-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CxHEITFD/kjkk5e5smSqHn6VbL0dE2Qox1+3bt42Eb6lsKUXYuGx/NiT5mpcLDav T4Hdqz8C44ZrfGN/Vn4JIg== 0000950144-01-502307.txt : 20010516 0000950144-01-502307.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950144-01-502307 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUINTILES TRANSNATIONAL CORP CENTRAL INDEX KEY: 0000919623 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 561714315 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23520 FILM NUMBER: 1635047 BUSINESS ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: RIVERBIRCH BLDG STE 200 CITY: DURHAM STATE: NC ZIP: 27703-8411 BUSINESS PHONE: 9199982000 MAIL ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: STE 300 CITY: DURHAM STATE: NC ZIP: 27703-8411 10-Q 1 g68954e10-q.txt QUINTILES TRANSNATIONAL CORP 1 Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2001 -------------- Commission file number 000-23520 --------- QUINTILES TRANSNATIONAL CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) North Carolina 56-1714315 - ----------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4709 Creekstone Dr., Suite 200 Durham, NC 27703-8411 - ---------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) (919) 998-2000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No The number of shares of Common Stock, $.01 par value, outstanding as of April 30, 2001 was 116,603,423 2 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Index
Page Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - March 31, 2001 and December 31, 2000 3 Condensed consolidated statements of operations - Three months ended March 31, 2001 and 2000 4 Condensed consolidated statements of cash flows - Three months ended March 31, 2001 and 2000 5 Notes to condensed consolidated financial statements - March 31, 2001 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure about Market Risk 20 Part II. Other Information Item 1. Legal Proceedings 20 Item 2. Changes in Securities - Not Applicable 22 Item 3. Defaults upon Senior Securities - Not Applicable 22 Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 22 Item 5. Other Information - Not Applicable 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibit Index 24
2 3 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31 2001 2000 ----------- ----------- (unaudited) (Note 1) ASSETS (In thousands) Current assets: Cash and cash equivalents $ 377,946 $ 330,214 Trade accounts receivable and unbilled services, net 446,859 413,992 Investments in debt securities 28,726 31,080 Prepaid expenses 34,081 31,984 Other current assets and receivables 27,911 29,405 ----------- ----------- Total current assets 915,523 836,675 Property and equipment 610,155 602,950 Less accumulated depreciation (222,352) (210,990) ----------- ----------- 387,803 391,960 Intangibles and other assets: Intangibles, net 196,322 194,814 Investments in debt securities 47,228 76,732 Investments in marketable equity securities 257,998 384,040 Deferred income taxes 31,615 29,175 Deposits and other assets 53,428 48,182 ----------- ----------- 586,591 732,943 ----------- ----------- Total assets $ 1,889,917 $ 1,961,578 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Lines of credit $ 17 $ 44 Accounts payable and accrued expenses 255,368 255,238 Credit arrangements, current 22,862 20,027 Unearned income 208,293 194,201 Income taxes payable 54,842 51,284 Deferred income taxes 4,545 4,774 Other current liabilities 1,655 2,423 ----------- ----------- Total current liabilities 547,582 527,991 Long-term liabilities: Credit arrangements, less current portion 11,077 18,965 Other liabilities 10,547 9,916 ----------- ----------- 21,624 28,881 ----------- ----------- Total liabilities 569,206 556,872 Shareholders' equity: Preferred stock, none issued and outstanding at March 31, 2001 and December 31, 2000, respectively -- -- Common stock and additional paid-in capital, 116,460,666 and 115,933,182 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 881,535 876,407 Retained earnings 630,772 622,985 Accumulated other comprehensive loss (191,596) (94,686) ----------- ----------- Total shareholders' equity 1,320,711 1,404,706 ----------- ----------- Total liabilities and shareholders' equity $ 1,889,917 $ 1,961,578 =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements. 3 4 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED MARCH 31 ----------------------------- 2001 2000 --------- --------- (in thousands) Net revenue $ 404,470 $ 414,845 Costs and expenses: Direct 241,006 252,409 General and administrative 134,717 138,129 Depreciation and amortization 22,653 23,122 Restructuring -- 58,592 --------- --------- 398,376 472,252 --------- --------- Income (loss) from operations 6,094 (57,407) Other income, net 5,534 1,948 --------- --------- Income (loss) from continuing operations before income taxes 11,628 (55,459) Income tax expense (benefit) 3,837 (18,300) --------- --------- Income (loss) from continuing operations 7,791 (37,159) Income from discontinued operation, net of income taxes -- 10,594 --------- --------- Net income (loss) $ 7,791 $ (26,565) ========= ========= Basic net income (loss) per share: Income (loss) from continuing operations $ 0.07 $ (0.32) Income from discontinued operation -- 0.09 --------- --------- Basic net income (loss) per share $ 0.07 $ (0.23) ========= ========= Diluted net income (loss) per share: Income (loss) from continuing operations $ 0.06 $ (0.32) Income from discontinued operation -- 0.09 --------- --------- Diluted net income (loss) per share $ 0.06 $ (0.23) ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 4 5 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS ENDED MARCH 31 2001 2000 --------- --------- (In thousands) OPERATING ACTIVITIES Net income (loss) $ 7,791 $ (26,565) Income from discontinued operation, net of income taxes -- (10,594) --------- --------- Income (loss) from continuing operations 7,791 (37,159) Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 22,653 23,122 Restructuring charge (payments) accrual, net (7,100) 50,874 Benefit from deferred income tax expense (105) (328) Change in operating assets and liabilities 36,506 (59,621) Other 678 (97) --------- --------- Net cash provided by (used in) operating activities 60,423 (23,209) INVESTING ACTIVITIES Proceeds from disposition of property and equipment 2,279 1,731 Acquisition of property and equipment (24,019) (26,545) Acquisition of businesses, net of cash acquired (6,522) -- Proceeds from (purchases of) debt securities, net 32,667 (3,667) Purchases of equity investments (13,576) (1,760) Other -- 217 --------- --------- Net cash used in investing activities (9,171) (30,024) FINANCING ACTIVITIES (Decrease) increase in lines of credit, net (26) 237 Principal payments on credit arrangements, net (4,370) (5,678) Issuance of common stock, net 6,033 4,891 Repurchase of common stock (471) (6,517) Dividend from discontinued operation -- 9,515 --------- --------- Net cash provided by financing activities 1,166 2,448 Effect of foreign currency exchange rate changes on cash (4,686) (1,381) --------- --------- Increase (decrease) in cash and cash equivalents 47,732 (52,166) Cash and cash equivalents at beginning of period 330,214 191,653 --------- --------- Cash and cash equivalents at end of period $ 377,946 $ 139,487 ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 5 6 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) March 31, 2001 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited consolidated financial statements of the Company. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2000 of Quintiles Transnational Corp. (the "Company"). For an update of the Company's legal proceedings, refer to Item 1 of Part II of this Form 10-Q. 2. Acquisitions During the first quarter of 2001, the Company acquired OEC, SA, a Switzerland-based company that provides drug safety services to the pharmaceutical industry, and Ungerer Laboratory, a laboratory based in Pretoria, South Africa specializing in microbiology, molecular biology and hematology. These transactions were accounted for as purchases with an aggregate purchase price of approximately $7.1 million. 3. Stock Repurchase The authorization by the Board of Directors to repurchase up to $200 million of the Company's Common Stock expired March 1, 2001. The Company did not enter into any agreements to repurchase its Common Stock under this authorization during 2001. On March 13 , 2001, the Board of Directors authorized the Company to repurchase up to $100 million of the Company's Common Stock until March 1, 2002. During the first three months of 2001, the Company entered into agreements to repurchase 100,000 shares of its Common Stock for an aggregate price of approximately $1.7 million. 6 7 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES 4. Significant Customers One customer accounted for 11.4% of consolidated net revenue for the three months ended March 31, 2001. No one customer accounted for 10% of consolidated net revenue for the three months ended March 31, 2000. The revenues were derived from each of the Company's segments. 5. Restructuring Charge During 2000, the Company adopted a restructuring plan ("Original Plan") and a follow-on restructuring plan ("New Plan") which resulted in the recognition of a restructuring charge of $58.6 million. Of the approximately 990 positions that were to be eliminated under these plans, 824 positions have been terminated as of March 31, 2001, which includes 755 positions under the original plan. The following table reflects the costs incurred during the first three months of 2001 under the plans (in thousands):
Balance at Original Plan New Plan Balance at December 31, 2000 Write-Offs/Payments Write-Offs/Payments March 31, 2001 ----------------- ------------------- ------------------- -------------- Severance and related costs $ 8,867 $ (666) $ (2,142) $ 6,059 Exit costs 5,788 (1,127) (725) 3,936 -------- -------- -------- -------- $ 14,655 $ (1,793) $ (2,867) $ 9,995 ======== ======== ======== ========
6. Net Income Per Share The following table sets forth the computation of the weighted-average shares used when calculating the basic and diluted net income per share (in thousands): Three Months Ended March 31 --------------------------- 2001 2000 ------- ------- Weighted average shares: Basic weighted average shares 116,338 115,392 Effect of dilutive securities: Stock options 3,726 -- ------- ------- Diluted weighted average shares 120,064 115,392 ======= ======= Options to purchase approximately 8.8 million shares of common stock were outstanding during the three months ended March 31, 2001, but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common stock and, therefore, the effect would be antidilutive. 7 8 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Warrants to purchase 10 million shares of common stock were outstanding during the three months ended March 31, 2001, but were not included in the computation of diluted net income per share because the warrants' exercise price was greater than the average market price of the common stock and, therefore, the effect would be antidilutive. 7. Segments The following table presents the Company's operations by reportable segment. The Company is managed through three reportable segments, namely, the product development service group, the commercialization service group and the informatics service group. Management has distinguished these segments based on the normal operations of the Company. The product development group is primarily responsible for all phases of clinical research and outcomes research consulting. The commercialization group is primarily responsible for sales force deployment and strategic marketing services. The informatics group is primarily responsible for providing market research solutions and strategic analysis to support healthcare decisions. The Company does not include net revenue and expenses relating to the Internet initiative (approximately $33,000 and $6.0 million, respectively, for the three months ended March 31, 2001 and approximately $445,000 and $3.2 million, respectively, for the three months ended March 31, 2000), non-recurring costs, interest income (expense) and income tax expense (benefit) in segment profitability. Overhead costs are allocated based upon management's best estimate of efforts expended in managing the segments. There are not any significant intersegment revenues. Three Months Ended March 31 ----------------------------- 2001 2000 --------- --------- Net revenue: Product development $ 216,954 $ 200,496 Commercialization 172,018 200,356 Informatics 15,465 13,548 --------- --------- $ 404,437 $ 414,400 ========= ========= Income from operations: Product development $ 8,482 $ (9,245) Commercialization 6,340 15,669 Informatics (2,733) (2,495) --------- --------- $ 12,089 $ 3,929 ========= ========= 8 9 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES 8. Comprehensive Income The following table represents the Company's comprehensive income for the three months ended March 31, 2001 and 2000 (in thousands):
