative to their performance during 2000, the Company issued
non-qualified stock options to executive officers on May 4, 2000. The following
table provides the number of option shares granted per quarter to each of the
executive officers, except for Mr. Kever, along with the exercise price per
share, which is equal to the closing price of the Company's Common Stock on date
of grant and the corresponding Black-Scholes value.
MAY 4, 2000
Exercise Price $13.4375
Black-Scholes Value $8.5178
EXECUTIVE OFFICERS
Dennis B. Gillings 59,873
Santo J. Costa 19,830
James L. Bierman 17,757
John S. Russell 16,788
Ludo J. Reynders 22,599
--------
TOTAL 136,847
In order to determine the number of options to be granted, the
executive compensation plan performance award guidelines were used. The cash
award amount derived from applying the criteria was then converted into stock
options using the Black-Scholes method of option valuation. Using the
Black-Scholes method, each option was valued upon grant at approximately 63.39%
of the value of the underlying shares. The stock options vested on May 15, 2001.
Performance award targets established for 2000 for the executive
officers other than Dr. Gillings and Mr. Kever averaged 47% of the executive
officers' aggregate base salaries. The value of actual bonus awards averaged 47%
of their 2000 aggregate base salaries.
As a result of the sale of ENVOY to WebMD the Company did not grant any
new options to purchase shares of Common Stock to Mr. Kever pursuant to Mr.
Kever's employment contract with ENVOY. However, Mr. Kever elected to have
certain options covering an aggregate of 471,841 shares of Common Stock repriced
pursuant to the ENVOY Repricing Plan during 2000.
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LONG-TERM INCENTIVE AWARDS
The long-term incentive component of the Company's compensation scheme
is designed to motivate and reward executives for maximizing shareholder value
and encourage the long-term employment of key employees. Long-term incentives
are primarily provided pursuant to the Company's Equity Compensation Plan and
the Nonqualified Stock Option Plan, which are administered by the Compensation
Committee. Additional long-term incentive compensation is provided through the
ESOP. On April 15, 2000, the Company granted stock options to all eligible ESOP
participants to supplement the ESOP contribution for 1999. Dr. Gillings, Mr.
Costa, Dr. Reynders, Mr. Russell and Mr. Bierman all received stock options
under this grant.
When awarding long-term incentives pursuant to the Equity Compensation
Plan and the Nonqualified Stock Option Plan, the Compensation Committee has
established target award guidelines for each level of executive. These targets
are designed to comport with compensation practices among mid-sized U.S. and
international companies in general industry. Actual awards may vary from the
target levels to account for unusual performance or potential or to meet special
hiring or retention needs.
The Compensation Committee considered the number of options held by Mr.
Bierman, and when compared to contributions to the progress of the Company, the
Compensation Committee determined that, in keeping with his position and
responsibilities, it was appropriate to make a one-time grant of options to
purchase 272,500 shares, on October 13, 2000 with an exercise price equal to
$16.0625. The Company also granted merit options to Mr. Bierman and Mr. Russell
on April 24, 2000 at an exercise price of $14.375.
On May 4, 2000, the Compensation Committee approved grants of stock
options to Dr. Gillings, Mr. Costa, Mr. Bierman, Mr. Russell, and Dr. Reynders.
The size of each award was determined in accordance with the target award
guidelines discussed above. These options vest on the anniversaries of the grant
date over a four year period (25% of the grant each year). Since these options
carry exercise prices equal to the fair market value of the Company's Common
Stock on the date of grant, the stock options have value only if the stock price
appreciates from the value on the date the options were granted. This feature is
intended to focus executives on the enhancement of shareholder value over the
long-term and to encourage equity ownership in the Company.
BENEFITS
Benefits offered to executives serve a different purpose than do the
other elements of executive compensation. In general, they are designed to
provide a safety net of protection against the financial catastrophes that can
result from illness, disability or death and to provide a reasonable level of
retirement income. Benefits offered to executives are largely those that are
offered to the general employee population, with some variation primarily to
promote tax efficiency.
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CHIEF EXECUTIVE OFFICER ("CEO") COMPENSATION
The Compensation Committee has adopted the policies described above
with respect to Dr. Gillings, whose base salary rate at December 31, 2000 was
$600,000 and whose performance award for 2000 (awarded in stock options) covered
59,873 shares of the Company's Common Stock. The size of his performance award
was based on the Company's operating surplus and net revenue targets. The value
of this award represents 85% of Dr. Gillings' base salary. In addition, as more
fully described below under the caption "Employment Agreements," Dr. Gillings
received split-dollar life insurance benefits during 2000. The total of base
salary, performance award opportunity and life insurance benefits was
established by the Compensation Committee at the 50th percentile of comparable
pay for Chief Executive Officers in the contract research organization,
biotechnology and pharmaceutical industries. In setting this amount, the
Compensation Committee took into consideration Dr. Gillings' industry experience
and length of service, his vision, which has been instrumental to the growth and
success of the Company, and his leadership ability, which resulted in the
Company's successful public offerings and its acquisition program. Dr. Gillings
also received options to purchase 293,496 shares of Common Stock pursuant to the
executive compensation plan, consistent with the target long term incentive
award guidelines adopted by the Compensation Committee, as discussed above. In
addition, Dr. Gillings received an allocation to his ESOP account in accordance
with the terms of the ESOP.
