##### 



FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


AMENDMENT NO. 1

TO

ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission file number 000-23520

QUINTILES TRANSNATIONAL CORP.

(Exact name of registrant as specified in its charter)


|                                        |  |                                                   
|--------------------------------------- |  | --------------------------------------------------
|North Carolina
(State of incorporation) |  | 56-1714315
(I.R.S. Employer Identification Number)

|                                                                                                |  |                      
|----------------------------------------------------------------------------------------------- |  | ---------------------
|4709 Creekstone Drive, Suite 200
Durham, North Carolina
(Address of principal executive office) |  | 27703-8411
(Zip Code)

Registrants telephone number, including area code: (919) 998-2000

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share (and Rights Attached Thereto)
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x                     No o


Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. o

The aggregate market value of the registrants Common Stock at March 31,
2003 held by those persons deemed by the registrant to be non-affiliates was
approximately $1,344,254,791.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes x                     No o


The aggregate market value of the registrants Common Stock at June 30,
2002 held by those persons deemed by the registrant to be non-affiliates was
approximately $1,344,280,396.

As of March 31, 2003 (the latest practicable date), there were 118,283,920
shares of the registrants Common Stock, $.01 par value per share, outstanding.





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EXPLANATORY NOTE

The undersigned registrant hereby amends Item 6 and Item 7 of Part II,
Item 11, Item 12 and Item 13 of Part III and Item 15 of Part IV of its Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on
February 24, 2003 for the fiscal year ended December 31, 2002, as set forth in
the pages attached hereto.

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INDEX

|                                                                                                        |  |      |  | 
|------------------------------------------------------------------------------------------------------- |  | ---- |  | 
|                                                                                                        |  | Page
|                                                                                                        |  |     
|PART II                                                                                                
|Item 6.  Selected Consolidated Financial Data                                                           |  | 4    | 
|Item 7.  Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 5    | 
|                                                                                                       
|PART III                                                                                               
|Item 10. Directors and Executive Officers of the Registrant                                             |  | 30   | 
|Item 11. Executive Compensation                                                                         |  | 32   | 
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 42   | 
|Item 13. Certain Relationships and Related Transactions                                                 |  | 48   | 
|                                                                                                       
|PART IV                                                                                                
|Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  | 49   | 

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PART II

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected Consolidated Statement of Operations Data set forth below for each
of the years in the three-year period ended December 31, 2002 and the
Consolidated Balance Sheet Data set forth below as of December 31, 2002 and
2001 are derived from our audited consolidated financial statements and notes
thereto as included elsewhere herein. The selected Consolidated Statement of
Operations Data set forth below for the years ended December 31, 1999 and 1998,
and the Consolidated Balance Sheet Data set forth below as of December 31,
2000, 1999 and 1998 are derived from our consolidated financial statements not
included herein. During 2000, we completed the sale of our electronic data
interchange unit, ENVOY Corporation, and as such the results of ENVOY, for all
periods presented, have been reported separately as a discontinued operation in
the consolidated financial statements. The selected consolidated financial data
presented below should be read in conjunction with our audited consolidated
financial statements and notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations.

|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |         | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------ | - | ------------------------------------- | ------- | ---- | - | --------- | ------- | ---- | - | --------- | ------- | - | - | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                                               |                                                        |   | Year Ended December 31,              
|                                                                                                                               |                                                        |   |                                      
|                                                                                                                               |                                                        |   | 2002                                  |         | 2001 |   | 2000      |         | 1999 |   | 1998     
|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |          
|                                                                                                                               |                                                        |   | (in thousands, except per share data)
|Gross revenues                                                                                                                 |                                                        | $ | 1,992,409                             |         |      | $ | 1,883,912 |         |      | $ | 1,871,077 |         |   | $ | 1,830,365 |         |  | $ | 1,418,788 |        
|Income (loss) from continuing operations before
income taxes                                                                   |                                                        |   | 123,660                               |         |      |   | (262,496  | )       |      |   | (51,005   | )       |   |   | 115,910   |         |  |   | 125,567   |        
|Income (loss) from continuing operations                                                                                       |                                                        |   | 81,664                                |         |      |   | (175,873  | )       |      |   | (34,174   | )       |   |   | 73,168    |         |  |   | 85,643    |        
|Income (loss) from discontinued operation,
net of income taxes                                                                 |                                                        |   |                                      |         |      |   |          |         |      |   | 16,770    |         |   |   | 36,123    |         |  |   | 2,926     |        
|Extraordinary gain from sale of discontinued
operation, net of income taxes                                                    |                                                        |   |                                      |         |      |   | 142,030   |         |      |   | 436,327   |         |   |   |          |         |  |   |          |        
|Cumulative effect on prior years (to December 31,
2001) of changing to a different method of
recognizing deferred income taxes |                                                        |   | 45,659                                |         |      |   |          |         |      |   |          |         |   |   |          |         |  |   |          |        
|Net income (loss) available for
common shareholders                                                                            |                                                        | $ | 127,323                               |         |      | $ | (33,843   | )       |      | $ | 418,923   |         |   | $ | 109,291   |         |  | $ | 88,569    |        
|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|Basic net income (loss) per share:                                                                                             |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|                                                                                                                               | Income (loss) from continuing operations               |   | $                                     | 0.69    |      |   | $         | (1.49   | )    |   | $         | (0.29   | ) |   | $         | 0.64    |  |   | $         | 0.82    | 
|                                                                                                                               | Income (loss) from discontinued operation              |   |                                       |        |      |   |           |        |      |   |           | 0.14    |   |   |           | 0.32    |  |   |           | 0.03    | 
|                                                                                                                               | Extraordinary gain from sale of discontinued
operation |   |                                       |        |      |   |           | 1.20    |      |   |           | 3.76    |   |   |           |        |  |   |           |        | 
|                                                                                                                               | Cumulative effect of change in accounting principle    |   |                                       | 0.39    |      |   |           |        |      |   |           |        |   |   |           |        |  |   |           |        | 
|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|                                                                                                                               | Basic net income (loss) per share                      |   | $                                     | 1.08    |      |   | $         | (0.29   | )    |   | $         | 3.61    |   |   | $         | 0.96    |  |   | $         | 0.85    | 
|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|Diluted net income (loss) per share:                                                                                           |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|                                                                                                                               | Income (loss) from continuing operations               |   | $                                     | 0.69    |      |   | $         | (1.49   | )    |   | $         | (0.29   | ) |   | $         | 0.63    |  |   | $         | 0.77    | 
|                                                                                                                               | Income (loss) from discontinued operation              |   |                                       |        |      |   |           |        |      |   |           | 0.14    |   |   |           | 0.31    |  |   |           | 0.03    | 
|                                                                                                                               | Extraordinary gain from sale of discontinued
operation |   |                                       |        |      |   |           | 1.20    |      |   |           | 3.76    |   |   |           |        |  |   |           |        | 
|                                                                                                                               | Cumulative effect of change in accounting principle    |   |                                       | 0.39    |      |   |           |        |      |   |           |        |   |   |           |        |  |   |           |        | 
|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|                                                                                                                               | Diluted net income (loss) per share                    |   | $                                     | 1.07    |      |   | $         | (0.29   | )    |   | $         | 3.61    |   |   | $         | 0.94    |  |   | $         | 0.80    | 
|                                                                                                                               |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|Weighted average shares outstanding:                                                                                           |                                                        |   |                                       |         |      |   |           |         |      |   |           |         |   |   |           |         |  |   |           |        
|                                                                                                                               | Basic                                                  |   |                                       | 118,135 |      |   |           | 118,223 |      |   |           | 115,968 |   |   |           | 113,525 |  |   |           | 104,799 | 
|                                                                                                                               | Diluted                                                |   |                                       | 118,458 |      |   |           | 118,223 |      |   |           | 115,968 |   |   |           | 115,687 |  |   |           | 110,879 | 

|                                                            |  |                    |           |      |  |                                      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|----------------------------------------------------------- |  | ------------------ | --------- | ---- |  | ------------------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                            |  | As of December 31,
|                                                            |  |                   
|                                                            |  | 2002               |           | 2001 |  | 2000                                 |           | 1999 |  | 1998
|                                                            |  |                    |           |      |  |                                      |           |      |  |     
|                                                            |  |                    |           |      |  | (in thousands, except employee data) |           |      |  |     
|Cash and cash equivalents                                   |  | $                  | 644,284   |      |  | $                                    | 565,063   |      |  | $    | 330,214   |  |  | $ | 191,653   |  |  | $ | 128,621   | 
|Working capital, excluding discontinued operation           |  |                    | 568,473   |      |  |                                      | 617,552   |      |  |      | 308,684   |  |  |   | 78,039    |  |  |   | 197,005   | 
|Total assets                                                |  |                    | 2,152,083 |      |  |                                      | 1,947,740 |      |  |      | 1,961,578 |  |  |   | 1,607,565 |  |  |   | 1,171,777 | 
|Long-term debt and capital leases including current
portion |  |                    | 40,574    |      |  |                                      | 37,866    |      |  |      | 38,992    |  |  |   | 185,765   |  |  |   | 193,270   | 
|Shareholders equity                                        |  | $                  | 1,598,386 |      |  | $                                    | 1,455,088 |      |  | $    | 1,404,706 |  |  | $ | 991,759   |  |  | $ | 646,132   | 
|Full-time equivalent employees                              |  |                    | 15,801    |      |  |                                      | 17,639    |      |  |      | 18,060    |  |  |   | 20,496    |  |  |   | 16,732    | 

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Overview

Quintiles Transnational Corp. helps improve healthcare worldwide by
providing a broad range of professional services, information and partnering
solutions to the pharmaceutical, biotechnology and healthcare industries. Based
on industry analyst reports, we are the largest company in the pharmaceutical
outsourcing services industry as ranked by 2002 revenues. The revenues of the
second largest company were approximately $1.1 billion less than our 2002
revenues.

In May 2002, we completed the formation of our previously announced
healthcare informatics joint venture, Verispan, with McKesson, which is
designed to leverage the operational strengths of the healthcare information
businesses of each company. We are equal co-owners of a majority of the equity
of Verispan with McKesson. Verispan has licensed data products to McKesson and
us for use in our core businesses. Under the license arrangement, we continue
to have access to Verispans commercially available market information and
products, at no further cost to us, to enhance our service delivery to and
partnering with our customers.

On October 14, 2002, we announced that Pharma Services Company, a newly
formed company owned by our Chairman of the Board and Founder, made a
non-binding proposal to acquire all of our outstanding shares for a cash price
of $11.25 per share. In response to the proposal, our Board of Directors
established a special committee of independent directors to act on our behalf
with respect to the proposal or alternatives in the context of evaluating what
is in our best interest and the best interest of our shareholders. On November
11, 2002, the special committee announced its rejection of the proposal by
Pharma Services Company and its intention to investigate strategic alternatives
available to us for purposes of enhancing shareholder value, including the
possibility of a sale of our company and alternatives that would keep us
independent and publicly owned.