Three Months Ended March 31 --------------------------- 2001 2000 -------- -------- Net income (loss) $ 7,791 $(26,565) Other comprehensive income (loss): Unrealized (loss) gain on marketable securities, net of income taxes (82,964) 10,107 Foreign currency adjustment (13,946) (7,447) -------- -------- Comprehensive loss $(89,119) $(23,905) ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION Information set forth in this Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, which statements represent our judgement concerning the future and are subject to risks and uncertainties that could cause our actual operating results and financial position to differ materially. Such forward looking statements can be identified by the use of forward looking terminology such as "may," "will," "expect," "anticipate," "estimate," "believe," or "continue," or the negative thereof or other variations thereof or comparable terminology. We caution you that any such forward looking statements are further qualified by important factors that could cause our actual operating results to differ materially from those in the forward looking statements, including without limitation, the risk the market for our products and services will not grow as we expect, the risk that our PharmaBio transactions will not generate revenues, profits or return on investment at the rate or levels we expect, our ability to efficiently distribute backlog among therapeutic business units and match demand to resources, actual operating performance, the actual savings and operating improvements resulting from the restructuring, the ability to maintain large client contracts or to enter into new contracts, changes in trends in the pharmaceutical industry, and the ability to operate successfully in new lines of business. In addition, our data products business remains subject to state and federal regulations and contracts with data vendors, including WebMD Corporation. See "Risk Factors" below for additional factors that could cause actual results to differ. 9 10 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Results of Continuing Operations Three Months Ended March 31, 2001 and 2000 Net revenue for the first quarter of 2001 was $404.5 million, a decrease of $10.4 million or 2.5% over the first quarter of 2000 net revenue of $414.8 million. Net revenue decreased as a result of large commercialization contracts that were terminated or converted in-house during the second half of 2000 instead of being renewed. This decrease was partially offset by $5.2 million of net revenue contributed by an acquisition completed in the first quarter of 2001 and an increase of approximately $3.6 million in net revenue from our Phase I development services. We experienced strong growth in the Asia Pacific region but a decrease in the Americas region primarily resulting from the decline in the commercialization segment. The growth in the Europe and Africa region was negatively impacted by approximately $13.8 million due to the effect of foreign currency fluctuations related to the strengthening of the US Dollar relative to the euro and other European currencies. Direct costs, which include compensation and related fringe benefits for billable employees, and other expenses directly related to contracts, were $241.0 million or 59.6% of net revenue for the first quarter of 2001 versus $252.4 million or 60.8% of net revenue for the first quarter of 2000. General and administrative expenses, which include compensation and fringe benefits for administrative employees, non-billable travel, professional services, advertising, computer and facility expenses, were $134.7 million or 33.3% of net revenue for the first quarter of 2001 versus $138.1 million or 33.3% of net revenue for the first quarter of 2000. General and administrative expenses decreased primarily due to the effects of reductions relating to our restructuring. These reductions were partially offset by an increase of costs associated with initiatives begun during 2000. Below is a brief description of the progress made during 2001 on these initiatives: o Costs relating to our Internet initiative increased $3.3 million. We are targeting the launch of several web-enabled products into beta testing during the second quarter of 2001. o Costs relating to the implementation of a global shared service center increased $2.8 million. During the first quarter of 2001, we opened our finance shared service center in Scotland and anticipate the implementation to continue during the second quarter of 2001. o Costs relating to the implementation of global account teams increased $2.8 million. We currently have 16 global account teams in place. The teams have regularly scheduled meetings to pursue key customers and contracts. Depreciation and amortization were $22.7 million or 5.6% of net revenue for the first quarter of 2001 versus $23.1 million or 5.6% of net revenue for the first quarter of 2000. Income from operations was $6.1 million or 1.5% of net revenue for the first quarter of 2001 versus a loss from operations of $57.4 million or (13.8%) of net revenue for the first quarter of 2000. Excluding the $6.0 million and $2.7 million for the Internet initiative in the first quarter of 2001 and 2000, respectively and 10 11 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES the $58.6 million for the 2000 restructurings, income from operations was $12.1 million or 3.0% of net revenue for the first quarter of 2001 versus $3.9 million or .9% of net revenue for the first quarter of 2000. Other income was $5.5 million for the first quarter of 2001 versus $1.9 million for the first quarter of 2000. The $3.6 million variation was primarily due to an increase in net interest income as a result of an increase in investable funds and a decrease in debt. The effective income tax rate for the first quarter of 2001 was 33.0% versus a (33.0%) effective income tax rate for the first quarter of 2000. Since we conduct operations on a global basis, our effective income tax rate may vary. Analysis by Segment: The following table summarizes the operating activities for our three reportable segments for the three months ended March 31, 2001 and 2000. We do not include net revenue and expenses relating to the Internet initiative and restructuring charges in our segment analysis, (dollars in millions).
Net Revenue (Loss)/Income From Operations ------------------------------- ---------------------------------------------- Growth % of Net % of Net 2001 2000 % 2001 Revenue 2000 Revenue ------ ------ ------ ------ ------- ------ ------- Product development $217.0 $200.5 8.2% $ 8.5 3.9% $ (9.2) (4.6%) Commercialization 172.0 200.4 (14.1) 6.3 3.7 15.7 7.8 Informatics 15.5 13.5 14.1 (2.7) (17.7) (2.5) (18.4) ------ ------ ------ ------ $404.4 $414.4 (2.4%) $ 12.1 3.0% $ 3.9 .9% ====== ====== ====== ======
The product development group's financial performance improvement was a result of several factors, including process enhancements and cost reduction efforts in the American and European operations and growth in our Phase I development services. The commercialization group's financial performance was negatively impacted during the quarter by several factors, including the effect of large contracts converted in-house or terminated by our customers during the second half of 2000 instead of being renewed, costs incurred relating to the increased global business development efforts and the effects of a collection issue with a non-pharmaceutical customer receivable. The informatics group's performance was impacted by the net effect of a 14% increase in net revenue less the costs associated with developing new data products. 11 12 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Liquidity and Capital Resources Cash provided by operations was $60.4 million for the three months ended March 31, 2001 versus cash outflows of $23.2 million for the comparable period of 2000. Included in cash provided by operations for the three months ended March 31, 2001 was an income tax refund of $47.6 million. Investing activities, for the three months ended March 31, 2001, consisted primarily of capital asset purchases. Capital asset purchases required an outlay of cash of $24.0 million for the three months ended March 31, 2001 compared to an outlay of $26.5 million for the same period in 2000. In 1999, we acquired substantial assets of Aventis' Kansas City-based Drug Innovation and Approval Facility. We believe that we will either pay the remainder of the purchase price for the facility, approximately $58 million, or enter into a long-term lease for the facility during 2001. Total working capital was $367.9 million as of March 31, 2001, an increase of $59.3 million versus working capital of $308.7 million as of December 31, 2000. Net receivables from customers (trade accounts receivable and unbilled services, net of unearned income) were $238.6 million at March 31, 2001 as compared to $219.8 million at December 31, 2000. As of March 31, 2001, trade accounts receivable were $257.0 million versus $246.3 million at December 31, 2000. Unbilled services were $189.8 million at March 31, 2001 versus $167.7 million at December 31, 2000, offset by unearned income balances of $208.3 million and $194.2 million, respectively. The number of days of revenue outstanding in trade accounts receivable and unbilled services, net of unearned income, increased to 47 days at March 31, 2001, from 43 days at December 31, 2000 as a result of seasonality. Investments in debt securities were $76.0 million at March 31, 2001 as compared to $107.8 million at December 31, 2000. Our investments in debt securities consist primarily of U.S. Government Securities, which are callable by the issuer at par, and money funds. The $31.9 million decrease is a result of investments being called by the issuer. Investments in strategic marketable equity securities at March 31, 2001 were $258.0 million, a decrease of $126.0 million, as compared to $384.0 million at December 31, 2000. This decrease is due to unrealized losses on the portfolio as a result of stock price declines. A significant factor was the decline in the stock price of WebMD Corporation. We have a $150 million senior unsecured credit facility with a U.S. bank. In addition, we have available to us a (pound)10.0 million (approximately $14.4 million) unsecured line of credit and a (pound)1.5 million (approximately $2.2 million) general banking facility with an U.K. bank. At March 31, 2001, we did not have any outstanding balances on these facilities. In March 2001, the Board of Directors authorized us to repurchase up to $100 million of our common stock until March 1, 2002. During the first three months of 2001, we entered into agreements to repurchase 100,000 shares for an aggregate price of $1.7 million. Shareholders' equity at March 31, 2001 was $1.32 billion versus $1.4 billion at December 31, 2000. 12 13 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Based on our current operating plan, we believe that our available cash and cash equivalents and investments in marketable securities, together with future cash flows from operations and borrowings under our line of credit agreements will be sufficient to meet our foreseeable cash needs in connection with our operations. As part of our business strategy, we review many acquisition candidates in the ordinary course of business, and in addition to acquisitions already made, we are continually evaluating new acquisition and expansion possibilities. We may from time to time seek to obtain debt or equity financing in our ordinary course of business or to facilitate possible acquisitions or expansion. RISK FACTORS In addition to the other information provided in our reports, you should consider the following factors carefully in evaluating our business and us. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, such as competitive conditions, may also impair our business operations. If any of the following risks occur, our business, financial condition, or results of operations could be materially adversely affected. Changes in outsourcing trends in the pharmaceutical and biotechnology industries could adversely affect our operating results and growth rate. Economic factors and industry trends that affect our primary customers, pharmaceutical and biotechnology companies, also affect our business. For example, the practice of many companies in these industries has been to hire outside organizations like us to conduct large clinical research and sales and marketing projects. This practice has grown substantially over the past decade, and we have benefited from this trend. Some industry commentators believe that the rate of growth of outsourcing will continue to trend downward. If these industries reduce their tendency to outsource those projects, our operations, financial condition and growth rate could be materially and adversely affected. Recently, we also believe we have been negatively impacted by pending mergers and other factors in the pharmaceutical industry, which appear to have slowed decision making by our customers and delayed certain trials. A continuation of these trends would have an ongoing adverse effect on our business. In addition, numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. If future regulatory cost containment efforts limit the profits which can be derived on new drugs, our customers may reduce their research and development spending, which could reduce the business they outsource to us. We cannot predict the likelihood of any of these events or the effects they would have on our business, results of operations or financial condition. If we are unable to successfully develop and market potential new services, our growth could be adversely affected. Another key element of our growth strategy is the successful development and marketing of new services that complement or expand our existing business. If we are unable to succeed in (1) developing new services and (2) attracting a customer base for those newly developed services, we will not be able to implement this element of our growth strategy, and our future business, results of operations and financial condition could be adversely affected. 13 14 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES For example, we are expanding our pharmaceutical and healthcare information and market research services. These services involve analyzing healthcare information to study aspects of current healthcare products and procedures for use in developing new products and services or in analyzing sales and marketing of existing products. In addition to the other difficulties associated with the development of any new service, our ability to develop these services may be limited further by contractual provisions limiting our use of the healthcare information or the legal rights of others that may prevent or impair our use of the healthcare information. Due to these and other limitations, we cannot assure you that we will be able to develop this type of service successfully. Our inability to develop new products or services or any delay in development may adversely affect our ability to maintain our rate of growth in the future. Our plan to web-enable our product development and commercialization services may negatively impact our results in the short term. We are currently making a substantial investment in developing an Internet platform for our product development and commercialization services, but we do not believe that we will see any positive impact to our revenues from this investment over the short term. We have entered into an agreement with WebMD Corporation and certain other vendors for them to provide web-enablement services to help us develop this platform. Performance and other issues regarding the agreement currently are under dispute with WebMD. If WebMD or other vendors fail to perform as required, if we are unable to favorably resolve our current dispute with WebMD or if there are substantial delays in developing and implementing this platform, we may have to make substantial further investments, internally or with WebMD or other third parties, to achieve our objectives. Meeting our objectives is dependent on a number of factors which may not take place as we anticipate, including obtaining adequate web-enablement services, creating web-enablement services which our customers will find desirable and implementing our business model with respect to these services. Also, these expenditures are likely to negatively impact our profitability, at least until our web-enabled products are commercialized. Over time, we envision continuing to invest in extending and enhancing our Internet platform in other ways to further support and improve our services. We cannot assure you that any improvements in revenues resulting from our Internet capabilities will be sufficient to offset our investments in the Internet platform. Our results could be further negatively impacted if our competitors are able to execute their services on a web-based platform before we can launch our Internet services or if they are able to structure a platform that attracts clients away from our services. Our ability to provide informatics services depends on our agreement with WebMD. In order to provide our informatics products and services, we need access to healthcare data. Prior to the sale of our ENVOY subsidiary, we obtained this data directly from ENVOY. Following the sale of ENVOY to WebMD, we entered into a data rights agreement with WebMD to continue to provide us with the ENVOY data, as well as other data collected by WebMD. If WebMD fails to perform under this agreement, for example, by stopping transmission of data to us, or our access to data is otherwise significantly limited, we would be unable to provide some or all of our informatics services, which would have a negative impact on our business. 14 15 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES On February 24, 2001, WebMD unilaterally stopped the transmission of data to us in violation of our rights under the data rights agreement. We have obtained a preliminary injunction requiring WebMD to continue the unaltered and uninterrupted flow of data to us until the matter can be resolved, and we intend to pursue our rights under the data agreement. If we are unable to enforce our rights to this data, we would have to re-negotiate the terms of our agreement with WebMD or seek to obtain similar data from alternate sources. These options may not be available if WebMD or third parties are not willing to negotiate or provide terms that are acceptable to us, or are unable to give us access to the quality and timeliness of data that we need to support our informatics products. If we do not have continued access to data on the terms we negotiated with WebMD or on similar terms, our informatics service group would not be able to support its contracts with existing customers or continue development projects as currently planned, which would have a material adverse effect on our business. The potential loss or delay of our large contracts could adversely affect our results. Many of our customers can terminate our contracts upon 15-90 days' notice. In the event of termination, our contracts often provide for fees for winding down the project, but these fees may not be sufficient for us to maintain our margins, and termination may result in lower resource utilization rates. Thus, the loss or delay of a large contract or the loss or delay of multiple contracts could adversely affect our net revenue and profitability. We believe that this risk has potentially greater effect as we pursue larger outsourcing arrangements with global pharmaceutical companies, which may encompass global clinical trials at a number of sites and cross many service lines. Also, over the past eighteen months we have observed that customers may be more willing to delay, cancel or reduce contracts more rapidly than in the past. If this trend continues, it could become more difficult for us to balance our resources with demands for our services and our financial results could be adversely affected. Our backlog may not be indicative of future results. We report backlog, $1.9 billion at December 31, 2000, based on anticipated net revenue from uncompleted projects that our customers have authorized. We cannot assure you that the backlog we have reported will be indicative of our future results. A number of factors may affect our backlog, including: o the variable size and duration of projects (some are performed over several years); o the loss or delay of projects; and o a change in the scope of work during the course of a project. Also, if customers delay projects, the projects will remain in backlog, but will not generate revenue at the rate originally expected. Accordingly, historical indications of the relationship of backlog to revenues are not indicative of the future relationship. 15 16 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Underperformance of our risk-sharing and gain-sharing strategies could have a negative impact on our financial performance. As part of our sales strategy, we enter into creative arrangements with customers in which we take on some of the risk of the potential success or failure of the customer's product. We may take risk through our PharmaBio transactions, which may include a strategic investment in a customer, or by taking an interest in the revenues from a customer's product. For example, we may build a sales organization for a biotechnology customer to commercialize a new product in exchange for a share in the revenues of the product. We must carefully analyze and select the customers and products with which we are willing to structure our risk-based deals. Our financial results would be adversely affected if our customers' products do not achieve the level of success that we anticipate and/or our return from the product or investment is less than our costs of performance or investment. If we lose the services of Dennis Gillings, Pamela Kirby or other key personnel, our business could be adversely affected. Our success substantially depends on the performance, contributions and expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our Chairman, and Pamela Kirby, Ph.D., our Chief Executive Officer. Our performance also depends on our ability to attract and retain qualified management and professional, scientific and technical operating staff, as well as our ability to recruit qualified representatives for our contract sales services. The departure of Dr. Gillings, Dr. Kirby or any key executive, or our inability to continue to attract and retain qualified personnel could have a material adverse effect on our business, results of operations or financial condition. Our product development services create a risk of liability from clinical trial participants and the parties with whom we contract. We contract with drug companies to perform a wide range of services to assist them in bringing new drugs to market. Our services include supervising clinical trials, data and laboratory analysis, patient recruitment and other services. The process of bringing a new drug to market is time-consuming and expensive. If we do not perform our services to contractual or regulatory standards, the clinical trial process could be adversely affected. Additionally, if clinical trial services such as laboratory analysis do not conform to contractual or regulatory standards, trial participants could be affected. These events would create a risk of liability to us from the drug companies with whom we contract or the study participants. We also contract with physicians to serve as investigators in conducting clinical trials. Such testing creates risk of liability for personal injury to or death of volunteers, particularly to volunteers with life-threatening illnesses, resulting from adverse reactions to the drugs administered during testing. It is possible third parties could claim that we should be held liable for losses arising from any professional malpractice of the investigators with whom we contract or in the event of personal injury to or death of persons participating in clinical trials. We do not believe we are legally accountable for the medical care rendered by third party investigators, and we would vigorously defend any such claims. Nonetheless, it is possible we could be found liable for those types of losses. 