POLICY WITH RESPECT TO $1 MILLION DEDUCTION LIMIT
The Company has not awarded any compensation that is non-deductible
under Section 162(m) of the Internal Revenue Code. That section imposes a $1
million limit on the U.S. corporate income tax deduction a publicly-held company
may claim for compensation paid to the named executive officers unless certain
requirements are satisfied. An exception to this limitation is available for
"performance-based" compensation, as defined under Section 162(m). Compensation
received as a result of the exercise of stock options may be considered
performance-based compensation if certain requirements of Section 162(m) are
satisfied. The Company has amended the Equity Compensation Plan so that
compensation related to stock options granted under that plan may qualify as
performance-based compensation and remain deductible. In the event that the
Compensation Committee considers approving compensation in the future which
would exceed the $1 million deductibility threshold, the Compensation Committee
will consider what actions, if any, should be taken to make such compensation
deductible.
CONCLUSION
The Compensation Committee believes that these executive compensation
policies and programs effectively promote the Company's interests and enhance
shareholder value.
SUBMITTED BY THE COMPANY'S COMPENSATION COMMITTEE
ROBERT C. BISHOP, CHAIRMAN
CHESTER W. DOUGLASS
VIRGINIA V. WELDON
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AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board of Directors in
overseeing the Company's financial reporting process. The Board of Directors, in
its business judgment, has determined that all members of the Audit Committee
are "independent", as required by applicable listing standards of Nasdaq. The
Audit Committee's responsibilities are described in its Charter, adopted by the
Board on August 5, 1999 and amended by the Board on March 13, 2001, a copy of
which is attached to this Proxy Statement as Appendix A.
In the performance of its oversight function, the Audit Committee has
considered and discussed the audited financial statements with management and
the independent auditors. The Audit Committee has also discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as currently in
effect. Finally, the Audit Committee has received the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, as
currently in effect, has considered whether the provision of non-audit services
by the independent auditors to the Company is compatible with maintaining the
auditor's independence and has discussed with the auditors the auditors'
independence.
The members of the Audit Committee are not professionally engaged in
the practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Management
of the Company is responsible for the preparation of the Company's financial
statements. The independent auditors are responsible for auditing the Company's
financial statements and expressing an opinion as to their conformity with
generally accepted accounting principles. Members of the Audit Committee rely
without independent verification on the information provided to them and on the
representations made by management and the independent accountants.
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Audit
Committee referred to above and in the Charter, the Audit Committee recommended
to the Board that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 to be filed with
the Securities and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
E. G. F. BROWN
VAUGHN D. BRYSON
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COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total shareholder return on
the Company's Common Stock since December 31, 1995 through December 31, 2000,
with the cumulative total return for the same period on the Nasdaq Stock Market
(U.S.) Index and the Nasdaq Health Services Index. The graph assumes that at the
beginning of the period indicated, $100 was invested in the Company's Common
Stock and the stock of the companies comprising the Nasdaq Stock Market (U.S.)
Index and the Nasdaq Health Services Index and that all dividends were
reinvested.
SHAREHOLDER RETURN ON COMMON STOCK
[PERFORMANCE GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG QUINTILES TRANSNATIONAL CORP.
AND THE NASDAQ U.S. STOCK AND NASDAQ HEALTH SERVICES INDICES
NASDAQ
Health
QTRN NASDAQ U.S. Services
------------ -------------- --------------
12/31/1995 $ 100 $ 100 $ 100
12/31/1996 $ 162 $ 123 $ 100
12/31/1997 $ 187 $ 151 $ 102
12/31/1998 $ 260 $ 212 $ 86
12/31/1999 $ 91 $ 384 $ 71
12/31/2000 $ 102 $ 238 $ 96
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EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Dr. Gillings,
Mr. Costa, Mr. Bierman, Mr. Russell and Dr. Reynders. Mr. Kever had entered an
employment agreement with ENVOY which was assumed by WebMD as a result of the
sale of ENVOY. 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 the Company's executives.