On April 10, 2003,
following the unanimous recommendation of the special
committee, our Board of Directors approved a merger transaction with Pharma
Services Holding, Inc., or Pharma Services, for our public shareholders to
receive $14.50 per share in cash. Pharma Services was founded by Dennis
B. Gillings, Ph.D., the Companys Chairman of the Board and Founder, and One
Equity Partners, LLC, the private equity arm of Bank One Corporation. Dr.
Gillings and certain of his affiliates will retain their equity interest in the
Company. In addition, in order to finance the transaction, Pharma Services has
received an equity commitment of $415.7 million from One Equity Partners, LLC
and debt commitments totaling $875 million from Citicorp North America, Inc.
and Citigroup Global Markets Inc. Pharma Services also intends to use
approximately $586 million of the Companys existing cash to fund the
transaction. The transaction, which is anticipated to be completed later this
year, is subject to Pharma Services completion of its committed financing and
customary conditions, including regulatory and shareholder approvals.

Results of Operations

We adopted Emerging Issues Task Force Issue 01-14 on January 1, 2002, as
required. This new accounting guidance requires us to report reimbursed
service costs as part of service revenues. Our reimbursed service costs
include such items as payments to investigators and
travel expenses for our clinical monitors and sales representatives.
Historically, we have not reported these reimbursed service costs as service
revenues since we do not earn a profit on these costs. In accordance with this
new accounting guidance, we have reclassified reimbursed service costs to
service revenues for all periods

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presented. However, it was impracticable to
identify and reclassify certain prior period commercialization reimbursed
service costs and, accordingly, historical results have not been restated for
these costs. These commercialization reimbursed service costs totaled
approximately $60.4 million for the year ended December 31, 2002.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Gross revenues for the year ended December 31, 2002 were $1.99 billion
versus $1.88 billion for the year ended December 31, 2001. Gross revenues
include service revenues, revenues from commercial rights and royalties and
revenues from investments. Net revenues exclude reimbursed service costs.
Reimbursed service costs may fluctuate due, in part, to the payment provisions
of the respective service contract. Below is a summary of revenues (in
thousands):

|                                |  |      |           |      |  |   |           | 
|------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                |  | 2002 |           | 2001
|                                |  |      |           |     
|Service revenues                |  | $    | 1,868,324 |      |  | $ | 1,857,509 | 
|Less: reimbursed service costs  |  |      | 399,650   |      |  |   | 263,429   | 
|                                |  |      |           |      |  |   |           | 
|Net service revenues            |  |      | 1,468,674 |      |  |   | 1,594,080 | 
|Commercial rights and royalties |  |      | 110,381   |      |  |   | 25,792    | 
|Investments                     |  |      | 13,704    |      |  |   | 611       | 
|                                |  |      |           |      |  |   |           | 
|Total net revenues              |  | $    | 1,592,759 |      |  | $ | 1,620,483 | 
|                                |  |      |           |      |  |   |           | 



| |  |  | Service revenues were $1.87 billion for 2002 compared to $1.86 billion
for 2001. Service revenues less reimbursed service costs, or net service
revenues, for 2002 were $1.47 billion, a decrease of $125.4 million or
(7.9%) over net service revenues of $1.59 billion in 2001. Included in
net service revenues for 2002 was $20.3 million from our informatics group
as compared to $58.2 million from that group for 2001. Our informatics
group was transferred to a joint venture during May 2002, therefore
revenues for this group are not included in our net service revenues since
the date of transfer. Net service revenues for 2002 were positively
impacted by approximately $15.2 million due to the effect of foreign
currency fluctuations. The positive foreign currency fluctuation due to
the weakening of the US Dollar relative to the euro and the British pound
was partially offset by the strengthening of the US Dollar relative to the
South African Rand and the Japanese yen. Net service revenues increased in
the Asia Pacific region $29.4 million or 18.0% to $193.2 million, which
was negatively impacted by $2.2 million due to the effect of foreign
currency fluctuations. Net service revenues increased $67.9 million or
11.5% to $658.7 million in the Europe and Africa region, which was
positively impacted by $18.2 million due to the effect of foreign currency
fluctuations. Net service revenues decreased $222.7 million or (26.5%) to
$616.8 million in the Americas region primarily as a result of the decline
in the commercial services group revenues.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Commercial rights and royalties revenues, which include
product revenues, royalties and commissions, for 2002 were $110.4
million, an increase of $84.6 million over 2001 commercial rights
and royalties revenues of $25.8 million. Commercial rights and
royalties revenues were positively impacted by approximately $3.8
million due to the effect of foreign currency fluctuations related
to the weakening of the US Dollar relative to the euro. These
revenues include products for which we have
acquired certain commercial rights, such as the dermatology products,
Solaraze and ADOXA. Also included are royalties or commissions on
product sales that we receive in exchange for providing commercial or
product development services. The $84.6 million increase is primarily
the result of our                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |   |  | acquisition of certain assets of Bioglan Pharma,
Inc., and its suite of dermatology products, a new risk sharing
contract in Europe with a large pharmaceutical customer and our
contracts with Scios Inc. and Kos Pharmaceuticals, Inc. In December
2002, we agreed to permit Scios to hire the sales force we had
previously provided under contract to them, effective December 31,
2002 in return for (1) Scios reimbursing us for the operating profit
that we would have earned between December 31, 2002 and the first
date on which Scios would have been permitted to hire the sales force
under the contract terms and (2) advancing from May 31, 2003 to
December 31, 2002, our ability to exercise the remaining
unexercisable warrants. The early settlement of our service
obligation resulted in an accelerated recognition of revenues of
approximately $9.3 million in the fourth quarter of 2002. For the
year ended December 31, 2002, approximately 55.5% of our commercial
rights and royalties revenues was attributable to the contracts with
Scios and Kos, approximately 17.2% was attributable to the risk
sharing contract in Europe, approximately 20.3% was attributable to
the suite of dermatology products and the remaining 7.0% was
attributable to miscellaneous contracts and activities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Investment revenues related to our PharmaBio Development
groups financing arrangements, which include gains and losses from
the sale of equity securities and impairments from other than
temporary declines in the fair values of our direct and indirect
investments, for 2002 were $13.7 million versus $611,000 for 2001.
Included in 2002 and 2001 are $4.3 million and $14.0 million,
respectively, of impairment losses on investments whose decline in
fair value was considered to be other than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Costs of revenues were $1.37 billion for 2002 versus $1.32 billion in
2001. Below is a summary of these costs (in thousands):

|                                      |  |      |           |      |  |   |           | 
|------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                      |  | 2002 |           | 2001
|                                      |  |      |           |     
|Reimbursed service costs              |  | $    | 399,650   |      |  | $ | 263,429   | 
|Service costs                         |  |      | 775,447   |      |  |   | 931,029   | 
|Commercial rights and royalties costs |  |      | 106,146   |      |  |   | 26,800    | 
|Investment costs                      |  |      | 320       |      |  |   | 1,914     | 
|Depreciation and amortization         |  |      | 86,148    |      |  |   | 95,095    | 
|                                      |  |      |           |      |  |   |           | 
|                                      |  | $    | 1,367,711 |      |  | $ | 1,318,267 | 
|                                      |  |      |           |      |  |   |           | 



| |  |  | Reimbursed service costs were $399.7 million and $263.4
million for 2002 and 2001, respectively. It was impracticable to
identify and reclassify certain commercialization reimbursed service
costs, and accordingly, the 2001 results have not been restated for
these costs. These commercialization reimbursed service costs
totaled approximately $60.4 million for 2002.               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Service costs, which include compensation and benefits for
billable employees, and certain other expenses directly related to
service contracts, were $775.4 million or 52.8% of 2002 net service
revenues versus $931.0 million or 58.4% of 2001 net
service revenues. This reduction is primarily a result of the
continued effect of our process enhancements and cost reduction
efforts.
|
| |  |  | Commercial rights and royalties costs, which include
compensation and related benefits for employees, amortization of
commercial rights, infrastructure costs of the PharmaBio Development
group and other expenses directly related to commercial rights and
royalties, were $106.1 million for 2002 versus $26.8 million for
2001. These costs include services and                       

7



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| |   |  | products provided by third
parties, as well as services provided by our other service groups
totaling approximately $54.5 million for 2002 and $12.9 million for
2001. The year 2002 also includes costs to launch and market
Solaraze and ADOXA and expenses relating to the risk sharing
contract in Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Investment costs, which include costs directly related to
direct and indirect investments in our customers or other strategic
partners as part of the PharmaBio Development groups financing
arrangements, were $320,000 in 2002 versus $1.9 million in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Depreciation and amortization, which include depreciation of
our property and equipment and amortization of our definite-lived
intangible assets except commercial rights, decreased to $86.1
million for 2002 versus $95.1 million for 2001. This decrease is
primarily due to the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which
requires that all goodwill and indefinite-lived intangible assets no
longer be amortized but reviewed at least annually for impairment.
In addition, depreciation expense decreased $2.9 million as a result
of the transfer of our informatics group to Verispan. During 2002,
we completed the goodwill transitional impairment test as of January
1, 2002, as required, and the annual impairment test as of July 31,
2002, in which no goodwill impairment was deemed necessary at either
date.

General and administrative expenses, which include compensation and
benefits for administrative employees, non-billable travel, professional
services, and expenses for advertising, information technology and facilities,
were $508.1 million or 31.9% of total net revenues in 2002 versus $520.7
million or 32.1% of total net revenues in 2001. General and administrative
expenses decreased $12.6 million primarily due to realization of the benefits
from our restructurings, including efficiencies created through the
implementation of our shared service centers, and the deployment of our
Internet initiative products into day-to-day operations resulting in our
research and development expenses decreasing to $2.1 million in 2002 from $18.1
million in 2001. These decreases were partially offset by increases in Japan
and Europe primarily due to the effect of foreign currency fluctuations.

Net interest income, which represents interest income received from bank
balances and investments in debt securities net of interest expense incurred on
lines of credit, notes and capital leases, was $14.2 million in 2002 versus
$16.7 million in 2001. Although we had an increase in our investable funds
during 2002, we experienced a decrease in interest income due to a decline in
interest rates.

Other expense was $7.1 million in 2002 versus $489,000 in 2001. The
increase is a result of several factors, including the effects of foreign
currency translations, disposals of assets and transaction costs. Included in
the 2002 transaction costs are approximately $3.4 million of expenses relating
to the activities of the special committee of our Board of Directors and its
financial and legal advisors, and approximately $2.7 million of expenses
associated with the formation of the Verispan joint venture.

In 2001, we recognized a $325.6 million impairment on our investment in
WebMD Corporation, or WebMD, common stock. This included a $334.0 million
write-down in the third quarter of 2001 of our cost basis in our investment in
WebMD whose decline in fair value was considered to be other than temporary.
In the fourth quarter of 2001 we recognized an $8.5 million gain on our
investment in WebMD as a result of the sale of all 35 million shares of WebMD
common stock to WebMD.