16 17 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES In addition to supervising tests or performing laboratory analysis, we also own a number of labs where Phase I clinical trials are conducted. Phase I clinical trials involve testing a new drug on a limited number of healthy individuals, typically 20 to 80 persons, to determine the drug's basic safety. We also could be liable for the general risks associated with ownership of such a facility. These risks include, but are not limited to, adverse events resulting from the administration of drugs to clinical trial participants or the professional malpractice of Phase I medical care providers. We also could be held liable for errors or omissions in connection with our services. For example, we could be held liable for errors or omissions or breach of contract if one of our laboratories inaccurately reports or fails to report lab results or if our informatics products violate rights of third parties. We maintain insurance to cover ordinary risks but any insurance might not be adequate, and it would not cover the risk of a customer deciding not to do business with us as a result of poor performance. Relaxation of government regulation could decrease the need for the services we provide. Governmental agencies throughout the world, but particularly in the United States, highly regulate the drug development/approval process. A large part of our business involves helping pharmaceutical and biotechnology companies through the regulatory drug approval process. Any relaxation in regulatory approval standards could eliminate or substantially reduce the need for our services, and, as a result, our business, results of operations and financial condition could be materially adversely affected. Potential regulatory changes under consideration in the United States and elsewhere include mandatory substitution of generic drugs for patented drugs, relaxation in the scope of regulatory requirements or the introduction of simplified drug approval procedures. These and other changes in regulation could have an impact on the business opportunities available to us. Failure to comply with existing regulations could result in a loss of revenue. Any failure on our part to comply with applicable regulations could result in the termination of ongoing clinical research or sales and marketing projects or the disqualification of data for submission to regulatory authorities, either of which could have a material adverse effect on us. For example, if we were to fail to verify that informed consent is obtained from patient participants in connection with a particular clinical trial, the data collected from that trial could be disqualified, and we could be required to redo the trial under the terms of our contract at no further cost to our customer, but at substantial cost to us. 17 18 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Proposed and final laws and regulations may create a risk of liability and increase the cost of our business or limit our service offerings. The confidentiality of patient-specific information and the circumstances under which such patient-specific records may be released for inclusion in our databases or used in other aspects of our business are subject to substantial government regulation. Additional legislation governing the possession, use and dissemination of medical record information and other personal health information has been proposed or adopted at both the state and federal levels. Proposed and final federal regulations governing patient-specific information may (1) require us to implement new security measures that may require substantial expenditures or (2) limit our ability to offer some of our products and services. These regulations may also increase costs by creating new privacy requirements for our informatics business and mandating additional privacy procedures for our clinical research business. Additionally, states may adopt health information legislation or regulations that contain privacy and security provisions that are more burdensome than the proposed federal regulations. In our dispute with WebMD, WebMD has advised us that a number of state laws apply which may require modifications to access specifications for specific types of de-identified patient-level data. These and other changes in regulation could limit our ability to offer some of our products or have an impact on the business opportunities available to us. There is a risk of civil or criminal liability if we are found to be responsible for any violations of applicable laws, regulations or duties relating to the use, privacy or security of health information. Industry regulation may restrict our ability to analyze and disseminate pharmaceutical and healthcare data. We are directly subject to certain restrictions on the collection and use of data. Laws relating to the collection and use of data are evolving, as are contractual rights. We cannot assure you that contractual restrictions imposed by our customers, legislation or regulations will not, now or in the future, directly or indirectly restrict the analysis or dissemination of the type of information we gather and therefore materially adversely affect our operations. We also have certain obligations to indemnify parties which provide us data for losses they may incur arising from claims that they have provided us data in violation of contract or other rights. Our services are subject to evolving industry standards and rapid technological changes. The markets for our services, particularly our informatics services, which include our data analysis services, are characterized by rapidly changing technology, evolving industry standards and frequent introduction of new and enhanced services. To succeed, we must continue to: o enhance our existing services; o introduce new services on a timely and cost-effective basis to meet evolving customer requirements; o achieve market acceptance for new services; and o respond to emerging industry standards and other technological changes. 18 19 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES Exchange rate fluctuations may affect our results of operations and financial condition. We derive a large portion of our net revenue from international operations; for example, we derived approximately 44.0% of our 2000 net revenue from outside the United States. Our financial statements are denominated in U.S. dollars; thus, factors associated with international operations, including changes in foreign currency exchange rates and any trends associated with the transition to the euro, could significantly affect our results of operations and financial condition. Exchange rate fluctuations between local currencies and the U.S. dollar create risk in several ways, including: o Foreign Currency Translation Risk. The revenue and expenses of our foreign operations are generally denominated in local currencies. o Foreign Currency Transaction Risk. Our service contracts may be denominated in a currency other than the currency in which we incur expenses related to such contracts. We try to limit these risks through exchange rate fluctuation provisions stated in our service contracts, or we may hedge our transaction risk with foreign currency exchange contracts or options. Although we may hedge our transaction risk, there were no open foreign exchange contracts or options relating to service contracts at March 31, 2001. Despite these efforts, we may still experience fluctuations in financial results from our operations outside the United States, and we cannot assure you that we will be able to favorably reduce our currency transaction risk associated with our service contracts. We may be adversely affected by customer concentration. We have one customer that accounted for 11.4% of our net revenues for the quarter ended March 31, 2001. These revenues resulted from services provided by each of our three service groups. If any large customer decreases or terminates its relationship with us, our business, results of operations or financial condition could be materially adversely affected. New healthcare legislation or regulation could restrict our informatics business. On December 28, 2000, the Secretary of the Department of Health and Human Services issued the final rule on Standards for Privacy of Individually Identifiable Health Information to implement the privacy requirements for HIPAA. These regulations generally (1) impose standards for covered entities transmitting or maintaining protected data in an electronic, paper or oral form with respect to the rights of individuals who are the subject of protected health information; and (2) establish limitations on and procedures for (a) the exercise of those individuals' rights and (b) the uses and disclosures of protected health information. The effective date of the final rule was April 14, 2001 and the compliance date is April 14, 2003. According to the Secretary, modifications and/or guidelines to the regulation will be forthcoming in the next few months. If state or federal legislation or a more restrictive regulation is adopted, it could inhibit third party processors in using, transmitting or disclosing health data (even if they have been de-identified) for purposes other than facilitating payment or performing other clearinghouse functions which would restrict our ability to obtain data for use in our informatics services. In addition, it could require us to establish uniform specifications for obtaining de-identified data, so that de-identified data obtained from different sources could be aggregated. 19 20 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES While the impact of developments in legislation, regulations or the demands of third party processors is difficult to predict, each could materially adversely affect our informatics business. Item 3. Quantitative and Qualitative Disclosure about Market Risk The Company did not have any material changes in market risk from December 31, 2000. PART II. Other Information Item 1. Legal Proceedings Beginning on September 30, 1999, several purported class action lawsuits were filed in the United States District Court for the Middle District of North Carolina against us and several of our executive officers and directors on behalf of all persons who purchased or otherwise acquired shares of our common stock between July 16, 1999, and September 15, 1999. These actions were subsequently consolidated and plaintiffs filed an amended complaint purporting to represent a class of purchasers of our stock or call options, and sellers of put options, during the period between April 21, 1999, and September 15, 1999. The amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Plaintiffs seek unspecified damages, plus costs and expenses, including attorneys' fees and experts' fees. We believed the claims to be without merit and intended to defend the suit vigorously. Accordingly, we and the named officers and directors filed a motion to dismiss the amended complaint. Immediately prior to the hearing scheduled on February 6, 2001, on the motion to dismiss, the parties agreed to settle the lawsuit. The parties have negotiated a memorandum of understanding and the settlement is before the court for approval. On January 26, 2001, a purported class action lawsuit was filed in the State Court of Richmond County, Georgia, naming Novartis Pharmaceuticals Corp., Pharmed Inc., Debra Brown, Bruce I. Diamond and Quintiles Laboratories Limited, one of our subsidiaries, on behalf of 185 Alzheimer's patients who participated in drug studies involving an experimental drug manufactured by defendant Novartis and their surviving spouses. The complaint alleges claims for breach of fiduciary duty, civil conspiracy, unjust