The employment agreement for Dr. Gillings extends for three years from
February 22, 1994 and automatically renews for additional and successive
one-year terms unless either party provides 90 days' notice of 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
the Company if Dr. Gillings becomes permanently disabled, upon notice by the
Company for cause, upon notice by Dr. Gillings in the event of a change in
control, as defined in his employment agreement (provided Dr. Gillings
terminates his employment within 18 months following such change in control),
upon notice by Dr. Gillings in the event of the Company's material breach or
improper termination of the employment agreement and upon notice by Dr. Gillings
if Dr. Gillings is not elected as Chairman of the Board and Chief Executive
Officer of the Company. The agreement provides for severance payments and
continuation of benefits in the event Dr. Gillings' termination is for permanent
disability, change in control, breach or improper termination by the Company, or
for a change in position. In the event of termination by Dr. Gillings due to
permanent disability, breach or improper termination by the Company or for a
change in position, the Company must pay Dr. Gillings or his estate or
beneficiaries his full base salary then in effect and other benefits under the
agreement for the lesser of three years or the term of the non-compete covenant
provided in the agreement. In the event that Dr. Gillings terminates his
employment or is terminated by the Company without cause within 18 months
following a change in control, the Company 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
of the Company's retirement plans. In addition, upon a change in control, all
options held by Dr. Gillings will become fully vested and exercisable. The
Company is not obligated to make any payments or provide benefits to Dr.
Gillings if the termination is for cause. The agreement includes a three year
(or such lesser period as the Board determines, but in no event less than one
year) non-compete provision pursuant to which Dr. Gillings cannot compete with
the Company in any geographic area in which it does business and cannot solicit
or interfere with the Company's relationship with any person or entity doing
business with the Company, or offer employment to any person employed by the
Company in the one year period prior to Dr. Gillings' termination of employment.
The agreement prohibits disclosure of any confidential information acquired
during the period of employment with the Company.
The Company entered into split-dollar life insurance agreements as of
May 16, 1996 with certain trusts created by Dr. Gillings, pursuant to which the
Company and the trusts will share in the premium costs of certain variable and
whole life insurance policies that pay an aggregate
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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 the Company pays the remaining
premiums. The Company may cause this arrangement to be terminated at any time
upon 30 days' notice. Upon termination of the arrangement, surrender of a
policy, or payment of the death benefit under a policy, the Company is entitled
to repayment of an amount equal to the cumulative premiums previously paid by
the Company thereunder, with all remaining amounts going to the trust. Upon any
surrender of a policy, the liability of the related trust to the Company is
limited to the cash value of the policy. See footnotes (4), (7) and (10) to the
"Summary Compensation Table" above for additional information on premium
payments made by the Company under the policies.
Effective November 29, 1999, Mr. Costa ceased to be President and Chief
Operating Officer of the Company and became its 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
the Company if Mr. Costa becomes permanently disabled, upon notice by the
Company for cause, upon notice by Mr. Costa in the event of a change in control,
as defined in his employment agreement (provided Mr. Costa terminates his
employment within 18 months following such change in control) and upon notice by
Mr. Costa in the event of the Company's 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, the Company
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 the Company without cause
within 18 months after a change in control, the Company 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 18
months and make a lump sum payment of any amounts held by Mr. Costa in any of
the Company's retirement plans. In addition, upon a change in control, all
options held by Mr. Costa will become fully vested and exercisable. The Company
is not obligated to make any payments or provide benefits to Mr. Costa if the
termination is for cause. The agreement includes a one-year non-compete
provision following termination of employment and prohibits disclosure of
confidential information.
Mr. Bierman's employment agreement, dated June 16, 1998, extends for
successive one-year intervals unless terminated by either party with 90 days
written notice. The Company may terminate this agreement without notice upon Mr.
Bierman's death, his physical or mental inability to perform his duties for a
period of 180 days, his material breach or his acts or omissions that are
materially harmful to the Company's interest. Mr. Bierman may terminate the
agreement if the Company fails to cure its material breach of the agreement
within 30 days of receiving notice of the breach from him. Mr. Bierman is
entitled to severance payments for 12 months following termination if the
Company terminates the agreement for non-renewal or without cause, in which case
he is also entitled to continuation of benefits, or if Mr. Bierman terminates
the agreement for the Company's failure to cure its material breach, in each
instance
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subject to his compliance with the noncompete, confidentiality, intellectual
property and release provisions of the agreement. Upon a change in control, as
defined in the agreement, Mr. Bierman shall receive 2.99 times his base salary,
as well as accelerated vesting of stock options. The agreement includes a one
year non-compete provision and prohibits Mr. Bierman from soliciting or
interfering with the Company's relationship with any person doing business with
the Company or offering employment to any person employed by the Company in the
one year period prior to Mr. Bierman's termination of employment.