During 2001, we recognized $83.2 million of income from the settlement of
litigation between WebMD and us. We received $185.0 million in cash for all 35
million shares of WebMD common stock we owned and to resolve the remaining
disputes. Also as part of the settlement, WebMD surrendered the warrant to
purchase 10 million shares of our common stock.

8



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##### 



In 2001 we announced a strategic plan that has been implemented across
each service line and geographic area of our business which we believe will
allow us to meet the changing needs of our customers and to increase our
opportunity for growth by committing ourselves to innovation, quality and
efficiency. In connection with this plan, we recognized $54.2 million of
restructuring charges in 2001 which included approximately $1.1 million
relating to a 2000 restructuring plan. In 2002, we revised our estimates of
the restructuring plan which we adopted during 2001. This review resulted in a
reduction of $9.1 million in our accruals, including $5.7 million in severance
payments and $3.4 million in exit costs. However, also during 2002, we
recognized $9.1 million of restructuring charges as a result of the continued
implementation of the strategic plan we announced during 2001. This
restructuring charge included revisions to the 2001 and 2000 restructuring
plans of approximately $2.5 million and $1.9 million, respectively, due to a
revision in the estimates for the exit costs relating to the abandoned leased
facilities.

During 2001, we recognized a $27.1 million charge to write-off goodwill
and other operating assets primarily relating to goodwill recorded in four
separate acquisitions in our commercial services segment and personal computers
including desktops and laptops that were no longer in service. The goodwill
was deemed impaired and written-off due to changing business conditions and
strategic direction.

Income before income taxes was $123.7 million or 7.8% of total net
revenues for 2002 versus a loss before income taxes of $262.5 million for 2001.

The effective income tax rate was 33.5% for 2002 versus (33.0%) for 2001.
Since we conduct operations on a global basis, our effective income tax rate
may vary. See Income Taxes.

During 2002, we recognized $569,000 of losses from equity in
unconsolidated affiliates and other which represents our pro rata share of net
losses of unconsolidated affiliates, primarily Verispans net loss since its
formation in May 2002, net of minority interest in a consolidated subsidiary.

Effective January 2002, we changed our method for calculating deferred
income taxes related to our multi-jurisdictional tax transactions. Under the
previous method, we followed an incremental approach to measuring the deferred
income tax benefit of our multi-jurisdictional transactions. Under this
approach, we considered the income tax benefit from the step-up in tax basis,
net of any potential incremental foreign income tax consequences determined by
projecting
taxable income, foreign source income, foreign tax credit provisions and
the interplay of these items among and between their respective tax
jurisdictions, based on different levels of intercompany foreign debt. Under
the new method, we record deferred income taxes only for the future income tax
impact of book and tax basis differences created as a result of
multi-jurisdictional transactions. We believe the new method has become more
widely used in practice and is preferable because it eliminates the
subjectivity and complexities involved in determining the timing and amount of
the release or reversal of the valuation allowance under the prior method. In
order to effect this change, we recorded a cumulative effect adjustment of
$45.7 million which represents the reversal of the valuation allowance related
to deferred income taxes on these multi-jurisdictional income tax transactions.

During 2001, we completed a tax basis study for ENVOY Corporation, our
electronic data interchange unit we sold to WebMD Corporation during 2000. As
a result of this study, our tax basis in ENVOY was determined which resulted in
an approximate $142.0 million reduction in the income taxes provided on the
sale of ENVOY.

Net income was $127.3 million for 2002 versus a net loss of $33.8 million
for 2001.

9



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Analysis by Segment:

During the first quarter of 2002, we transferred the portion of the
operations of our Late Phase, primarily Phase IV, clinical group that was in
the commercial services group to the product development group in order to
consolidate the operational and business development activities. All
historical information presented has been revised to reflect this change.

The following table summarizes the operating activities for our reportable
segments for the years ended December 31, 2002 and 2001, respectively. We do
not include reimbursed service costs, general and administrative expenses,
depreciation and amortization except amortization of commercial rights,
interest (income) expense, other (income) expense and income tax expense
(benefit) in our segment analysis. Intersegment revenues have been eliminated
and the profit on intersegment revenues is reported within the service group
providing the services (dollars in millions).

|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |  |  |          |      |   |  |   |       |          |  |  |      |  
|--------------------- |  | ------------------ | ------- | ------------ |  | -------- | ------- | ---- |  | -------- | ----- | ---- |  | -------- | ----- |  |  | -------- | ---- | - |  | - | ----- | -------- |  |  | ---- | -
|                      |  | Total Net Revenues |         | Contribution
|                      |  |                    |         |             
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |  |  | % of Net |      |   |  |   |       | % of Net
|                      |  | 2002               |         | 2001         |  | Growth % |         | 2002 |  | Revenues |       | 2001 |  | Revenues
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |         
|Product development   |  | $                  | 944.9   |              |  | $        | 913.9   |      |  |          | 3.4   | %    |  | $        | 477.5 |  |  |          | 50.5 | % |  | $ | 438.4 |          |  |  | 48.0 | %
|Commercial services   |  |                    | 558.0   |              |  |          | 634.9   |      |  |          | (12.1 | )    |  |          | 207.7 |  |  |          | 37.2 |   |  |   | 197.5 |          |  |  | 31.1 |  
|PharmaBio Development |  |                    | 124.1   |              |  |          | 26.4    |      |  |          | 370.0 |      |  |          | 17.6  |  |  |          | 14.2 |   |  |   | (2.3  | )        |  |  | (8.8 | )
|Informatics           |  |                    | 20.3    |              |  |          | 58.2    |      |  |          | (65.0 | )    |  |          | 8.0   |  |  |          | 39.4 |   |  |   | 27.2  |          |  |  | 46.7 |  
|Eliminations          |  |                    | (54.5   | )            |  |          | (12.9   | )    |  |          |      |      |  |          |      |  |  |          |     |   |  |   |      |          |  |  |     |  
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |  |  |          |      |   |  |   |       |          |  |  |      |  
|                      |  | $                  | 1,592.8 |              |  | $        | 1,620.5 |      |  |          | (1.7  | %)   |  | $        | 710.8 |  |  |          | 44.6 | % |  | $ | 660.7 |          |  |  | 40.8 | %

The product development groups financial performance improvement was a
result of several factors, including an increase in revenues and the continued
improvement in contribution margin due to greater efficiency and improved
contract management.

The commercial services groups financial performance was negatively
impacted by difficult business conditions for large fee-for-service contracts
in the United States. The impact of the revenue decline was offset by the
effects of our cost management efforts.

The PharmaBio Development groups increase in net revenues, which consist
of commercial rights and royalties and investments, was primarily the result of
our acquisition of certain assets of Bioglan Pharma, Inc. and its suite of
dermatology products, the risk sharing contracts in Europe, our contracts with
Scios Inc. and Kos Pharmaceuticals, Inc. and the rollover of the Scios sales
force effective December 31, 2002. The investment revenues (net of related
costs) increased the contribution of this group by approximately $14.7 million
when compared to 2001. This groups contribution margin was negatively
impacted by the costs associated with the launch and marketing of Solaraze and
ADOXA and expenses relating to the risk sharing contracts in Europe. The
commercial services provided to PharmaBio Development by our commercial services group
increased approximately $41.6 million.

The informatics groups performance was impacted by the pending transfer
of this group into the joint venture. This was completed in May 2002;
therefore, the 2002 results include only five months of revenues and
contribution for the informatics group.

10



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Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

Gross revenues for the year ended December 31, 2001 were $1.88 billion
versus $1.87 billion for the year ended December 31, 2000. Gross revenues
include service revenues, revenues from commercial rights and royalties and
investment revenues. Net revenues exclude reimbursed service costs.
Reimbursed service costs may fluctuate, due in part, to the payment provisions
of the respective service contract. Below is a summary of revenues (in
thousands):

|                                |  |      |           |      |  |   |           | 
|------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                |  | 2001 |           | 2000
|                                |  |      |           |     
|Service revenues                |  | $    | 1,857,509 |      |  | $ | 1,860,316 | 
|Less: reimbursed service costs  |  |      | 263,429   |      |  |   | 210,588   | 
|                                |  |      |           |      |  |   |           | 
|Net service revenues            |  |      | 1,594,080 |      |  |   | 1,649,728 | 
|Commercial rights and royalties |  |      | 25,792    |      |  |   | 10,182    | 
|Investments                     |  |      | 611       |      |  |   | 579       | 
|                                |  |      |           |      |  |   |           | 
|Total net revenues              |  | $    | 1,620,483 |      |  | $ | 1,660,489 | 
|                                |  |      |           |      |  |   |           | 



| |  |  | Service revenues were $1.86 billion for 2001 compared to
$1.86 billion for 2000. Net service revenues for 2001 were $1.59
billion, a decrease of $55.6 million or (3.4%) over net service
revenues of $1.65 billion in 2000. However, there was a negative
impact of approximately $49.0 million due to the effect of foreign
currency fluctuations related to the strengthening of the US Dollar
relative to the euro, other European currencies and the Japanese yen
combined with the effects of the devaluation of several currencies
including the South African Rand. Net service revenues for the
commercial services group decreased $113.6 million or (15.2%) as a
result of large contracts that were terminated or converted in-house
by our customers instead of being renewed. The decrease was
partially offset by an increase of approximately $11.7 million from
our Phase I development services and an increase of approximately
$76.6 million from our clinical development services, primarily
Phase II and III services. Net service revenues increased in the
Asia Pacific region $44.0 million or 36.7% to $163.8 million but
decreased $116.7 million or (12.2%) to $839.5 million in the
Americas region primarily resulting from the decline in the
commercial services segment. Net service revenues in the Europe and
Africa region increased $20.3 million or 3.5% to $601.8 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Commercial rights and royalties revenues, which include
product revenues, royalties and commissions, for 2001 were $25.8
million, an increase of $15.6 million over 2000 commercial rights
and royalties revenues of $10.2 million. The increase was primarily
attributable to the contract with Scios which was operational by the
third quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Investment revenues related to our PharmaBio Development
groups financing arrangements, which include gains and losses from
the sale of equity investments and impairments from other than
temporary declines in the fair values of our direct and indirect
investments, for 2001 were $611,000 versus $579,000 for 2000.
Included in 2001 and 2000 are $14.0 million and $5.5 million,
respectively, of impairment losses on investments whose decline in
fair value was considered to be other than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