enrichment, misrepresentation, Georgia RICO violations, infliction of emotional distress, battery, negligence and loss of consortium as to class member spouses. The complaint seeks unspecified damages, plus costs and expenses, including attorneys' fees and experts' fees. We believe the claims to be without merit and intend to defend the suit vigorously. On February 25, 2001, we initiated a lawsuit in Superior Court of Wake County, North Carolina against WebMD Corporation. Our complaint alleged that WebMD's suspension of the delivery of data to us on February 24, 2001 was a material breach of the Data Rights Agreement we entered into with WebMD in May 2000, and we requested a preliminary injunction to require WebMD to continue providing the data to us pending final resolution of the action. We obtained a temporary restraining order on February 25, 2001 requiring WebMD to continue the delivery of data to us pursuant to the Data Rights Agreement. WebMD removed the suit to the United States District Court for the Eastern District of North Carolina on March 1, 2001 and moved to dissolve the temporary restraining order. On March 5, 2001, the court denied the defendant's motion to dissolve the temporary restraining order and, subsequently extended the temporary restraining order through March 16, 2001. On March 16 and March 21, the court entered a preliminary 20 21 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES injunction requiring WebMD to continue the unaltered and uninterrupted flow of data, which WebMD appealed to the United States Court of Appeals for the Fourth Circuit on April 16, 2001. On April 7, 2001, at the request of the parties, the court entered a stay of the trial court proceedings through May 4, 2001 to facilitate settlement negotiations. The court extended the stay on April 27, 2001 through June 4, 2001. We intend to vigorously pursue the protection of our rights under the Data Rights Agreement. On May 8, 2001, Joseph Lewis renewed his civil lawsuit in the State Court of Fulton County, State of Georgia naming as defendants Richard L. Borison, Bruce I. Diamond, Janssen Pharmaceutica, Inc., Novartis Pharmaceuticals Corporation and Quintiles Laboratories Limited, one of our subsidiaries. The plaintiff alleges that he suffered from schizophrenia and that he was given experimental drugs for this condition in connection with numerous clinical drug trials conducted by defendants Borison and Diamond between January 1988 and June 1996. The plaintiff alleges that the defendants and their agents conspired to conduct these drug trials on him, and that they improperly supervised, monitored and regulated the trials, causing him to have violent adverse reactions to the drugs involved in the trials. The plaintiff seeks to recover his actual damages in unspecified amounts, medical expenses, attorney fees, litigation costs and punitive damages. The plaintiff previously had dismissed his claims against us, without prejudice. We believe the claims to be without merit and intend to defend the suit vigorously. We are also a party in certain other pending litigation arising in the normal course of our business. While the final outcome of such litigation cannot be predicted with certainty, it is the opinion of management that the outcome of these matters would not materially affect our consolidated financial position or results of operations. 21 22 Item 2. Changes in Securities - Not applicable Item 3. Defaults upon Senior Securities -- Not applicable Item 4. Submission of Matters to a Vote of Security Holders - Not applicable Item 5. Other Information -- Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description 10.01 Executive Employment Agreement, dated March 13, 2001, by and between Pamela J. Kirby and Quintiles Transnational Corp. (b) During the three months ended March 31, 2001, the Company filed or furnished four reports on Form 8-K. The Company filed a Form 8-K, dated January 25, 2001, including its press release announcing the Company's earnings information for the period ended December 31, 2000. The Company furnished a Form 8-K to the Securities and Exchange Commission,, dated February 24, 2001, disclosing that it had received notice that WebMD Corporation had interrupted the delivery of the data it is obligated to provide pursuant to the Data Rights Agreement dated May 26, 2000. The Company furnished a Form 8-K to the Securities and Exchange Commission, dated March 14, 2001, disclosing that the Board of Directors authorized the repurchase of up to $100 million of the Company's Common Stock. The Company furnished a Form 8-K to the Securities and Exchange Commission, dated March 21, 2001, including the Order of U.S. District Court, Eastern District of North Carolina requiring WebMD Corporation to provide data to the Company pursuant to the Data Rights Agreement dated May 26, 2000. The reports on Form 8-K dated February 24, 2001, March 14, 2001 and March 21, 2001 were provided pursuant to Regulation FD. These reports shall not be deemed to be incorporated by reference into this Form 10-Q or filed hereunder for purposes of liability under the Securities Exchange Act of 1934. No other reports on Form 8-K were filed or furnished during the three months ended March 31, 2001. 22 23 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Quintiles Transnational Corp. ----------------------------- Registrant Date May 15, 2001 /s/ Dennis B. Gillings -------------------- ----------------------------------------- Dennis B. Gillings, Chairman Date May 15, 2001 /s/ James L. Bierman -------------------- ----------------------------------------- James L. Bierman, Chief Financial Officer 23 24 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Description ------- ----------- 10.01 Executive Employment Agreement, dated March 13, 2001, by and between Pamela J. Kirby and Quintiles Transnational Corp. 24 EX-10.01 2 g68954ex10-01.txt EXECUTIVE EMPLOYMENT AGREEMENT 1 EXHIBIT 10.01 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement ("Agreement"), dated as of March 13, 2001, is made and entered into by QUINTILES TRANSNATIONAL CORP., a North Carolina corporation (hereinafter the "Company") and DR. PAMELA JOSEPHINE KIRBY (hereinafter the "Executive"). The Company desires to employ Executive as its Chief Executive Officer, Quintiles Transnational Corp., reporting to the Chairman of the Company, and provide adequate assurances to Executive and Executive desires to accept such employment on the terms set forth below, and the terms Executive agreed to in Executive's offer letter, which offer letter is incorporated herein by reference. In consideration of the mutual promises set forth below and other good and valuable new consideration, the receipt and sufficiency of which the parties acknowledge, the Company and Executive agree as follows: 1. EMPLOYMENT. The Company employs Executive and Executive accepts employment on the terms and conditions set forth in this Agreement. 2. NATURE OF EMPLOYMENT. Executive shall serve as Chief Executive Officer, Quintiles Transnational Corp., and have such responsibilities and authority as the Company may reasonably assign from time to time. Additionally, Executive agrees to perform such other duties provided that they are always consonant with those of a Chief Executive Officer as the Company may set from time to time. 2.1 Executive shall perform all duties and exercise all authority in accordance with, and shall otherwise comply with, all Company policies, procedures, practices and directions. 2.2 Executive shall devote all working time, best efforts, knowledge and experience to perform successfully her duties and advance the Company's and/or its Affiliates' interests. During her employment, Executive shall not engage in any other business activities of any nature whatsoever (including board memberships) for which she receives compensation without the Company's prior written consent; provided, however, this provision does not prohibit her from personally owning and trading in stocks, bonds, securities, real estate, commodities or other investment properties for her own benefit, which do not create actual or potential conflicts of interest with the 1 2 Company and/or its Affiliates. As used in this Agreement, "Affiliates" shall mean: (i) any Company's parent, subsidiary or related entity; and/or (ii) any entity directly or indirectly controlled or beneficially owned in whole or part by the Company or Company's parent, subsidiary or related entity. 2.3 Executive's base of operation shall be Durham, North Carolina, subject to business travel as may be necessary in the performance of Executive's duties. 3. COMPENSATION. 3.1 BASE SALARY. Executive's monthly salary for all services rendered shall be $45,833.33 (less applicable withholdings), payable in accordance with the Company's policies, procedures and practices as they may exist from time to time. Executive's salary shall be reviewed in accordance with the Company's policies, procedures and practices as they may exist from time to time. 3.2 EXECUTIVE COMPENSATION PLAN. Executive may participate as a LEVEL 1.5 employee in the Executive Compensation Plan (or successor plans) ("ECP") which may be made available from time to time to Company executives at Executive's level; provided, however, that Executive's participation is subject to the applicable terms, conditions and eligibility requirements of the plan documents, some of which are within the plan administrator's discretion, as they may exist from time to time. 3.3 TAX RETURNS. Executive shall be entitled to tax return preparation and reasonable financial planning, consultation and advice by the Company's accounting firm and/or legal counsel and/or financial consultants as the Company may provide from time to time to Company executives at Executive's level. 3.4 OTHER BENEFITS. Executive may participate in all medical, dental and disability insurance, 401(k), pension, personal leave, car allowance and other employee benefit plans and programs, except Executive may not receive severance payments other than specified in this Agreement; provided, however, that Executive's participation in benefit plans and programs is subject to the applicable terms, conditions and eligibility requirements of these plans and programs, some of which are within the plan administrator's discretion, as they may exist from time to time. 2 3 3.5 BUSINESS EXPENSES. Executive shall be reimbursed for reasonable and necessary expenses actually incurred by her in performing services under this Agreement in accordance with and subject to the terms and conditions of the applicable Company reimbursement policies, procedures and practices as they may exist from time to time. Expenses covered by this provision include but are not limited to travel, entertainment, professional dues, subscriptions and dues, fees and expenses associated with membership in various professional, and business and civic associations of which Executive's participation is in the Company's best interest. 3.6 Nothing in this Agreement shall require the Company to create, continue or refrain from amending, modifying, revising or revoking any of the plans, programs or benefits set forth in Sections 3.2 through 3.5, provided that no less favorable benefits to executives at Executive's level are provided in their place at all times. Any amendments, modifications, revisions and revocations of these plans, programs and benefits shall apply to Executive. 3.7 If, at any time during which Executive is receiving salary or post-termination payments from the Company, she receives payments on account of mental or physical disability from any Company-provided plan, then the Company, at its discretion, may reduce her salary or post-termination payments by the amount of such disability payments. 4. TERM OF EMPLOYMENT. The original term of employment shall be for a two (2) year period commencing on April 2, 2001, and terminating on April 2, 2003 ("Original Term"), subject to the following provisions: 4.1 Upon the expiration of the original or any renewal term of employment, Executive's employment shall be automatically renewed for an additional one (1) year period ("Renewal Term") unless, at least ninety (90) days prior to the renewal date, either party gives the other party written notice of its intent not to continue the employment relationship. During any renewal term of employment, the terms, conditions and provisions set forth in this Agreement shall remain in effect unless modified in accordance with Section 15. 