Mr. Russell's employment agreement, dated December 3, 1998, extends for
successive one-year intervals unless terminated by either party with 90 days
written notice. This employment agreement was amended on October 26, 1999 to
provide more detailed change in control provisions. The Company may terminate
this agreement without notice upon Mr. Russell's death, his physical or mental
inability to perform his duties for a period of 180 days, his material breach,
his acts or omissions that are materially harmful to the Company's interest or
any other reason recognized as "cause" under applicable law. Mr. Russell may
terminate the agreement if the Company fails to cure its material breach of the
agreement within 30 days of receiving notice of the breach from him. Mr. Russell
is entitled to severance payments and continuation of benefits during the 12
months following termination if the Company terminates the agreement for
non-renewal or without cause or if Mr. Russell terminates the agreement for the
Company's failure to cure its material breach, in each instance subject to his
compliance with the noncompete, confidentiality, intellectual property and
release provisions of the agreement. In the event that Mr. Russell terminates
his employment or is terminated by the Company without cause within 18 months
following a change in control, as defined in the agreement, the Company must
make a severance payment equal to 2.99 times the amount of Mr. Russell's 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 Mr. Russell in any of the Company's retirement plans. In
addition, upon a change in control, all options held by Mr. Russell will become
fully vested and exercisable. The agreement includes a one year non-compete
provision and prohibits Mr. Russell from soliciting or interfering with the
Company's relationship with any person doing business with the Company or
offering employment to any person employed by the Company in the one year period
prior to Mr. Russell's termination of employment.
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 the Company 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 the Company's 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 the Company without cause
within 18 months after a change in control, as defined in the agreement, the
Company 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
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for 18 months and make a lump sum payment of any amounts held by Dr. Reynders in
any of the Company's retirement plans. 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.
Mr. Kever's employment agreement with ENVOY was assumed by WebMD as a
result of the sale of ENVOY. As more fully described under Ten Year Option
Repricing, on page 18, and in the Report of the Compensation Committee on the
ENVOY Repricing Plan, on page 19, Mr. Kever repriced an aggregate of 471,841
options to purchase shares of Common Stock following the sale of ENVOY to WebMD.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 26, 2000, WebMD, formerly known as Healtheon/WebMD, acquired
ENVOY from the Company in exchange for 35,000,000 shares of WebMD common stock
and $400,000,000 in cash. The Company issued WebMD a warrant to purchase up to
10,000,000 shares of its Common Stock at $40.00 per share, exercisable for four
years. As a result of the sale of ENVOY, the Company owns approximately 9.7% of
WebMD. The Company's Chairman and former Chief Executive Officer, Dr. Gillings,
was appointed to the WebMD Board of Directors on May 30, 2000. Upon closing of
the sale, Mr. Kever became Co-Chief Executive Officer of Transaction Services
Division of WebMD, and ceased to serve as one of the Company's executive
officers. Mr. Kever continues to serve as a director of the Company. As more
fully described under Ten Year Option Repricing, on page 18, and in the Report
of the Compensation Committee on the ENVOY Repricing Plan, on page 19, Mr. Kever
repriced an aggregate of 471,841 options to purchase shares of Common Stock
following the sale of ENVOY to WebMD.
Also as part of the agreement, the Company and WebMD entered into an
agreement to form a strategic alliance to jointly develop an integrated series
of Web-based products aimed at improving the efficiency of drug development and
commercialization. Under this agreement, WebMD has agreed to perform development
services, and the Company has agreed to provide funding for such services. The
Company paid $1.8 million to WebMD under this agreement during 2000. The Company
also executed an agreement with WebMD under which the Company has exclusive
rights to de-identified ENVOY transaction data, as well as other data received
by WebMD. The Company did not make any payments to WebMD under this agreement
during 2000. The Company is WebMD's exclusive licensee for creating healthcare
informatics products. The Company and WebMD are currently in dispute regarding
these agreements.
In 2000, Dr. Gillings provided extensive business-related travel
services for himself and other Company employees with the use of his own plane.
The Company reimbursed Dr. Gillings for the use of his plane by making a cash
payment of $957,203 and by granting options to Dr.
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Gillings with a Black-Scholes value of $1.4 million at an exercise price of
$13.44. Subsequent to year end, the Company received an invoice for an
additional cash payment of $442,797 relating to use of the plane during 2000.
This reimbursement package was approved by the Compensation Committee and was
estimated to be less than the cost of operating the plane for Company business
purposes.