11



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Costs of revenues were $1.32 billion for 2001 versus $1.30 billion in
2000. Below is a summary of these costs (in thousands):

|                                      |  |      |           |      |  |   |           | 
|------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                      |  | 2001 |           | 2000
|                                      |  |      |           |     
|Reimbursed service costs              |  | $    | 263,429   |      |  | $ | 210,588   | 
|Service costs                         |  |      | 931,029   |      |  |   | 986,343   | 
|Commercial rights and royalties costs |  |      | 26,800    |      |  |   | 9,441     | 
|Investment costs                      |  |      | 1,914     |      |  |   |          | 
|Depreciation and amortization         |  |      | 95,095    |      |  |   | 91,242    | 
|                                      |  |      |           |      |  |   |           | 
|                                      |  | $    | 1,318,267 |      |  | $ | 1,297,614 | 
|                                      |  |      |           |      |  |   |           | 



| |  |  | Reimbursed service costs were $263.4 million and $210.6
million for 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Service costs, which include compensation and benefits for
billable employees, and certain other expenses directly related to
service contracts, were $931.0 million or 58.4% of 2001 net service
revenues versus $986.3 million or 59.8% of 2000 net service
revenues. This reduction is primarily a result of the continued
effect of our process enhancements and cost reduction efforts.                                                                                                                   
|
| |  |  | Commercial rights and royalties costs, which include
compensation and related benefits for employees, amortization of
commercial rights, infrastructure costs of the PharmaBio Development
group and other expenses directly related to commercial rights and
royalties, were $26.8 million for 2001 versus $9.4 million for 2000.
These costs include services and products provided by third parties,
as well as services provided by our other service groups totaling
approximately $12.9 million for 2001.
|
| |  |  | Investment costs, which include costs directly related to
direct and indirect investments in our customers or other strategic
partners as part of the PharmaBio Development groups financing
arrangements, were $1.9 million in 2001, the initial year of the
groups operations.                                                                                                                                                                                                                             
|
| |  |  | Depreciation and amortization, which include depreciation of
our property and equipment and amortization of our definite-lived
intangible assets except commercial rights, increased to $95.1
million for 2001 versus $91.2 million for 2000. Depreciation
expense increased $4.2 million due to the increase in our
capitalized asset base while amortization expense decreased $300,000
primarily as a result of the write-off of goodwill.                                                                  

General and administrative expenses, which include compensation and
benefits for administrative employees, non-billable travel, professional
services, and expenses for advertising, information technology and facilities,
were $520.7 million or 32.1% of total net revenues in 2001 versus $565.1
million or 34.0% of total net revenues in 2000. General and administrative
expenses decreased primarily due to the effects of reductions relating to our
restructuring activities including a decrease of approximately $15.4 million in
the spending for our Internet initiative. These reductions were partially
offset by an increase in costs of approximately $7.8 million associated with
the continued implementation of our shared service center initiative and
approximately $9.0 million associated with the realignment of our business
development strategy.

12



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Net interest income, which represents interest income received from bank
balances and investments in debt securities, net of interest expense incurred
on lines of credit, notes and capital leases, was $16.7 million in 2001 versus
$15.9 million in 2000.

Other expense was $489,000 in 2001 versus other income of $725,000 in
2000.

In 2001, we recognized a $325.6 million impairment on our investment in
WebMD common stock. This included a $334.0 million write-down in the third
quarter of 2001 of our cost basis in our investment in WebMD due to an other
than temporary decline in its fair value and an $8.5 million gain on our
investment in WebMD as a result of the sale of all 35 million shares of WebMD
common stock to WebMD.

During 2001, we recognized $83.2 million of income from the settlement of
litigation between WebMD and us. We received $185.0 million in cash for all 35
million shares of WebMD common stock we owned and to resolve the remaining
disputes. Also as part of the settlement, WebMD surrendered the warrant it
held to purchase 10 million shares of our common stock.

In response to a change in demand for our services, we announced
restructuring plans during 2000, resulting in a $58.6 million restructuring
charge. This consisted of $33.2 million related to severance payments, $11.3
million related to asset impairment write-offs and $14.0 million in exit costs.
As of December 31, 2001, all affected individuals, approximately 990
positions, had been notified of their termination and approximately $1.5
million remained to be spent.

During the third quarter of 2001, we announced a strategic plan that has
been implemented across each service line and geographic area of our business
to meet the changing needs of our customers and to increase our opportunity for
growth by committing ourselves to innovation, quality and efficiency.

In connection with the plan, we recognized $54.2 million of restructuring
charges that included approximately $1.1 million relating to a 2000
restructuring plan. The restructuring charges consisted of $33.1 million
related to severance payments, $8.2 million related to asset impairment
write-offs and $12.9 million of exit costs. As part of these restructurings,
approximately 1,040 positions were eliminated. As of December 31, 2001, 755
individuals had been notified of their termination of which 485 had been paid
and were no longer employed by us.

During 2001, we recognized a $27.1 million charge to write-off goodwill
and other operating assets primarily relating to goodwill recorded in four
separate acquisitions in our commercial services group and personal computers
including desktops and laptops that were no longer in service. The goodwill
was deemed impaired and written-off due to changing business conditions and
strategic direction.

During 2000, we recognized a $17.3 million loss on the disposal of our
general toxicology operations in Ledbury, Herefordshire, UK.

Loss before income taxes was $262.5 million for 2001 versus $51.0 million
for 2000.

The effective income tax rate was (33.0%) for 2001 and 2000, respectively.
Since we conduct operations on a global basis, our effective income tax rate
may vary. See Income Taxes.

During 2000, we completed the sale of ENVOY to WebMD. The results of
ENVOY, $16.8 million in 2000, are included in our consolidated statement of
operations as a discontinued operation. The

13



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##### 



results of ENVOY do not include any interest expense, management fee or
transaction costs allocated by us.

We received $400 million in cash and 35 million shares of WebMD common
stock in exchange for our entire interest in ENVOY and a warrant to acquire 10
million shares of our common stock at $40 per share, exercisable for four
years. We recorded an extraordinary gain on the sale of $436.3 million, net of
income taxes of $184.7 million. During 2001, we completed a tax basis study
for ENVOY. As a result of this study, our tax basis in ENVOY was determined
which resulted in an approximate $142.0 million reduction in the income taxes
provided on the sale of ENVOY.

Net loss was $33.8 million for 2001 versus a net income of $418.9 million
for 2000.

Analysis by Segment:

During the first quarter of 2002, we transferred the portion of the
operations of our Late Phase, primarily Phase IV, clinical group that was in
the commercial services group to the product development group in order to
consolidate the operational and business development activities. All
historical information presented has been revised to reflect this change.

The following table summarizes the operating activities for our reportable
segments for the years ended December 31, 2001 and 2000, respectively. We do
not include reimbursed service costs, general and administrative expenses,
depreciation and amortization except amortization of commercial rights,
interest (income) expense, other (income) expense and income tax expense
(benefit) in our segment analysis. Intersegment revenues have been eliminated
and the profit on intersegment revenues is reported within the service group
providing the services (dollars in millions).

|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |   |  |          |      |   |  |   |       |          |  |  |      |  
|--------------------- |  | ------------------ | ------- | ------------ |  | -------- | ------- | ---- |  | -------- | ----- | ---- |  | -------- | ----- | - |  | -------- | ---- | - |  | - | ----- | -------- |  |  | ---- | -
|                      |  | Total Net Revenues |         | Contribution
|                      |  |                    |         |             
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |   |  | % of Net |      |   |  |   |       | % of Net
|                      |  | 2001               |         | 2000         |  | Growth % |         | 2001 |  | Revenues |       | 2000 |  | Revenues
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |         
|Product development   |  | $                  | 913.9   |              |  | $        | 841.5   |      |  |          | 8.6   | %    |  | $        | 438.4 |   |  |          | 48.0 | % |  | $ | 382.6 |          |  |  | 45.5 | %
|Commercial services   |  |                    | 634.9   |              |  |          | 748.5   |      |  |          | (15.2 | )    |  |          | 197.4 |   |  |          | 31.1 |   |  |   | 247.6 |          |  |  | 33.1 |  
|PharmaBio Development |  |                    | 26.4    |              |  |          | 10.8    |      |  |          | 145.4 |      |  |          | (2.3  | ) |  |          | (8.8 | ) |  |   | 1.3   |          |  |  | 12.3 |  
|Informatics           |  |                    | 58.2    |              |  |          | 59.7    |      |  |          | (2.6  | )    |  |          | 27.2  |   |  |          | 46.7 |   |  |   | 33.2  |          |  |  | 55.7 |  
|Eliminations          |  |                    | (12.9   | )            |  |          |        |      |  |          |      |      |  |          |      |   |  |          |     |   |  |   |      |          |  |  |     |  
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |   |  |          |      |   |  |   |       |          |  |  |      |  
|                      |  | $                  | 1,620.5 |              |  | $        | 1,660.5 |      |  |          | (3.4  | %)   |  | $        | 660.7 |   |  |          | 40.8 | % |  | $ | 664.7 |          |  |  | 40.0 | %

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, growth in our Phase I and
clinical development services, primarily Phase II and III services, and an
improvement in the quality of our contracts.

The commercial services groups financial performance was negatively
impacted by several factors, including the effects of large contracts converted
in-house or terminated by our customers instead of being renewed and the
effects of a collection issue with a non-pharmaceutical customer receivable.
These were partially offset by the effects of our cost reduction efforts.

The PharmaBio Development groups increase in net revenues, which consist
of commercial rights and royalties and investments, was primarily the result of
the Scios contract becoming operational in the third quarter of 2001.

14



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The informatics groups financial performance was impacted by several
factors, including the effects of the strategic plan and related restructuring,
the costs associated with developing new data products and a decrease in new
business as a result of the dispute with WebMD and concerns regarding our
continuing ability to receive data from WebMD.

Liquidity and Capital Resources

Cash and cash equivalents were $644.3 million at December 31, 2002 as
compared to $565.1 million at December 31, 2001.

Cash flows provided by operations were $246.5 million in 2002 versus
$247.4 million and $10.5 million in 2001 and 2000, respectively. Increasing
cash flows from operations in 2001 was $63.2 million related to the settlement
of the litigation with WebMD and $56.2 million for income tax refunds.

Cash flows used in investing activities in 2002 were $152.3 million and
$16.4 million in 2001, versus $270.4 million of cash flows provided by
investing activities in 2000. Investing activities consisted primarily of the
acquisition of commercial rights, capital asset purchases and acquisition of
businesses and purchases and sales of investments.

Capital asset purchases required cash outlays of $40.2 million, $134.0
million and $108.8 million in 2002, 2001 and 2000, respectively. Capital asset
purchases by our informatics group was $666,000 in 2002 versus $10.0 million
and $7.0 million in 2001 and 2000, respectively. The decrease in 2002 was due,
in part, to the transfer of this group to Verispan. The $134.0 million capital
asset purchases in 2001 included the final payment of $58 million in connection
with our 1999 acquisition of Aventis S.A.s Drug Innovation and Approval
Facility, $19.9 million for the implementation of the shared service centers
and $5.7 million for our informatics groups data center. Capital asset
purchases in 2000 included $25.2 million for the implementation of the shared
service centers and $8.0 million for the purchase of our training academy in
Japan.

During 2002, cash used for the acquisition of commercial rights was $88.3
million versus $26.7 million for 2001. The 2002 commercial rights included
$70.0 million in payments under our agreement with Eli Lilly and Company. Also
in 2002, we acquired certain assets of Bioglan Pharma, Inc., including its
management team and sales force and approximately $1.6 million in cash, for
approximately $27.9 million. In 2001, we acquired the rights to market for 14
years in the United States, Canada and Mexico SkyePharmas Solaraze, a
treatment of actinic keratosis, for $26.7 million.