4.2 Either party may terminate the employment relationship without cause at any time upon giving the other party ninety (90) days written notice. 3 4 4.3 The Company may terminate the Executive's employment relationship immediately without notice at any time for the following reasons which shall constitute "Cause": (i) Executive's death; (ii) Executive's physical or mental inability to perform the essential functions of her duties satisfactorily for a period of 180 consecutive days or 180 days in total within a 365-day period as determined by the Company in its reasonable discretion and in accordance with applicable law; (iii) any act or omission of Executive constituting willful or gross misconduct (including willful violation of the Company's policies), gross negligence, fraud, misappropriation, embezzlement, criminal behavior, conflict of interest or competitive business activities which, as determined by the Company in its reasonable discretion, shall cause material harm, or any other actions that are materially detrimental to the Company or any Affiliates' interest; (iv) any other reason recognized as "cause" under applicable law; or (v) Executive's material and fundamental breach of this Agreement. Where any act or failure to act by the Executive might constitute "cause" under this Section 4.3, but is capable of curing, the Company is obliged to give the Executive notice of the alleged "cause" and at least 30 days to cure the act or failure to act before terminating the Executive's employment hereunder. 4.4 Executive may terminate Executive's employment with the Company as a result of the Company's failure to cure its material and fundamental breach of this Agreement after Executive has given the Company notice of the material breach and at least thirty (30) days to cure the breach (or such longer period as may be reasonably required to cure the breach as long as the Company is making good faith efforts to do so). 4.5 This Agreement shall terminate upon the termination of the employment relationship with the following exceptions: Section 6 (Trade Secrets, Confidential Information, Company Property and Competitive Business Activities), 7 (Intellectual Property Ownership), 8 (License), 9 (Release), and 12 (Change in Control) shall survive the termination of Executive's employment and/or the expiration or termination of this Agreement, regardless of the reasons for such expiration or termination. 4 5 5. COMPENSATION AND BENEFITS UPON TERMINATION. 5.1 The Company's obligation to compensate Executive ceases on the effective termination date except as to: (i) amounts due at that time; (ii) any amount subsequently due pursuant to the plan described in Section 3.2; and (iii) any compensation and/or benefits to which she may be entitled to receive pursuant to Sections 5.2, 5.3, 5.4 or 5.5. 5.2 If the Company terminates Executive's employment pursuant to Sections 4.1 (notice of non-renewal) or 4.2 (without cause), then the Company's sole obligation shall be to pay Executive: (i) amounts due on the effective termination date; (ii) any amounts subsequently due pursuant to the plan described in Section 3.2; and (iii) subject to Executive's compliance with Sections 6,7,8 and 9 and subject to Sections 3.7 and 5.6, an amount equal to her then current monthly salary (less applicable withholdings) for the twenty-four (24) month non-competition period set forth in Section 6.3, payable in equal monthly installments. 5.3 During the period during which Executive receives post-termination payments pursuant to Section 5.2, she may continue to participate, to the extent permitted by the applicable plans and subject to their terms, conditions and eligibility requirements, in all employee welfare benefits plans (as defined by the Employee Retirement Income Security Act of 1974, as amended) in which Executive participated on her effective termination date. The Company will pay or, at the Company's discretion, reimburse Executive for the premiums actually paid, to continue coverage under such plans during the period. Notwithstanding the Company's payment of or reimbursement for the premiums, any coverage under such plans shall be subject to the terms, conditions and eligibility requirements of such plans, and nothing in this Section shall constitute any guaranty of coverage. 5.4 If the Company terminates Executive's employment as provided in Sections 4.3 (i) (death), (ii) (physical or mental inability to perform), (iii) (materially harmful acts or omissions), (iv) (other reasons recognized as "cause") or (v) (Executive's material breach) or if the Executive terminates her employment pursuant to Section 4.1 (notice of non-renewal) or Section 4.2 (without cause), then the Company's sole obligation shall be to pay Executive: (i) amounts due on the effective termination date and (ii) any amounts subsequently due pursuant to the plan described in Section 3.2. 5 6 Executive, except when employment terminates pursuant to Section 4.3(i) (death), shall comply with Sections 6,7,8 and 9 of this Agreement upon expiration or termination of this Agreement. 5.5 If Executive terminates the employment relationship as a result of the Company's failure to cure its material breach of this Agreement after she has given the Company notice of the material breach and 30 days in which to cure the breach (or such longer period as may be reasonably required to cure the breach as long as the Company is making good faith efforts to do so), pursuant to Section 4.4 of this Agreement, then the Company's sole obligation to Executive in lieu of any other damages or other relief to which she otherwise may be entitled shall be (i) an amount equal to amounts due at the time of her termination; and (ii) subject to Executive's compliance with Sections 6, 7, 8 and 9 and subject to Sections 3.7 and 5.6, liquidated damages in an amount equal to her then current monthly salary (less applicable withholdings) for the twenty-four (24) month non-competition period set forth in Section 6.3, payable in equal monthly installments. 5.6 The Company's obligation to provide the payments under Sections 5.2 and 5.5 is conditioned upon Executive's execution of an enforceable release of all claims and her compliance with Sections 6, 7, 8 and 9 of this Agreement. If Executive chooses not to execute such a release or fails to comply with these sections, then the Company's obligation to compensate her ceases on the effective termination date except as to amounts due at that time and any amount subsequently due pursuant to the plan described in Section 3.2. 5.7 Executive is not entitled to receive any compensation or benefits upon her termination except as: (i) set forth in this Agreement; (ii) otherwise required by law; or (iii) otherwise required by any employee benefit plan in which she participates. Nothing in this Agreement, however, is intended to waive or supplant any death, disability, retirement, 401(k) or pension benefits to which she may be entitled under employee benefit plans in which she participates. 6. TRADE SECRETS, CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND COMPETITIVE BUSINESS ACTIVITIES. Executive acknowledges that: (i) the Company and its Affiliates have worldwide business operations, a worldwide customer base, and are engaged in the business of 6 7 contract research, sales and marketing, healthcare policy consulting and health information management services to the worldwide pharmaceutical, biotechnology, medical device and healthcare industries; (ii) by virtue of her employment by and upper-level position with the Company, she has or will have access to Trade Secrets and Confidential Information (as defined in Sections 6.1(5) and 6.1(6)) of the Company and its Affiliates, including valuable information about their worldwide business operations and entities with whom they do business in various locations throughout the world, and has developed or will develop relationships with their customers and others with whom they do business in various locations throughout the world; and (iii) the Trade Secret, Confidential Information and Competitive Business Activities' provisions set forth in this Agreement are reasonably necessary to protect the Company's and its Affiliates' legitimate business interests, are reasonable as to the time, territory and scope of activities which are restricted, do not interfere with public policy or public interest and are described with sufficient accuracy and definiteness to enable her to understand the scope of the restrictions imposed on her. 6.1 TRADE SECRETS AND CONFIDENTIAL INFORMATION. Executive acknowledges that: (i) the Company and/or its Affiliates will disclose to her certain Trade Secrets and Confidential Information; (ii) Trade Secrets and Confidential Information are the sole and exclusive property of the Company and/or its Affiliates (or a third party providing such information to the Company and/or its Affiliates) and the Company and/or its Affiliates or such third party owns all worldwide rights therein under patent, copyright, trademarks, trade secret, confidential information or other property right; and (iii) the disclosure of Trade Secrets and Confidential Information to Executive does not confer upon her any license, interest or rights of any kind in or to the Trade Secrets or Confidential Information. 6.1(1) Executive may use the Trade Secrets and Confidential Information only while she is employed or otherwise retained by the Company and only then in accordance with applicable Company policies and procedures and solely for the Company's benefit. Except as authorized in the performance of services for the Company, Executive will hold in confidence and will not, either or indirectly, in any form, by any means, or for any purpose, disclose, reproduce, distribute, transmit, reverse engineer, decompile, disassemble, or transfer Trade Secrets or Confidential Information or any portion thereof. Upon the Company's request, Executive shall return Trade Secrets and Confidential Information and all related materials. 7 8 6.1(2) If Executive is required to disclose Trade Secrets or Confidential Information pursuant to a court order, subpoena or other government process or such disclosure is necessary to comply with applicable law or defend against claims, she shall: (i) notify the Company promptly before any such disclosure is made; (ii) at the Company's request and expense take all reasonably necessary steps to defend against such disclosure, including defending against the enforcement of the court order, other government process or claims; and (iii) permit the Company to participate with counsel of its choice in any proceeding relating to any such court order, subpoena, other government process or claims; provided that nothing in this Agreement shall oblige the Executive to act (or fail to act) in contravention to any legal obligation. 6.1(3) Executive's obligations with regard to Trade Secrets shall remain in effect for as long as such information shall remain a trade secret under applicable law. 6.1(4) Executive's obligations with regard to Confidential Information shall remain in effect while she is employed or otherwise retained by the Company and/or its Affiliates and for fifteen (15) years thereafter. 6.1(5) As used in this Agreement, "Trade Secrets" means information of the Company, its Affiliates and its and/or their licensors, suppliers, customers, or prospective licensors or customers, including, but not limited to, data, formulas, patterns, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, or lists of actual or potential customers or suppliers, which: (i) derives independent actual or potential commercial value, from not being generally known to or readily ascertainable through independent development or reverse engineering by persons or entities who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 6.1(6) As used in this Agreement, "Confidential Information" means information other than Trade Secrets, that is of value to its owner and is treated as confidential, including, but not limited to, future business plans, licensing strategies, advertising campaigns, information regarding executives and employees, and the terms and conditions of this Agreement; provided, however, Confidential Information shall not 8 9 include information which is in the public domain or becomes public knowledge through no fault of Executive. 