On January 1, 2000, the Company entered into a new consulting agreement
with A.M. Pappas & Associates, LLC, or AMP&A, which superseded the consulting
agreement dated March 15, 1995. 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 the Company for more than $220,000 per year
without the Company's prior consent. The Company has agreed to reimburse AMP&A
for all reasonable out-of-pocket and administrative expenses incurred by AMP&A
in connection with performing its services. In 2000, the Company paid AMP&A
consulting fees of approximately $427,000 in cash and reimbursed AMP&A for
approximately $22,200 in expenses.
The Company is a limited partner in TechAMP International, L.P. and A.
M. Pappas TechAMP II, L.P., funds organized to make venture capital investments
in the equity securities of private companies in the life science sector.
TechAMP International and A. M. Pappas TechAMP II are managed by their general
partner, AMP&A Management, LLC, an affiliate of AMP&A. The Company has committed
to invest an aggregate of $18,000,000 in TechAMP International and A.M. Pappas
TechAMP II. As a limited partner, the Company will make capital contributions
under this commitment from time to time at the request of the fund's general
partner. In 2000, the Company made capital contributions of $1,440,000 to
TechAMP International and $250,000 to A. M. Pappas TechAMP II. During 2000,
TechAMP International made distributions to its limited partners in the form of
cash and securities on four separate occasions. The Company received
approximately $4,231,040 in the aggregate from TechAMP International, consisting
of approximately $2,958,678 in cash and securities valued at approximately
$1,272,362 (valued as of each distribution date, respectively) as a result of
these distributions. A. M. Pappas TechAMP II did not make any distributions to
its limited partners in 2000.
In November 1997, the Company signed a preferred provider agreement
with The Cleveland Clinic Foundation, pursuant to which The Cleveland Clinic
will work with the Company as a preferred provider for investigator services in
certain therapeutic areas, including cardiology, AIDS, cancer and molecular
genetics, and the Company 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 2000, pursuant to the 1997 preferred provider agreement, the Company
incurred fees of $114,174, all of which were paid in 2000. In addition, the
Company entered into an agreement with The Cleveland Clinic Foundation to
establish a phase I oncology pharmacological unit in January 1999. The Company
provided The Cleveland Clinic Foundation $122,479 during 2000 in connection with
this agreement.
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SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based solely upon review of Forms 3 and 4 and amendments thereto furnished to
the Company during fiscal 2000 and Forms 5 and amendments thereto furnished to
the Company with respect to fiscal 2000, the Company believes that all Section
16(a) filing requirements applicable to its officers, directors and
greater-than-10% stockholders were fulfilled in a timely manner, except that Mr.
Kever reported five transactions on two separate late Form 4s, Mr. Bryson
reported one transaction on a late Form 4, Dr. Reynders reported two
transactions on a late Form 4, and Mr. Costa amended a Form 4 filed with the
Securities and Exchange Commission in 1999 concerning two transactions. After
investigating these matters, the Company has concluded that any omissions were
inadvertent, and that none of the transactions gave rise to liability under
Section 16(b) of the Exchange Act for recapture of short-swing profits.
PROPOSAL 2: RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP as independent
public accountants for fiscal year 2001. Although shareholder approval is not
required, the Company desires to obtain from the shareholders an indication of
their approval or disapproval of the Board's action in appointing Arthur
Andersen LLP as the independent public accountants of the Company and its
subsidiaries. If the shareholders do not ratify this appointment, such
appointment will be reconsidered by the Audit Committee and the Board of
Directors. The proxy will be voted as specified, and if no specification is
made, the proxy will be cast "For" this proposal.
A representative of Arthur Andersen LLP will be present at the Annual
Meeting and will be afforded an opportunity to make a statement and to respond
to questions.
FISCAL 2000 AUDIT FIRM FEE SUMMARY
During fiscal year 2000, the Company retained its independent
accountants, Arthur Andersen LLP, to provide services in the following
categories and amounts (stated in thousands)
Audit Fees $ 1,330
Financial Information Systems Design
And Implementation Fees $ 6,960
All Other Fees $ 1,500
Total $ 9,790
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP FOR FISCAL YEAR 2001.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR
2002 ANNUAL MEETING OF SHAREHOLDERS
Company shareholders who intend to present proposals at the
Company's 2002 annual meeting and that shareholders desire to have included in
the Company's proxy materials relating to the meeting must be received by the
Company no later than December 5, 2001, which is 120 calendar days prior to the
anniversary of the date of this proxy statement, and must be in compliance with
applicable laws and regulations in order to be considered for possible inclusion
in the proxy statement and form of proxy for that meeting.
If a shareholder wishes to present a proposal at the Company's
annual meeting in the year 2002 and the proposal is not intended to be included
in the Company's proxy statement relating to that meeting, the shareholder must
give advance notice to the Company prior to the deadline for such meeting
determined in accordance with the Company's Bylaws (the "Bylaw Deadline"), as
described below in the section entitled "Other Matters." If a shareholder gives
notice of a proposal after the Bylaw Deadline, the shareholder will not be
permitted to present the proposal to the shareholders for a vote at the meeting.