In 2001, we jointly announced with WebMD the settlement of litigation
between the companies and the resolution of our disputes. As part of the
settlement, WebMD paid us $185.0 million in cash for all 35 million shares of
WebMD common stock we held and to resolve the remaining disputes. The proceeds
were allocated as follows: $63.2 million related to the settlement of
litigation was reported as cash flows provided by operations and $121.8 million
related to the sale of WebMD common stock was reported as cash flows from
investing activities. We will also receive an additional payment from WebMD
if, on or before June 30, 2004, WebMD is acquired for a price greater than
$4.00 per share or its ENVOY subsidiary is acquired for a price greater than
$500 million. Also as part of the settlement, WebMD surrendered the warrant it
held to purchase 10 million shares of our common stock.

15



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The following table is a summary of our net service receivables
outstanding (dollars in thousands except days):

|                                               |  |                   |          |                   |  |   |          |  
|---------------------------------------------- |  | ----------------- | -------- | ----------------- |  | - | -------- | -
|                                               |  | December 31, 2002 |          | December 31, 2001
|                                               |  |                   |          |                  
|Trade accounts receivable, net                 |  | $                 | 227,636  |                   |  | $ | 258,917  |  
|Unbilled services                              |  |                   | 120,383  |                   |  |   | 166,754  |  
|Unearned income                                |  |                   | (239,598 | )                 |  |   | (205,783 | )
|                                               |  |                   |          |                   |  |   |          |  
|Net service receivables outstanding            |  | $                 | 108,421  |                   |  | $ | 219,888  |  
|                                               |  |                   |          |                   |  |   |          |  
|Number of days of service revenues
outstanding |  |                   | 21       |                   |  |   | 43       |  
|                                               |  |                   |          |                   |  |   |          |  

The decrease in the number of days of service revenues outstanding is a result
of our continued focus on the fundamentals of our business and efficiencies
generated by our shared service centers.

Investments in debt securities were $36.7 million at December 31, 2002
versus $37.0 million at December 31, 2001. Our investments in debt securities
consist primarily of U.S. Government Securities, which are callable by the
issuer, at par, and money funds.

Investments in marketable equity securities at December 31, 2002 were
$64.9 million, a decrease of $13.1 million, as compared to $78.0 million at
December 31, 2001. This decrease is due to the sale of equity investments. In
accordance with our policy to continually review declines in fair value of our
marketable equity securities for declines that may be other than temporary, we
recorded a loss of approximately $335,000 in 2002 to establish a new cost basis
for certain investments.

Investments in non-marketable equity securities and loans at December 31,
2002 were $46.4 million, an increase of $8.9 million, as compared to $37.6
million at December 31, 2001. In accordance with our policy to review the
carrying values of our non-marketable equity securities and loans if the facts
and circumstances suggest that a potential impairment, representing an other
than temporary decline in fair value, may have occurred, we recorded a loss of
approximately $4.0 million in 2002 to establish a new cost basis for certain
investments.

In 2002, we completed the formation of our healthcare informatics joint
venture, Verispan. We contributed the net assets of our informatics group and
funded $10.0 million to Verispan. Accordingly, we have recorded our investment
in Verispan, which is approximately $120.7 million at December 31, 2002, as an
investment in unconsolidated affiliates.

We have available to us a £10.0 million (approximately $16.0 million)
unsecured line of credit with a U.K. bank and a £1.5 million (approximately
$2.4 million) general bank facility with the same U.K. bank. At December 31,
2002 and 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 from time to time until March 1, 2002. In
February 2002, the Board extended this authorization until March 1, 2003.
During the first half of 2002, we entered into agreements to repurchase
approximately 1.6 million shares for an aggregate price of $22.2 million. We
did not enter into any agreements to repurchase our common stock during the
second half of 2002. During 2001, we entered into agreements to repurchase
approximately 1.7 million shares for an aggregate price of $27.5 million.
Shareholders equity increased $143.3 million to $1.60 billion at December 31,
2002 from $1.46 billion at December 31, 2001.

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Below is a summary of our future payment commitments by year under
contractual obligations as of December 31, 2002 (in thousands):

|                                                                            |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|--------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                                                            |  | 2003 |         | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total
|                                                                            |  |      |         |      |  |      |        |      |  |      |        |            |  |      
|Long-term debt                                                              |  | $    | 3,347   |      |  | $    | 2,179  |      |  | $    | 1,957  |            |  | $     | 1,702  |  |  | $ | 941    |  |  | $ | 1,431  |  |  | $ | 11,557  | 
|Obligations held
under capital
leases                                       |  |      | 19,301  |      |  |      | 7,330  |      |  |      | 1,213  |            |  |       | 617    |  |  |   | 482    |  |  |   | 1,433  |  |  |   | 30,376  | 
|Operating leases                                                            |  |      | 62,443  |      |  |      | 39,776 |      |  |      | 26,548 |            |  |       | 22,078 |  |  |   | 18,970 |  |  |   | 72,191 |  |  |   | 242,006 | 
|Service agreement                                                           |  |      | 20,000  |      |  |      | 20,000 |      |  |      | 20,000 |            |  |       | 20,000 |  |  |   | 20,000 |  |  |   | 15,007 |  |  |   | 115,007 | 
|PharmaBio funding
commitments in
various commercial
rights and
royalties    |  |      | 46,828  |      |  |      | 18,695 |      |  |      | 15,520 |            |  |       | 9,914  |  |  |   | 3,834  |  |  |   |       |  |  |   | 94,791  | 
|PharmaBio funding
commitments in
non-marketable
equity securities
and loans |  |      | 32,344  |      |  |      | 10,144 |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |       |  |  |   | 42,488  | 
|                                                                            |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|                                                                            |  | $    | 184,263 |      |  | $    | 98,124 |      |  | $    | 65,238 |            |  | $     | 54,311 |  |  | $ | 44,227 |  |  | $ | 90,062 |  |  | $ | 536,225 | 
|                                                                            |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 

We have also additional future PharmaBio funding commitments that are
contingent upon satisfaction of certain milestones by the third party such as
receiving FDA approval, obtaining funding from additional third parties,
agreement of a marketing plan and other similar milestones. Due to the
uncertainty of the amounts and timing of these commitments, they are not
included in the commitment amounts above. If all of these contingencies were
satisfied over approximately the same time period, then we estimate these
commitments to be a minimum of approximately $115-140 million per year for a
period of five to six years, subject to certain limitations and varying time
periods.

We have entered into financial arrangements with customers in which a
portion of our net revenue and operating income will be based on the
performance of a specific product. These arrangements typically involve
funding, either by direct investment or in the form of a loan, which we commit
to provide to our customers. Any securities we may acquire as a result of our
investment or upon conversion of the loan may not be readily marketable, and we
will bear the risk of carrying these investments for an indefinite period of
time. The customer may apply this funding to certain pre-launch and sales and
marketing activities or it may represent payment for a royalty stream relating
to a specific product. We intend to continue to pursue these types of
strategic arrangements, and we are actively seeking additional opportunities to
create alliances with our customers.

Based on our current operating plan, we believe that our available cash
and cash equivalents, together with future cash flows from operations and
borrowings under our line of credit agreements will be sufficient to meet our
foreseeable cash needs in connection with our operations. As part of our
business strategy, we review many acquisition candidates in the ordinary course
of business, and in addition to acquisitions already made, we are continually
evaluating new acquisition and expansion possibilities. In addition, as part
of our business strategy going forward, we intend to review and consider
opportunities to acquire additional product rights, as appropriate. 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.

The proposed merger described in the Overview calls for the use of a
large portion of our existing cash as part of the financing for the
transaction. In addition, the proposed merger calls for substantial debt
financing and after the merger, assuming its completion, much of our available
cash would be used to service the debt incurred in the merger.

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Critical Accounting Policies

As we believe these policies require difficult, subjective and complex
judgments, we have identified the following critical accounting policies which
we use in the preparation of our financial statements.

Contract Revenue

We recognize revenue for service contracts based upon (1) percentage of
completion (utilizing input or output measures as appropriate) for fixed price
contracts, (2) contractual per diem or hourly rate basis as work is performed
for fee-for-service contracts or (3) completion of units of service for
unit-of-service contracts. The percentage of completion method requires us to
estimate total expected revenue, costs, profitability, duration of the contract
and outputs. These estimates are reviewed periodically and, if any of these
estimates change or actual results differs from expected results then an
adjustment is recorded in the period in which they become reasonably estimable.
These adjustments could have a material effect on our results of operations.

Certain of our commercial rights and royalty contracts provide for us to
receive minimum guaranteed payments. These contracts usually contain multiple
elements which include payments being made to the customer, as well as payments
being received by us from the customer. We account for the contracts as a
single contract taking into account the net cash flows we receive. We
recognize revenue over the related service period of the contract based on the
net present value of the guaranteed payments. As revenues are recognized and
payments are made between the customer and us, we record an asset, which
represents the obligation owed to us by the customer. Milestone payments,
which we make to the customer, are amortized as a reduction to revenue over the
service period of the contract. We also impute interest on the asset balance
and record interest income as the contract progresses. We will fully realize
the asset balance when we receive the guaranteed minimum level of cash flows.
We recognize revenues in excess of the guaranteed minimums as they are earned.
The inherent subjectivity of determining the net present values of the
guaranteed payments could have a significant impact on the revenues recognized
in any period.

We recognize product revenues upon shipment when title passes to the
customer. Revenues are net of allowances for estimated returns, rebates and
discounts. We are obligated to accept from customers the return of products
that are nearing or have reached their expiration date. We also monitor
product ordering patterns, actual returns and analyze wholesale inventory
levels to estimate potential product return rates. When we lack a sufficient
historical basis to estimate return rates, we recognize revenues and the
related cost of revenues when we receive end-user prescription data from
third-party providers. Although we believe the product return allowances are
adequate, if actual product returns exceed our estimates our results of
operations could be adversely affected.

Accounts Receivable, Unbilled Services and Unearned Income

Accounts receivable represents amounts billed to customers. Revenues
recognized in excess of billings are classified as unbilled services, while
billings in excess of revenue recognized are classified as unearned income.
The realization of these amounts is based on the customers willingness and
ability to pay us. We have an allowance for doubtful accounts based on
managements estimate of probable incurred losses resulting from a customer
failing to pay us. If any of these estimates change or actual results differs
from expected results, then an adjustment is recorded in the period in which
they become reasonably estimable. These adjustments could have a material
effect on our results of operations.

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Marketable Debt and Equity Investments

We have investments in debt securities and investments in marketable
equity securities. Periodically, we review our investments for declines in
fair value that we believe may be other than temporary. When we identify such
a decline in fair value we record a loss through earnings to establish a new
cost basis for the investment. In addition, we may experience future material
declines in the fair value of our investments which would require us to record
additional losses. These adjustments could have a material adverse effect on
our results of operations.