6.2 COMPANY PROPERTY. Upon termination of her employment, Executive shall: (i) deliver to the Company all records, memoranda, data, documents and other property of any description which refer or relate in any way to Trade Secrets or Confidential Information, including all copies thereof, which are in her possession, custody or control; (ii) deliver to the Company all Company and/or Affiliates property (including, but not limited to, keys, credit cards, client files, contracts, proposals, work in process, manuals, forms, computer stored work in process and other computer data, research materials, other items of business information concerning any Company and/or Affiliates client, or Company and/or Affiliates business or business methods, including all copies thereof) which is in her possession, custody or control; (iii) bring all such records, files and other materials up to date before returning them; and (iv) fully cooperate with the Company in winding up her work and transferring that work to other individuals designated by the Company. 6.3 COMPETITIVE BUSINESS ACTIVITIES. During her employment and the twenty-four (24) months following her effective termination date (regardless of the reason for the termination), Executive will not engage in the following activities: (A) on Executive's own or another's behalf, whether as an officer, director, stockholder, partner, associate, owner, employee, consultant or otherwise, directly or indirectly: (i) compete with the Company or its Affiliates within the geographical areas set forth in Section 6.3(1); except that Executive, without violating this provision, may become employed by any company which is engaged in the integrated development, discovery, manufacture, marketing and sale of pharmaceutical drugs that does not engage in contract sales and/or contract research within the meanings commonly understood in the CRO and CSO industries, respectively, with the purpose or effect of being or becoming a competitor to the Company or its Affiliates in either the contract sales or contract research businesses; (ii) within the geographical areas set forth in Section 6.3(1), solicit or do business which is the same, similar to or otherwise in competition 9 10 with the business engaged in by the Company or its Affiliates, from or with persons or entities: (a) who are customers of the Company or its Affiliates; (b) who Executive or someone for whom she was responsible solicited, negotiated, contracted or serviced on the Company's or its Affiliates' behalf; or (c) who were customers of the Company or its Affiliates at any time during the last year of Executive's employment with the Company; (iii) offer employment to or otherwise solicit for employment any employee or other person who had been employed by the Company or its Affiliates during the last year of Executive's employment with the Company; or (B) make or publish any public or private statement harmful to the Company, or its Affiliates, goodwill, name, business and operations. 6.3(1) The restrictions set forth in Section 6.3 apply to the following geographical areas; (i) within a 60-mile radius of the Company and/or its Affiliates where the Executive had an office during the Executive's employment with the Company and/or its Affiliates; (ii) any city, metropolitan area, county (or similar political subdivision in foreign countries) in which Executive's substantial services were provided, or for which Executive had substantial responsibility, or in which Executive performed substantial work on Company and/or Affiliates' projects, while employed by the Company; and (iii) any city, metropolitan area, county (or similar political subdivisions in foreign countries) in which the Company or its Affiliates is located or does or, during Executive's employment with Company, did business. 6.3(2) Notwithstanding the foregoing, Executive's ownership, directly or indirectly, of not more than one percent of the issued and outstanding stock of a corporation the shares of which are regularly traded on a national securities exchange or in the over-the-counter market shall not violate Section 6.3. 6.4 REMEDIES. Executive acknowledges that her failure to abide by the Trade Secrets, Confidential Information, Company Property or Competitive Business Activities provisions of this Agreement would cause irreparable harm to the Company and/or its Affiliates for which legal remedies would be inadequate. Therefore, in addition to any legal or other relief to which the Company and/or its Affiliates may be entitled by virtue of Executive's failure to abide by these provisions: (i) the Company will be released of its obligations under this Agreement to make any post-termination 10 11 payments, including but not limited to those otherwise available pursuant to Sections 5.2, 5.3, 5.4, 5.5; (ii) the Company may seek legal and equitable relief, including but not limited to preliminary and permanent injunctive relief, for Executive's actual or threatened failure to abide by these provisions; and (iii) Executive will return all post-termination payments received pursuant to this Agreement, including but not limited to those received pursuant to Sections 5.2, 5.3, 5.4, 5.5. 6.5 TOLLING. The period during which Executive must refrain from the activities set forth in Sections 6.1 and 6.3 shall be tolled during any period in which she fails to abide by these provisions. 6.6 OTHER AGREEMENTS. Nothing in this Agreement shall terminate, revoke or diminish Executive's obligations or the Company's and/or its Affiliates' rights and remedies under law or any agreements relating to trade secrets, confidential information, non-competition or intellectual property which Executive has executed in the past or may execute in the future or contemporaneously with this Agreement. 7. INTELLECTUAL PROPERTY OWNERSHIP. 7.1 As used in this Agreement, "Work Product" shall mean the data, materials, documentation, computer programs, inventions (whether or not patentable), improvements, modifications, discoveries, methods, developments, picture, audio, video, artistic works and all works of authorship, including all worldwide rights therein under patent, copyright, trademark, trade secret, confidential information or other property right, created or developed in whole or in part by Executive, while employed by the Company (whether developed during work hours or not), whether prior or subsequent to the date of this Agreement. 7.2 All Work Product shall be considered work made for hire by Executive and owned by the Company. If any of the Work Product may not, by operation of law be considered work made for hire by Executive for the Company, or if ownership of all right, title, and interest of the intellectual property rights therein shall not otherwise vest exclusively in the Company, Executive hereby assigns to the Company, and upon the future creation thereof automatically assigns to the Company, without further consideration, the ownership of all Work Product. The Company shall have the right to obtain and hold in its own name copyrights, registrations and any other protection 11 12 available in the Work Product. Executive agrees to perform, during or after her employment, such further acts which the Company requests as may be necessary or desirable to transfer, perfect and defend its ownership of the Work Product. 7.3 Notwithstanding the foregoing, this Agreement shall not require assignment of any invention that: (i) Executive developed entirely on her own time without using the Company's equipment, supplies, facilities, Trade Secrets or Confidential Information; and (ii) does not relate to the Company's business or actual or anticipated research or development or result from any work performed by Executive for the Company. 7.4 Executive shall promptly disclose to the Company in writing all Work Product conceived, developed or made by her, individually or jointly. 8. LICENSE. To the extent that any preexisting materials are contained in Work Product which Executive delivers to the Company or its customers, Executive grants to the Company an irrevocable, nonexclusive, worldwide, royalty-free license to: (i) use and distribute (internally or externally) copies of, and prepare derivative works based upon, such preexisting materials and derivative works thereof; and (ii) authorize others to do any of the foregoing. 9. RELEASE. Executive acknowledges that as a part of her services, she may provide for the Company or its Affiliates use, her image, likeness and voice, for publication and Executive expressly releases the Company, its Affiliates and its agents from any claims regarding such use and publication. 10. EMPLOYEE REPRESENTATION. Executive represents and warrants that her employment and obligations under this Agreement will not (i) breach any duty or obligation she owes to another or (ii) violate any law, recognized ethics standard or recognized business custom. 11. OFFICERS AND DIRECTORS INDEMNIFICATION PROVISIONS. To the extent Executive serves as a Company and/or Affiliate officer or director, Executive shall be entitled to insurance under Company's directors and officers' indemnification policies comparable to any such insurance covering executives of the applicable entity serving in similar capacities. Further, the Company's bylaws shall 12 13 contain provisions granting to Executive the maximum indemnity protection allowed under applicable law and the Company hereby agrees to indemnify and hold harmless Executive in accordance with such maximum indemnity protection allowed under applicable law. 12. CHANGE IN CONTROL. 12.1 For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any one of the following: (A) An acquisition (other than directly from the Company) of any voting securities of the Company by any "Person" (as such term is used in Sections 3(A)(9), 13(D)(3) and 14(D)(2) of the Securities Exchange Act of 1934, as amended (the "Act")), after which such Person, together with its "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of more than one-third (33.33%) of the total voting power of the Company's then outstanding voting securities, but excluding any such acquisition by the Company, any Person of which a majority of its voting power or its voting equity securities or equity interests is owned, directly or indirectly, by the Company (for purposes hereof, a "Subsidiary"), any employee benefit plan of the Company or any of its Subsidiaries (including any Person acting as trustee or other fiduciary for any such plan), or Dennis B. Gillings; (B) The shareholders of the Company approve a merger, share exchange, consolidation or reorganization involving the Company and any other corporation or other entity that is not controlled by the Company, as a result of which less than two-thirds (66.66%) of the total voting power of the outstanding voting securities of the Company or of the successor corporation or entity after such transaction is held in the aggregate by the holders of the Company's voting securities immediately prior to such transaction; (C) The shareholders of the Company approve a liquidation or dissolution of the Company, or approve the sale or other disposition by the Company of all or substantially all of the Company's assets to any Person (other than a transfer to a Subsidiary of the Company); 13 14 (D) During any period of 24 consecutive months, the individuals who constitute the Board of Directors of the Company at the beginning of such period (the "Incumbent Directors") cease for any reason to constitute at least two-thirds of the Board of Directors; provided, however, that a director who is not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director is elected or recommended for election by at least two-thirds (66.66%) of the directors who are then Incumbent Directors. 12.