SEC rules also establish a different deadline for submission of
shareholder proposals that are not intended to be included in the Company's
proxy statement with respect to discretionary voting (the "Discretionary Vote
Deadline"). The Discretionary Vote Deadline for the year 2002 annual meeting is
February 19, 2002 (45 calendar days prior to the anniversary of the mailing date
of this proxy statement). If a shareholder gives notice of such a proposal after
the Discretionary Vote Deadline, the Company's proxy holders will be allowed to
use their discretionary voting authority to vote against the shareholder
proposal when and if the proposal is raised at the Company's year 2002 annual
meeting. Because the Bylaw Deadline cannot be determined until the Company
publicly announces the date for its next annual meeting, it is possible that the
Bylaw Deadline may occur after the Discretionary Vote Deadline. In such a case,
a proposal received after the Discretionary Vote Deadline but before the Bylaw
Deadline would be eligible to be presented at the 2002 annual meeting, and the
Company believes that its proxy holders would be allowed to use the
discretionary authority granted by the proxy card to vote against the proposal
at the meeting without including any disclosure of the proposal in the proxy
statement relating to the meeting.
The Company has not been notified by any shareholder of his or her
intent to present a shareholder proposal from the floor at this year's Annual
Meeting. The enclosed proxy card grants the proxy holders discretionary
authority to vote on any matter properly brought before the Annual Meeting,
including any shareholder proposals properly presented to the Company prior to
the Bylaw Deadline for this year's Annual Meeting.
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MISCELLANEOUS
The Company's Annual Report on Form 10-K for the year ended December
31, 2000, which includes financial statements audited and reported upon by the
Company's independent public accountants, is being mailed along with this Proxy
Statement. Additional copies of the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 will be furnished without charge to any shareholder
upon written request directed to Investor Relations, Quintiles Transnational
Corp., P. O. Box 13979, Research Triangle Park, North Carolina 27709-3979.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of proxy to vote the shares they
represent as the Board of Directors may recommend. Under the Company's bylaws,
in order to be deemed properly presented, notice must be delivered to the
Secretary of the Company at the principal executive offices of the Company not
more than 90 and not less than 50 days before the annual meeting. The
shareholder's notice must set forth, as to each proposed matter: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting and, if such
business includes a proposal to amend the bylaws of the Company, the language of
the proposed amendment; (ii) the name and address, as they appear on the
Company's books, of the shareholder proposing such business; (iii) the class and
number of shares of the Company which are beneficially owned by such
shareholder; (iv) a representation that the shareholder is a holder of record of
stock of the Company entitled to vote at such annual meeting and intends to
appear in person or by proxy at the annual meeting to propose such business; and
(v) any material interest of the shareholder in such business.
By Order of the Board of Directors
John S. Russell
Senior Vice President and General Counsel,
Head Global Human Resources,
Corporate Secretary
Durham, North Carolina
April 4, 2001
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APPENDIX A
QUINTILES TRANSNATIONAL CORP.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AMENDED AND RESTATED CHARTER
(Amended as of March 13, 2001)
PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors
in fulfilling their responsibility to the shareholders, potential shareholders
and investment community relating to the quality and integrity of the Company's
financial reporting. Management of the Company is responsible for the
preparation of the Company's financial statements. The independent auditors are
responsible for planning and carrying out a proper audit of the Company's annual
financial statements, reviews of the Company's quarterly financial statements
prior to the filing of each quarterly report on Form 10-Q, and other procedures.
The Audit Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the
Company's financial reporting process and internal controls
regarding finance, accounting, compliance with applicable laws
and adherence to the Company's policies regarding the above.
o Appraise the independence and performance of the external
auditors.
o Appraise the objectivity and performance of the internal audit
function.
o Foster the continuous improvement of the Company's financial
policies, procedures and practices.
o Provide an open avenue of communication among the independent
auditors, financial and senior management, the internal
auditors and the Board of Directors.
In fulfilling their responsibilities under this charter, it is
recognized that members of the Audit Committee are not full-time employees of
the Company and are not, and do not represent themselves to be accountants or
auditors by profession, except to the extent described under Article II below,
or experts in the fields of accounting or auditing including in respect of
auditor independence. As such, it is not the duty or responsibility of the Audit
Committee or its members to conduct "field work" or other types of auditing or
accounting reviews or procedures or to set auditor independence standards, and
each member of the Audit Committee shall be entitled to rely on (i) the
integrity of those persons and organizations within and outside the Company from
which it receives information, (ii) the accuracy of the financial and other
information provided to the Audit Committee by such persons or organizations
absent actual knowledge to the contrary (which shall be promptly reported to the
Board of Directors) and (iii) representations made by management as to any
information technology, internal audit and other
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non-audit services provided by the auditors to the Company.