Non-Marketable Equity Investments and Loans

We have investments in non-marketable equity securities and loans. These
arrangements typically involve funding, either by direct investment or in the
form of a loan, which we commit to provide. Any securities we may acquire as a
result of our investment or upon conversion of the loan may not be readily
marketable, and we will bear the risk of carrying these investments for an
indefinite period of time. We may not be able to recover our cost of the
investment or loan at any time in the future, and we could experience an
impairment in the carrying value of these investments, which would require us
to record additional losses, which could have a material adverse effect on our
results of operations.

Income Taxes

We have undistributed earnings of our foreign subsidiaries. Those
earnings are considered to be indefinitely reinvested and, accordingly, no U.S.
Federal and State income taxes have been provided. If those earnings were
distributed, we would be subject to both U.S. income taxes and withholding
taxes payable to the various countries. Any resulting income tax obligations
could materially adversely affect our results of operations.

Certain items of income and expense are not recognized on our income tax
returns and financial statements in the same year, which creates timing
differences. The income tax effect of these timing differences results in (1)
deferred income tax assets that create a reduction in future income taxes and
(2) deferred income tax liabilities that create an increase in future income
taxes. Recognition of deferred income tax assets is based on managements
belief that it is more likely than not that the income tax benefit associated
with certain temporary differences, income tax operating loss and capital loss
carry forwards and income tax credits, will be realized. We record a valuation
allowance to reduce our deferred income tax assets for those deferred income
tax items for which it is more likely than not that realization will not occur.
We determine the amount of the valuation allowance based, in part, on our
assessment of future taxable income and in light of our ongoing prudent and
feasible income tax strategies. If our estimate of future taxable income or
tax strategies change at any time in the future, we would be required to record
an additional income tax provision; recording such a provision could have a
material adverse effect on our results of operations.

Foreign Currencies

We derive a large portion of our net revenue from international
operations. Our financial statements are denominated in U.S. dollars; thus,
factors associated with international operations, including changes in foreign
currency exchange rates, 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 the risk of
translating revenues and expenses of foreign operations into

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U.S. dollars, known as translation risk, and the risk that we incur
expenses in a currency other than that in which the contract revenues are paid,
known as transaction risk. Gains and losses on foreign currency transactions
are reported in results of operations, while translation adjustments are
reported as a component of accumulated other comprehensive income within
shareholders equity. If certain balances owed by our foreign subsidiaries are
deemed to be not of a long-term investment nature, then the translation effect
related to those balances would not be classified as translation adjustments
but rather transaction adjustments, which could have a material effect on our
results of operations.

Long-Lived Assets

Realization of identifiable tangible and intangible assets in which we
have invested is exposed to a changing regulatory and competitive market.
Examples include investments we have made in certain product related rights
such as marketing and distribution rights and investments made to develop an
Internet platform for our product development and commercialization services.
The realization of these assets could be affected by technological changes,
approval by the FDA, and proposed and final laws and regulations, such as
regulations governing individually identifiable health information or FDA
requirements for use of electronic records and/or electronic signatures.

Periodically, we review the carrying values of property and equipment if
the facts and circumstances suggest that a potential impairment may have
occurred. If this review indicates that carrying values will not be
recoverable, as determined based on undiscounted cash flows over the remaining
depreciation or amortization period, we will reduce carrying values to
estimated fair value. The inherent subjectivity of our estimates of future
cash flows could have a significant impact on our analysis. Any future
write-offs of long-lived assets could have a material adverse effect on our
financial condition or results of operations.

Goodwill and Identifiable Intangible Assets

Net assets of companies acquired in purchase transactions are recorded at
fair value at the date of acquisition. The recoverability of the excess of the
cost over the fair value of the net assets acquired, known as goodwill, is
evaluated annually for impairment or if and when events or circumstances
indicate a possible impairment. During 2002, we completed the goodwill
transitional impairment test as of January 1, 2002, as required, and the annual
impairment test as of July 31, 2002, in which no goodwill impairment was deemed
necessary at either date. Goodwill and indefinite-lived intangible assets are
not amortized. Other identifiable intangible assets are amortized over their
estimated useful lives. The inherent subjectivity of applying a market
comparables approach to valuing our assets and liabilities could have a
significant impact on our analysis. Any future impairment could have a
material adverse effect on our financial condition or results of operations.

Employee Stock Compensation

We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Options Issued to Employees, or APB 25, and related
interpretations in accounting for our employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, as
amended by SFAS No. 148, or SFAS 123, requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
25, because the exercise price equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized. If we
accounted for stock options under SFAS 123, we would have recorded additional
compensation expense for the stock option grants to employees. If we are
unable to or decide not to continue to account for stock options under APB 25,
our financial results would be materially adversely affected to the extent of
the additional

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compensation expense we would have to recognize, which could change
significantly from period to period based on several factors including the
number of stock options granted and fluctuations of our stock price and/or
interest rates.

Backlog Reporting

We report revenue backlog based on anticipated net revenue from
uncompleted projects that our customers have authorized. We report only
service-related revenue as backlog, and we do not include product revenue or
commercial rights-related revenue (royalties and commissions) in backlog. Our
backlog is calculated based upon our estimate of forecasted currency exchange
rates. Annually, we adjust the beginning balance of our backlog to reflect
changes in our forecasted currency exchange rates. Our backlog at anytime can
be affected by:



| | - |  | the variable size and duration of projects,                  
| | - |  | -------------------------------------------------------------
|
| | - |  | the loss or delay of projects, and                           
|
| | - |  | a change in the scope of work during the course of a project.

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 may not be indicative of
the future relationship. The reporting of revenue backlog is not
authoritatively prescribed, therefore practices tend to vary among competitors
and reported amounts are not necessarily comparable.

Inflation

We believe the effects of inflation generally do not have a material
adverse impact on our operations or financial condition.

Market Risk

Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency rates, interest rates and other
relevant market rate or price changes. In the ordinary course of business, we
are exposed to various market risks, including changes in foreign currency
exchange rates, interest rates and equity price changes, and we regularly
evaluate our exposure to such changes. Our overall risk management strategy
seeks to balance the magnitude of the exposure and the cost and availability of
appropriate financial instruments. From time to time, we have utilized forward
exchange contracts to manage our foreign currency exchange rate risk. The
following analyses present the sensitivity of our financial instruments to
hypothetical changes in interest and foreign currency exchange rates that are
reasonably possible over a one-year period.

Foreign Currency Exchange Rates

Approximately 56.4%, 49.7% and 44.0% of our total net revenue for the
years ended December 31, 2002, 2001, and 2000, respectively, was derived from
our operations outside the United States. We do not have significant
operations in countries in which the economy is considered to be
highly-inflationary. Our financial statements are denominated in U.S. dollars,
and accordingly, changes in the exchange rate between foreign currencies and
the U.S. dollar will affect the translation of our subsidiaries financial
results into U.S. dollars for purposes of reporting our consolidated financial
results. Accumulated currency translation adjustments recorded as a separate
component (reduction) of shareholders equity were ($18.4) million at December
31, 2002 as compared to ($60.6) million at December 31, 2001.

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We may be subject to foreign currency transaction risk when our service
contracts are denominated in a currency other than the currency in which we
earn fees or incur expenses related to such contracts. At December 31, 2002,
our most significant foreign currency exchange rate exposures were in the
British pound, Japanese yen and the euro. We limit our foreign currency
transaction risk through exchange rate fluctuation provisions stated in our
contracts with customers, or we may hedge our transaction risk with foreign
currency exchange contracts or options. There were no open foreign exchange
contracts or options relating to service contracts at December 31, 2002 or
2001.

Interest Rates

At December 31, 2002, our investment in debt securities portfolio consists
primarily of U.S. Government securities, of which most are callable by the
issuer at par, and money funds. The portfolio is primarily classified as
available-for-sale and therefore these investments are recorded at fair value
in the financial statements. These securities are exposed to market price risk
which also takes into account interest rate risk. As of December 31, 2002, the
fair value of the investment portfolio was $36.7 million, based on quoted
market prices. The potential loss in fair value resulting from a hypothetical
decrease of 10% in quoted market price is approximately $3.7 million.

Equity Prices

At December 31, 2002, we had investments in marketable equity securities.
These investments are classified as available-for-sale and are recorded at fair
value in the financial statements. These securities are subject to equity
price risk. As of December 31, 2002, the fair value of these investments was
$64.9 million, based on quoted equity prices. The potential loss in fair value
resulting from a hypothetical decrease of 10% in quoted equity price is
approximately $6.5 million.

Recently Issued Accounting Standards

In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities,
requiring companies to record certain exit costs activities when legally
obligated instead of when an exit plan is adopted. The provisions of SFAS No.
146 are effective for exit or disposal activities that are initiated after
December 31, 2002; therefore, the adoption of SFAS No. 146 did not have a
material impact on our results of operations and/or financial position.

In January 2003, the EITF published EITF Issue 00-21, Revenue
Arrangements with Multiple Deliverables, which requires companies to determine
whether an arrangement involving multiple deliverables contains more than one
unit of accounting. In applying this EITF Issue 00-21, revenue arrangements
with multiple deliverables should be divided into separate units of accounting
if the deliverables in the arrangement meet certain criteria. Arrangement
consideration should be allocated among the separate units of accounting based
on their relative fair values. This issue is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. We
are currently evaluating the impact the adoption of this issue will have on our
results of operations and/or financial position.

From time to time the Staff of the United States Securities and Exchange
Commission communicates its interpretations of accounting rules and
regulations. The manner by which these views are communicated varies by topic.
While these communications represent the views of the Staff, they do not carry
the authority of law or regulation. Nonetheless, the practical effect of these
communications is

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that changes in the Staffs views from time to time can impact the accounting
and reporting policies of public companies, like ours.

Risk Factors

In addition to the other information provided in this Annual Report on
Form 10-K, 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 grew substantially during the 1990s and we
benefited from this trend. Some industry commentators believe that the rate of
growth of outsourcing will tend to decrease. 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 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.

Our plan to web-enable our product development and commercialization services
may negatively impact our results in the short term.

We are currently developing an Internet platform for our product
development and commercialization services. We have entered into agreements
with certain vendors for them to provide web-enablement services to help us
develop this platform. If such vendors fail to perform as required or if there
are substantial delays in developing and implementing this platform, we may
have to make substantial further investments, internally or with 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

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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 operationalized.
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 operating income 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 customers away from our services.

We may not be able to derive the benefits we hope to achieve from Verispan, our
joint venture with McKesson.