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the occurrence of a Change in Control, Executive shall be entitled to receive payments and benefits pursuant to this Agreement if, at the time of the Change in Control, (i) Executive is in ECP Levels 1 to 2 and her employment is terminated pursuant to Sections 12.2(A), (B), or (C) below, or (ii) Executive is in ECP Levels 2.5 to 4 and her employment is terminated pursuant to Sections 12.2(B) or (C) below. (A) Within eighteen (18) months following a Change in Control, Executive terminates her employment with Company by giving written notice of such termination to Company. (B) Within eighteen (18) months following a Change in Control, Company terminates Executive's employment for reasons other than "Cause" as such term is defined in Section 4.3 hereof. (C) Within eighteen (18) months following a Change in Control, Executive terminates her employment with the Company for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (i) a change in Executive's status, title, position or responsibilities (including reporting responsibilities) which, in Executive's reasonable judgment, represents an adverse change from her status, title, position or responsibilities in effect immediately prior thereto; the assignment to Executive of any duties or responsibilities which in Executive's reasonable judgment, are inconsistent with her status, title, position or responsibilities; or any removal of Executive from or failure to 14 15 reappoint or reelect her to any such positions, status, or title except in connection with the termination of her employment for Cause or by Executive other than for Good Reason; (ii) a reduction in Executive's base salary; (iii) the Company's requiring Executive to be based at any place outside a thirty (30) mile radius from Executive's principal place of residence, except for reasonably required travel on Company's business which is not greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company to continue in effect any compensation, welfare or benefit plan in which Executive is participating at the time of a Change in Control, including benefits pursuant to the Executive Compensation Plan or similar plans, without substituting plans providing Executive with substantially similar or greater benefits, or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plans or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control; (v) any purported termination of Executive's employment for Cause without grounds therefor; (vi) the insolvency or the filing (by any party including the Company) of a petition for bankruptcy of the Company; (vii) any material breach by the Company of any provision of this Agreement after Executive has given the Company notice of the material breach and at least thirty (30) days to cure the breach (or such longer period as may be reasonably required to cure the breach as long as the Company is making good faith efforts to do so.); or (viii) the failure of the Company to obtain an agreement, satisfactory to Executive, from any successor or assign of the Company to assume and agree to perform this Agreement. 15 16 12.3 SEVERANCE PAY AND BENEFITS. If Executive's employment with the Company terminates under circumstances as described in Section 12.2. above, Executive shall be entitled to receive all of the following: (A) all accrued compensation through the termination date, plus any Bonus for which the Executive otherwise would be eligible in the year of termination, prorated through the termination date, payable in cash. For purposes of Sections 12.3(A) and 12.3(B), "Bonus" shall be defined as any benefits for which Executive would be eligible under the Executive Compensation Plan described in Section 3.2 of this Agreement. The amount of such Bonus shall be paid in cash and, for purposes of Sections 12.3(A) and 12.3(B), shall be calculated as if Executive had achieved 100% of Executive's performance goals for that year. (B) a severance payment equal to two and ninety-nine hundredths (2.99) times the amount of Executive's most recent annual compensation, including the amount of her most recent annual Bonus. The severance amount shall be paid (i) in cash in thirty-four (34) equal monthly installments commencing one month after the termination date, or (ii) in a lump sum, within one month after the termination date, at the sole option of the Executive. (C) the Company shall maintain in full force and effect, for eighteen (18) months after the termination date, all life insurance, health, accidental death and dismemberment, disability plans and other benefit programs in which Executive is entitled to participate immediately prior to the termination date, provided that Executive's continued participation is possible under the general terms and provisions of such plans and programs. Executive's continued participation in such plans and programs shall be at no greater cost to Executive than the cost she bore for such participation immediately prior to the termination date. If Executive's participation in any such plan or program is barred, Company shall arrange upon comparable terms, and at no greater cost to Executive than the cost she bore for such plans and programs prior to the termination date, to provide Executive with benefits substantially similar to, or greater than, those which she is entitled to receive under any such plan or program; and (D) a lump sum payment (or otherwise as specified by Executive to the extent permitted by the applicable plan) of any and all amounts 16 17 contributed to a Company pension or retirement plan which Executive is entitled to under the terms of any such plan through the date of termination. 12.4 STOCK OPTIONS. (A) Upon a Change in Control, all options ("Options") to purchase Common Stock of the Company held by Executive as of the date of the Change in Control shall become fully vested and exercisable. (B) If Executive's employment with the Company terminates pursuant to Section 12.2, then the Options shall remain exercisable until the later of: (i) the expiration of the applicable period for exercise following termination of employment set forth in the Option agreements (or in any other agreement between Executive and the Company that supersedes the Option agreements); or (ii) three (3) years after the date of termination (to the extent of the terms of the Options); provided, however, that any "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), that are exercised more than ninety (90) days after the date of termination pursuant Section 12.2 shall be treated for tax purposes as nonqualified stock options. 12.5 EXCISE TAX PAYMENTS. (A) If any payment or benefit (within the meaning of Section 280G(b)(2) of the Code), to Executive or for her benefit pursuant to this Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the amount of the Payment net of all taxes other than the Excise Tax (the "Net Amount") shall be calculated. Executive shall then receive, in addition to the Payment, an additional payment (the "Gross-Up Payment"), which shall be an amount such that, after payment of all taxes (including the Excise Tax) on the Payment and the Gross-Up Payment, Executive shall retain an amount equal to the Net Amount. (B) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall 17 18 be made at Company's expense by an accounting firm selected by Company and reasonably acceptable to Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to Company and Executive within ten days of the date Executive's employment terminates if applicable, or such other time as requested by Company or by Executive (provided Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by Executive with respect to a Payment, it shall furnish Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to any such Payment. Within ten days of the delivery of the Determination to Executive, Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Section 12.5 shall be paid by Company to Executive within five days of the receipt of the Accounting Firm's determination. The existence of the Dispute shall not in any way affect Executive's right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, Company shall promptly pay to Executive any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon Company and Executive subject to the application of Section (C) below. (C) Notwithstanding anything in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment, Company shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment and the Gross-Up Payment, as applicable. (D) If Executive is subject to taxation under a non-United States taxing authority and an excise tax similar to the Excise Tax is imposed on any Payment by such non-United States taxing authority, then Executive shall be entitled to receive a Gross-Up Payment as calculated pursuant to Section 12.5(a) above, based upon the lesser of such non-United States excise tax imposed and the Excise Tax that would have been imposed had the Payment been subject to United States taxation. 13. NOTICES. All notices, requests, demands and other communications required or permitted to be given in writing pursuant to this Agreement shall be deemed 18 19 given and received: (A) upon delivery if delivered personally; (B) on the fifth (5th) day after being deposited with the U.S. Postal Service if mailed by first class mail, postage prepaid, registered or certified with return receipt requested, at the addresses set forth below; (C) on the next day after being deposited with a reliable overnight delivery service; or (D) upon receipt of an answer back confirmation, if transmitted by telefax, addressed to the below indicated telefax number. Notice given in another manner shall be effective only if and when received by the addressee. For purposes of notice, the addresses and telefax number (if any) of the parties shall be as follows: If to the Executive, to: Pamela Kirby Hohenstrasse 24 4125 Riehen Switzerland If to the Company, to: Quintiles Transnational Corp. 4709 Creekstone Drive Riverbirch Building, Suite 300 Durham, North Carolina 27703-8411 Attn: General Counsel provided that: (A) each party shall have the right to change its address for notice, and the person who is to receive notice, by the giving of fifteen (15) days' prior written notice to the other party in the manner set forth above; and (B) notices shall be effective if given to the other party in the manner set forth above regardless of whether a copy was received by the additional addressee specified above. 14. WAIVER OF BREACH. The Company's or Executive's waiver of any breach of a provision of this Agreement shall not waive any subsequent breach by the other party. 15. ENTIRE AGREEMENT. Except as expressly provided in this Agreement, this Agreement: (i) supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this Agreement; and (ii) constitutes the sole agreement between the parties with respect to this subject matter. Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf 19 20 of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties. 16. SEVERABILITY. If a court of competent jurisdiction holds that any provision or sub-part thereof contained in this Agreement is invalid, illegal or unenforceable, that invalidity, illegality or unenforceability shall not affect any other provision in this Agreement. Additionally, if any of the provisions, clauses or phrases in the Trade Secrets, Confidential Information or Competitive Business Activities provisions set forth in this Agreement are held unenforceable by a court of competent jurisdiction, then the parties desire that they be "blue-penciled' or rewritten by the court to the extent necessary to render them enforceable. 17. PARTIES BOUND. The terms, provisions, covenants and agreements contained in this Agreement shall apply to, be binding upon and inure to the benefit of the Company's successors and assigns. The Company, at its discretion, may assign this Agreement to Affiliates. Because this Agreement is personal to Executive, Executive may not assign this Agreement. 18. GOVERNING LAW. This Agreement and the employment relationship created by it shall be governed by North Carolina law without giving effect to North Carolina choice of law provisions. 20 21 IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year first written above. /s/ Dr. Pamela Josephine Kirby ---------------------------------------------- Dr. Pamela Josephine Kirby QUINTILES TRANSNATIONAL CORP. By: /s/ John S. Russell ------------------------------------------- Title: Senior Vice President & General Counsel ---------------------------------------- 21 -----END PRIVACY-ENHANCED MESSAGE-----