The independent auditors for the Company are ultimately accountable to
the Board of Directors (as assisted by the Audit Committee). The Board of
Directors, with the assistance of the Audit Committee, has the ultimate
authority and responsibility to select, evaluate and, where appropriate, replace
the independent auditors (or to nominate the independent auditors to be proposed
for shareholder approval in the proxy statement).
COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Audit
Committee. All members of the Audit Committee shall be able to read and
understand fundamental financial statements and at least one member of the Audit
Committee shall have past employment experience in finance or accounting,
professional certification in accounting, or other comparable experience which
results in the person's financial sophistication, such as having been a CEO, CFO
or other senior officer with financial oversight responsibilities.
Notwithstanding the above, the Audit Committee may include one
non-independent director who is not a current employee of the Company if the
Board, in exceptional and limited circumstances, determines that it would be in
the best interests of the Company and its shareholders, and the Board discloses
the nature of this relationship and the reasons for the determination in it next
annual proxy statement after such appointment.
MEETINGS
The Audit Committee shall meet at least four times annually, and may
meet more frequently if necessary. The Audit Committee shall meet separately at
least annually with management, the director of internal audit and the
independent auditors to discuss any matters the Audit Committee or they believe
should be discussed privately with the Audit Committee. Members of the Audit
Committee may participate in a meeting of the Audit Committee by means of
conference call or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
IV. RESPONSIBILITIES AND DUTIES
General
o Obtain the full Board's approval of this charter and review,
and if necessary, update the Audit Committee's charter as
conditions dictate. Propose any changes to the Board and
receive approval of any such changes from the Board.
o Perform a self-assessment of the Audit Committee's performance
as compared to the charter annually.
o Record minutes of each meeting and report quarterly to the
Board of Directors, and comply with requirements in the
Company's bylaws regarding committees of the Board
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of Directors.
o Conduct or authorize investigations into any matters within
the Audit Committee's scope of responsibilities. The Audit
Committee shall be empowered to retain independent counsel and
other professionals to assist in the conduct of any
investigation.
o Prepare any report or other disclosures, including any
recommendation of the Audit Committee required by the SEC
and/or Nasdaq to be included in the Company's annual proxy
statement.
Independent Auditors
o Review performance of independent auditors annually and, where
appropriate, replace, or recommend that the Board replace, the
independent auditors.
o Recommend to the Board the independent auditors to be
nominated for the coming year.
o Review the audit plan and approve audit related fees and
non-audit fees charged by the independent auditors.
o Ensure receipt of, on an annual basis, a formal written
statement delineating all relationships between the
independent auditors and the Company ("Statement as to
Independence"), addressing each non-audit service provided to
the Company, if any, and at least the matters set forth in
Independence Standards Board No. 1 (it being understood that
the independent auditors are responsible for the accuracy and
completes of such Statement of Independence).
o Ensure that the Statement as to Independence addresses the
fees billed for each of the following categories of services
rendered by the independent auditors: (a) the audit of the
Company's annual financial statements for the most recent
fiscal year and the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for
that fiscal year; (b) information technology consulting
services for the most recent fiscal year, in the aggregate and
by each service (and separately identifying fees for such
services relating to financial information systems design and
implementation); and (c) all other services rendered by the
independent auditors for the most recent fiscal year, in the
aggregate and by each service.
o Review the Statement of Independence on an annual basis and
discuss with the independent auditors any relationships or
services disclosed in this Statement of Independence that may
impact the objectivity and independence of the independent
auditors and recommend that the Board of Directors take
appropriate action in response to this Statement of
Independence to satisfy itself of the independent auditor's
independence.
o Consider the effect of the independent auditor's provision of
(a) information technology consulting services relating to
financial information systems design and implementation and
(b) other non-audit services to the Company on the
independence of the independent auditors (it being understood
that the audit committee will rely on the accuracy of the
information provided by the independent auditors as to the
services provided and the fees paid and will rely on the
representations of management in connection with such
consideration).
o Direct attention of the auditors to specific matters deemed by
the Audit Committee to be of concern.
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o Instruct the independent auditor that the Board of Directors
and the Audit Committee, as the shareholders' representatives,
are the auditor's clients, and that they have the ultimate
authority in deciding to engage, evaluate and, if appropriate,
terminate their services.
o Inquire as to the auditor's independent qualitative judgments
about the appropriateness, not just the acceptability, of the
Company's accounting principles and the clarity and
completeness of its financial disclosures.
o Inquire as to the auditor's views about whether management's
choices of accounting principles are conservative, moderate,
or aggressive.
o Discuss with the independent auditors any required
communications after completion of annual audit or quarterly
reviews prior to filing financial statements with the SEC.
o Review and discuss with the independent auditors any matters
described in Statement on Auditing Standards No. 61, as
modified or supplemented.