In May 2002, we completed the formation of a joint venture, Verispan, with
McKesson designed to leverage the operational strengths of the healthcare
information business of each party. As part of the formation of Verispan, we
contributed our former informatics business. As a result, Verispan remains
subject to the risks to which our informatics business was exposed. If
Verispan is not successful or if it experiences any of the difficulties
described below, there could be an adverse effect on our results of operations
and financial condition, as Verispan is a pass-through entity and, as such, its
results are reflected in our financial statements to the extent of our interest
in Verispan. We may not achieve the intended benefits of Verispan if it is not
able to secure additional data in exchange for equity. Verispan also could
encounter other difficulties, including:



| | its ability to obtain continuous access to de-identified healthcare data from third parties in sufficient quantities to
support its informatics products;                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | its ability to process and use the volume of data received from a variety of data providers;                                                                                              
| 
| | its ability to attract customers, besides Quintiles and McKesson, to purchase its products and services;                                                                                  
| 
| | the risk of changes in healthcare information privacy laws and regulations that could create a risk of liability, increase
the cost of Verispans business or limit its service offerings;
| 
| | the risk that industry regulation may restrict Verispans ability to analyze and disseminate pharmaceutical and healthcare
data; and                                                      
| 
| | the risk that it will not be able to effectively and cost-efficiently replace services previously provided to the
contributed businesses by the former parent corporations.               

Although we have a license to use Verispans commercially available data
products and we may pay Verispan to create customized data products for us, if
Verispan is unable to provide us with the quality and character of data
products that we need to support those services, we would need to seek other
strategic alternatives to achieve our goals.

In contributing our former informatics business to Verispan, we assigned
certain contracts to Verispan. Verispan has agreed to indemnify us against any
liabilities we may incur in connection with these contracts after contributing
them to Verispan, but we still may be held liable under the contracts to the
extent Verispan is unable to satisfy its obligations, either under the
contracts or to us.

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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. Also, over the past two
years 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.

Underperformance of our commercial rights strategies could have a negative
impact on our financial performance.

As part of our PharmaBio Development business strategy, we enter into
arrangements with customers in which we take on some of the risk of the
potential success or failure of the customers product. These transactions may
include making a strategic investment in a customer, providing financing to a
customer, or acquiring an interest in the revenues from a customers product.
For example, we may build or provide a sales organization for a biotechnology
customer to commercialize a new product in exchange for a share in the revenues
of the product. We anticipate that in the early periods of many of these
relationships, our expenses will exceed revenues from these arrangements,
particularly where we are providing a sales force for the product at our own
cost. Aggregate royalty or other payments made to us under these arrangements
may not be adequate to offset our total expenditure in providing a sales force
or in making milestone or marketing payments to our customers. We must
carefully analyze and select the customers and products with which we are
willing to structure our risk-based deals. Products underlying our commercial
rights strategies may not complete clinical trials, receive FDA approval or
achieve the level of market acceptance or consumer demand that we expect, in
which case we might not be able to earn a profit or recoup our investment with
regard to a particular arrangement. In addition, the timing of regulatory
approval and product launch and the achievement of other milestones are
generally beyond our control and can affect our actual return from these
investments. The potential negative effect to us could increase depending on
the nature and timing of our investments and the length of time before it
becomes apparent that the product will not achieve commercial success. Our
financial results would be adversely affected if our customers or their
products do not achieve the level of success that we anticipate and/or our
return or payment from the product investment or financing is less than our
costs of performance, investment or financing.

Our rights to market and sell certain pharmaceutical products expose us to
product risks typically associated with pharmaceutical companies.

Our acquisition of the rights to market and sell Solaraze and the rights
to other dermatology products acquired from Bioglan Pharma, Inc., as well as
any other product rights we may hold at any time, subject us to a number of
risks typical to the pharmaceutical industry. For example, we could face
product liability claims in the event users of these products, or of any other
pharmaceutical product rights we may acquire in the future, experience negative
reactions or adverse side effects or in the event it causes injury, is found to
be unsuitable for its intended purpose or is otherwise defective. While we
believe we currently have adequate insurance in place to protect against these
risks, we may nevertheless be unable to satisfy any claims for which we may be
held liable as a result of the use or misuse of products which we manufacture
or sell, and any such product liability claim could adversely affect our
business, operating results or financial condition. In addition, like
pharmaceutical companies, our

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commercial success in this area will depend in part on our obtaining,
securing and defending our intellectual property rights covering our
pharmaceutical product rights.

These risks may be augmented by certain risks relating to our outsourcing
of the manufacturing and distribution of these products or any pharmaceutical
product rights we may acquire in the future. For example, as a result of our
decision to outsource the manufacturing and distribution of Solaraze, we are
unable to directly monitor quality control in the manufacturing and
distribution processes.

Our plans to market and sell Solaraze and other pharmaceutical products
also subject us to risks associated with entering into a new line of business.
We have limited experience operating in this line of business. If we are
unable to operate this new line of business as we expect, the financial results
from this new line of business could have a negative impact on our results of
operations as a whole. The risk that our results may be affected if we are
unable to successfully operate our pharmaceutical operations may increase in
proportion with (1) the number of products or product rights we license or
acquire in the future, (2) the applicable stage of the drug approval process of
the products and (3) the levels of outsourcing involved in the development,
manufacture and commercialization of such products.

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 J. 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 could result in potential liability to us.

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. Similar risks
apply to our product development services relating to medical devices.

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. For example, we are among the defendants
named in a purported class action by participants in an Alzheimers study
seeking to hold us liable for alleged damages to the participants arising from
the study. Nonetheless, it is possible we could be found liable for those
types of losses.

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In addition to supervising tests or performing laboratory analysis, we
also own a number of facilities 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 provide limited clinical trial packaging services. We could be
held liable for any problems that result from the trial drugs we package,
including any quality control problems in our packaging facilities. For
example, accounting for drug samples that contain controlled substances is
subject to regulation by the United States Drug Enforcement Administration, or
the DEA. For example, some of our facilities have been audited by the DEA. In
one case, the DEA indicated that it found that we miscounted certain drugs.
Though we provided a corrected accounting of these drugs to the DEA and no
audit report or action has been taken, the DEA could pursue one or more courses
of action, including a re-audit of the facility, the assessment of civil fines,
or in extreme cases, criminal penalties.

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. Although, we maintain insurance to cover ordinary risks,
insurance would not cover the risk of a customer deciding not to do business
with us as a result of poor performance.

Our insurance may not cover all of our indemnification obligations and other
liabilities associated with our operations.

We maintain insurance designed to cover ordinary risks associated with our
operations and our ordinary indemnification obligations. This insurance might
not be adequate coverage or may be contested by our carriers. For example, our
insurance carrier, to whom we paid premiums to cover risks associated with our
product development services, has filed suit against us seeking to rescind the
insurance policies or to have coverage denied for some or all of the claims
arising from class action litigation involving an Alzheimers study. The
availability and level of coverage provided by our insurance could have a
material impact on our profitability if we suffer uninsured losses or are
required to indemnify third parties for uninsured losses.

In connection with our contribution to Verispan, Verispan assumed our
obligation under our settlement agreement with WebMD to indemnify WebMD for
losses arising out of or in connection with the cancelled Data Rights Agreement
with WebMD, our data business that we contributed to the joint venture, the
collection, accumulation, storage or use of data by ENVOY for the purpose of
transmitting or delivering data to us, any transmission or delivery by ENVOY of
data to us or violations of law or contract attributable to any such event.
This indemnity obligation is limited to 50% for the first $20 million in
aggregate losses, subject to exceptions for certain indemnity obligations that
were not transferred to Verispan. Although Verispan has assumed our indemnity
obligations to WebMD relating to our data business, WebMD may seek indemnity
from us and we would have to proceed against Verispan.

In addition, we remain subject to other indemnity obligations to WebMD,
including for losses arising out of the settlement agreement itself or out of
the sale of ENVOY to WebMD. In particular, we could be liable for losses which
may arise in connection with a class action lawsuit filed against ENVOY prior
to its purchase by us and subsequent sale to WebMD. Our indemnification
obligation with regard to losses arising from the sale of ENVOY to WebMD
including ENVOYs class action lawsuit is not subject to the limitation on the
first $20 million of losses described above.

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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.

Our services are subject to evolving industry standards and rapid technological
changes.

The markets for our services are characterized by rapidly changing
technology, evolving industry standards and frequent introduction of new and
enhanced services. To succeed, we must continue to:



| |  |  | enhance our existing services;                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | introduce new services on a timely and cost-effective basis to meet
evolving customer requirements;
|
| |  |  | integrate new services with existing services;                                                     
|
| |  |  | achieve market acceptance for new services; and                                                    
|
| |  |  | respond to emerging industry standards and other technological changes.                            

Exchange rate fluctuations may affect our results of operations and financial
condition.

We derive a large portion of our net revenue from international
operations. Our financial statements are denominated in U.S. dollars; thus,
factors associated with international operations, including changes in foreign
currency exchange rates and any trends associated with the transition to the
euro, could significantly affect our results of operations and financial
condition. Exchange rate fluctuations between local currencies and the U.S.
dollar create risk in several ways, including:



| | - |  | Foreign Currency Translation Risk. The revenue and expenses
of our foreign operations are generally denominated in local
currencies.                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | Foreign Currency Transaction Risk. Our service contracts may
be denominated in a currency other than the currency in which we
incur expenses related to such contracts.

We try to limit these risks through exchange rate fluctuation provisions stated
in our service contracts, or we may hedge our transaction risk with foreign
currency exchange contracts or options. Although we may hedge our transaction
risk, there were no open foreign exchange contracts or options relating to
service contracts at December 31, 2002. Despite these efforts, we may still
experience fluctuations in

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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 approximately 11% of our net
service revenues for the year ended December 31, 2002 due, in part, to the
effect of a long term contract that is set to expire as of the end of 2003.
These revenues resulted from services provided by the product development and
commercial services groups. If this customer or any large customer decreases
or terminates its relationship with us, our business, results of operations or
financial condition could be materially adversely affected.

If we are unable to submit electronic records to the FDA according to FDA
regulations, our ability to perform services for our customers which meet
applicable regulatory requirements could be adversely affected.

If we were unable to submit electronic records to the United States Food
and Drug Administration, also referred to as the FDA, which meet the
requirements of FDA regulations, this may adversely affect our customers when
they submit the data concerned to the FDA in support of an application for
approval of a product. The FDA published 21 CFR Part 11 Electronic Records;
Electronic Signatures; Final Rule (Part 11) in 1997. Part 11 became
effective in August 1997 and defines the regulatory requirements that must be
met for FDA acceptance of electronic records and/or electronic signatures in
place of the paper equivalents. Part 11 requires that those utilizing such
electronic records and/or signatures employ procedures and controls designed to
ensure the authenticity, integrity and, as appropriate, confidentiality of
electronic records and, Part 11 requires those utilizing electronic signatures
ensure that a person appending an electronic signature cannot readily repudiate
the signed record. Pharmaceutical, medical device and biotechnology
companies are increasing their utilization of electronic records and
electronic signatures and are requiring their service providers and partners to
do likewise. Becoming compliant with Part 11 involves considerable complexity
and cost. Our ability to provide services to our customers in full compliance
with applicable regulations includes a requirement that, over time, we become
compliant and maintain compliance with the requirements of Part 11. If we are
unable to achieve this objective, our ability to provide services to our
customers which meet FDA requirements may be adversely affected.