Internal Audit
o Approve charter for the internal audit function.
o Review and concur in the appointment or dismissal of the
Director of Internal Audit.
o Review budget and staffing plans.
o Review audit plan and compare to independent audit plan to
assure appropriate coverage of audits, avoid redundant efforts
and effectively utilize resources.
o Make inquiries regarding objectivity of internal auditors.
COMPLIANCE WITH LAWS AND REGULATIONS
o Review any legal or regulatory matters identified by
management, general counsel or the tax director (or person
with such responsibilities) and communicated to the Audit
Committee that the Audit Committee believes may have a
material impact on the financial reports of the Company and
evaluate whether such matters have been considered in the
preparation of the financial statements.
o Periodically obtain updates from management, general counsel
and the tax director (or person with such responsibilities)
regarding actions taken to ensure compliance with applicable
financial reporting laws, and regulations and the Company's
Standard Operating Procedures and Corporate Policies.
Management, Independent Auditors and Internal Auditors
o Discuss significant risks or exposures and assess the steps
management has taken to minimize such risk.
o Discuss adequacy of internal controls including computerized
information system controls and any significant findings
during the course of audits.
o Review recommendations of the independent and internal
auditors together with management's response.
o Review the adequacy of internal controls and procedures
related to executive travel and entertainment and related
party transactions.
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o Discuss any material disagreements or difficulties encountered
in the course of audit work, including any restrictions of the
scope of work or access to required information.
o Review the financial statements and footnotes contained in the
annual report prior to issuance to shareholders.
o Prior to filing the Form 10-K with the SEC, meet with
management and the independent auditors to review and discuss
the audited financial statements and the results of the audit.
o Prior to filing the Form 10-Q with the SEC, review and discuss
the quarterly financial statements and the results of the
independent auditors' review (this may be done by the
committee chair or the entire committee).
o Require the independent auditors to communicate to the Audit
Committee any matters required by applicable regulations or
accounting standards.
o Approve any changes in accounting principles.
o Review and discuss with independent auditors competency of
accounting and financial human resources.
o Determine whether, based on the Audit Committee's review and
discussions with management and the independent auditors, the
Audit Committee will recommend to the Board of Directors that
the annual financial statements be included in the Company's
annual report on Form 10-K for the previous fiscal year.
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APPENDIX B
QUINTILES TRANSNATIONAL CORP.
PROXY FOR 2001 ANNUAL MEETING OF SHAREHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Dennis B. Gillings, Ph.D. and Pamela J.
Kirby, Ph.D. and each of them as attorney and proxy of the undersigned, each
with the full power of substitution, to represent the undersigned and to vote
all of the shares of stock in Quintiles Transnational Corp. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at the Sheraton Imperial Hotel and Convention Center, 4700 Emperor Blvd.,
Durham, North Carolina 27703 on Wednesday, May 2, 2001 at 5:30 p.m., Eastern
Daylight Saving Time, and any adjournments thereof (1) as hereinafter specified
upon the proposals listed below and as more particularly described in the
Company's Proxy Statement, receipt of which is hereby acknowledged; and (2) in
their discretion upon such other matters as may properly come before the meeting
and any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS LISTED
BELOW.
1. Election of Class I Directors
[ ] FOR all nominees listed below (except as marked to
the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
below.
Robert C. Bishop, Ph.D., Arthur M. Pappas, and E.G.F. Brown
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided
below:
-------------------------------------------------------------
2. Ratify appointment of Arthur Andersen LLP as independent
public accountants for the Company and its subsidiaries for
the fiscal year ending December 31, 2001:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the reverse)
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(Continued from other side)
By signing the proxy, a shareholder will also be authorizing the proxy
holder to vote in his discretion regarding any procedural motions which may come
before the Annual Meeting. For example, this authority could be used to adjourn
the meeting if the Company believes it is desirable to do so. Adjournment or
other procedural matters could be used to obtain more time before a vote is
taken in order to solicit additional proxies or to provide additional
information to shareholders. The Company has no current plans to adjourn the
meeting, but would attempt to do so if the Company believes that adjournment
would promote shareholder interests.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN.
Date , 2001
----------------------------------
(Be sure to date Proxy)
--------------------------------------------
Signature and title, if applicable
--------------------------------------------
Signature if held jointly
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign the full corporate name by the
President or other authorized officer. If a
partnership, please sign in the partnership
name by an authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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