Our proposed transaction with Pharma Services is subject to uncertainties.

Our proposed transaction with Pharma Services is subject to customary
conditions, including regulatory and shareholder approval, and Pharma Services
completion of its committed financing. If any of the conditions to closing are
not satisfied or waived, the proposed transaction would not be completed and
our public shareholders would not receive $14.50 per share in cash. In
addition, the merger agreement relating to the proposed transaction can be
terminated prior to completion of the transaction under certain circumstances,
including where we receive an acquisition proposal from a third party that our
board believes is more favorable to our shareholders than the Pharma Services
transaction (after following specific procedures described in our merger
agreement with Pharma Services). If the merger agreement is terminated, the
proposed transaction would not be completed, our public shareholders would not
receive $14.50 per share in cash and, in certain circumstances, we could be
required to pay Pharma Services a termination fee of $52 million, as well as
reimburse its costs, fees and expenses up to $5 million. If the merger is not
completed, our common stock would continue to trade on the Nasdaq National Market, however, the value of our stock could
decline substantially below the $14.50 per share consideration in the merger.
We are currently targeting to close the proposed transaction, assuming the
satisfaction or waiver of all conditions, in the third quarter of 2003. The
closing of the proposed

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transaction could be delayed beyond the third quarter of 2003 due to many
factors, including factors beyond the control of either party. In addition, we
may not prevail in pending litigation regarding Pharma Services proposal to
acquire us. An injunction or other adverse outcome in that litigation could
have a material adverse effect on our financial condition, regardless of
whether the merger is completed.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with respect to each director of
the Company. Information with respect to executive officers of the Company is
included under Part I of this Annual Report on Form 10-K. There are no family
relationships between any of the executive officers or directors of the
Company.

|                                          |  |                                      |  |     |    |          |  |            |      | 
|----------------------------------------- |  | ------------------------------------ |  | --- | -- | -------- |  | ---------- | ---- | 
|                                          |  |                                      |  |     |    |          |  | First Year
|                                          |  |                                      |  |     |    |          |  | Elected   
|Name                                      |  | Position With Company                |  | Age |    | Director
|                                          |  |                                      |  |     |    |         
|Robert C. Bishop, Ph.D. (1)(2)(3)(5)(6)   |  | Director                             |  |     | 60 |          |  |            | 1994 | 
|Arthur M. Pappas (1)(4)                   |  | Director                             |  |     | 55 |          |  |            | 1994 | 
|E.G.F. Brown (1)(2)                       |  | Director                             |  |     | 58 |          |  |            | 1998 | 
|Vaughn D. Bryson (1)(2)(4)(5)             |  | Director                             |  |     | 64 |          |  |            | 1997 | 
|Pamela J. Kirby, Ph.D.                    |  | Chief Executive Officer and Director |  |     | 49 |          |  |            | 2002 | 
|William L. Roper, M.D., MPH (1)(4)        |  | Director                             |  |     | 54 |          |  |            | 2002 | 
|Dennis B. Gillings, Ph.D. (1)             |  | Chairman                             |  |     | 58 |          |  |            | 1982 | 
|Chester W. Douglass, DMD, Ph.D. (1)(3)(4) |  | Director                             |  |     | 62 |          |  |            | 1983 | 
|Virginia V. Weldon, M.D. (1)(3)(5)(6)     |  | Director                             |  |     | 67 |          |  |            | 1997 | 



---

|(1) |  | Member of Executive Committee                       
|--- |  | ----------------------------------------------------
|   
|(2) |  | Member of Audit Committee                           
|   
|(3) |  | Member of Human Resources and Compensation Committee
|   
|(4) |  | Member of Quality Committee                         
|   
|(5) |  | Member of Special Committee                         
|   
|(6) |  | Member of an ad hoc committee formed during 2002    

Robert C. Bishop, Ph.D.has served as a Director since April 1994. Since
June 1999, Dr. Bishop has served as Chairman of the Board and Chief Executive
Officer for AutoImmune Inc., a biotechnology company. From May 1992 to
December 1999, Dr. Bishop served as President and Director of AutoImmune Inc.
Dr. Bishop serves as a director of Millipore Corporation, a multinational
company that applies its purification technology to research and manufacturing
applications in the biopharmaceutical industry; Caliper Technologies
Corporation, a company developing microfluidic analytical systems for
healthcare applications; he serves as a director of Optiobionics Corporation, a
company developing ophthalmological devices; and he serves as a Member of the
Board of Trustees/Managers for the MFS/Sun Life Series Trust and Compass
Accounts at MFS Investment Management.

30



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E. G. F. Brownhas served as a Director since January 1998. Mr. Brown is
currently an independent director of Vantec Corporation, a Japanese logistics
business, Keller plc, a global construction company, and CH Jones, Ltd, a
holding company focused on Information Technology. His previous appointments
include Chairman - Mainland Europe of Tibbett & Britten Group plc, an
international logistics service provider, Executive Director of T.D.G. plc, a
European logistics company, Operations Director of Exel plc, a global logistics
company and independent director of Datrontech PLC, a distributor of personal
computer components.

Vaughn D. Brysonhas served as a Director since March 1997. Currently,
Mr. Bryson is President of Life Science Advisors, LLC, a consulting firm. Mr.
Bryson is also President and founder of Clinical Products, Inc., a medical
foods company. Previously he served as President and Chief Executive Officer
of Eli Lilly and Company, a pharmaceutical company, and also as a member of its
Board of Directors. Mr. Bryson is a director of Amylin Pharmaceuticals, Inc.,
Ariad Pharmaceuticals, Inc., AtheroGenics, Inc. and Chiron Corporation.

Chester W. Douglass, DMD, Ph.D.has served as a Director since 1983. Dr.
Douglass has served as Professor and Chairman of the Department of Oral Health
Policy and Epidemiology, Harvard University School of Dental Medicine and
Professor, Department of Epidemiology, Harvard University School of Public
Health since 1989. Previous to that time, Dr. Douglass served in academic
appointments in the School of Public Health and School of Dentistry at the
University of North Carolina at Chapel Hill from 1971-1978.

Dennis B. Gillings, Ph.D.founded the Company in 1982 and has served as
Chairman of the Board of Directors since its inception and as Chief Executive
Officer from its inception until April 2001.

Pamela J. Kirby, Ph.D.has served as a Director since May 2002 and became
the Companys Chief Executive Officer in April 2001. Previously, she served as
Head of Global Strategic Marketing and Business Development of the
Pharmaceuticals Division of F. Hoffmann-La Roche Ltd., a healthcare company in
Basel, Switzerland. Dr. Kirby served from September 1996 until September 1998
as global commercial director with British Biotech plc, a drug development
company. Dr. Kirby is a director of Smith & Nephew plc.

Arthur M. Pappashas served as a Director since September 1994. Mr. Pappas
is Chairman and Chief Executive Officer of A. M. Pappas & Associates, LLC, an
international advisory services and investment company that works with life
science companies, products and related technologies. Mr. Pappas is a director
of AtheroGenics, Inc., a biopharmaceutical company focused on research and
development of genes that regulate atherosclerosis and cancer. He is also a
director of three privately-held companies.

William L. Roper, M.D., MPHhas served as Director since May 2002. Dr.
Roper has served as the dean of the School of Public Health at the University
of North Carolina at Chapel Hill, professor of health policy and administration
in the School of Public Health and professor of pediatrics in the School of
Medicine since May 1997. From August 1993 to May 1997, Dr. Roper served in a
variety of capacities with the Prudential Insurance Company of America,
including Senior Vice President for Medical Management. Dr. Roper is a director
of Luminex Corporation, a research and development company specializing in
biological testing technologies with applications throughout the life sciences
industry, and DaVita Inc., a provider of dialysis services for patients
suffering from chronic kidney failure.

Virginia V. Weldon, M.D.has served as a Director since November 1997.
Dr. Weldon served as Senior Vice President, Public Policy, Monsanto Company, an
agro-chemicals and biotechnology (life sciences) company, from March 1989 until
her retirement in March 1998. Prior to 1989, Dr. Weldon
was

31



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Professor of Pediatrics and Deputy Vice Chancellor for Medical Affairs at
Washington University School of Medicine. Dr. Weldon is a director of CPI
Corp., a consumer services entity focusing on portrait photography. Dr. Weldon
also served as a Member of the Board of GenAmerica Corporation, a mutual
insurance company, which is now a subsidiary of MetLife.

Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Companys executive officers and Directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
upon review of Forms 3 and 4 and amendments thereto furnished to the Company
during fiscal 2002, the Company believes that all Section 16(a) filing
requirements applicable to its officers, Directors and greater-than-10%
shareholders were fulfilled during 2002 in a timely manner. No Forms 5 were
required to be filed with respect to fiscal year 2002; however, due to an
administrative error, the Form 5 with respect to fiscal year 2001 for Pamela J.
Kirby was inadvertently filed late.

ITEM 11. EXECUTIVE COMPENSATION

The following tables show annual and long-term compensation paid or
accrued by the Company for services rendered for the fiscal years indicated by
the Companys Chief Executive Officer and the next three most highly
compensated executive officers whose total salary and bonus exceeded $100,000
individually during the year ended December 31, 2002 (collectively, the named
executive officers).

Summary Compensation Table

|                       |                             |      |      |        |  |       |                     |              |              |         |        |              |      |              |    |            |   |           |            |           |      |   |         |         |     
|---------------------- | --------------------------- | ---- | ---- | ------ |  | ----- | ------------------- | ------------ | ------------ | ------- | ------ | ------------ | ---- | ------------ | -- | ---------- | - | --------- | ---------- | --------- | ---- | - | ------- | ------- | ----
|                       |                             |      |      |        |  |       |                     |              |              |         |        |              |      |              |    |            |   |           | Long Term  |           |      |   |        
|                       |                             |      |      |        |  |       | Annual Compensation |              | Compensation |         |        |              |     
|                       |                             |      |      |        |  |       |                     |              |              |         |        |              |     
|                       |                             |      |      |        |  |       |                     |              |              |         |        |              |      |              |    |            |   |           | No. Of     |           |      |   |        
|                       |                             |      |      |        |  |       |                     |              |              |         |        |              |      |              |    |            |   |           | Securities |           |      |   |        
|Name and               |                             |      |      |        |  |       |                     |              |              |         |        |              |      | Other Annual |    | Underlying |   | All Other
|Principal Position     |                             | Year |      | Salary |  | Bonus |                     | Compensation |              | Options |        | Compensation
|                       |                             |      |      |        |  |       |                     |              |              |         |        |             
|Dennis B. Gillings (1) |                             |      | 2002 |        |  | $     | 600,000             | (2)          |              | $       | 80,067 |              |      | $            | (3 | )          |   |           | 339,733    | (4)       |      | $ | 847,422 | (5)    
|                       | Chairman                    |      |      | 2001   |  |       |                     | 600,000      | (6)          |         |        | 31,875       | (7)  |              |    | (3         | ) |           |            | 372,323   | (8)  |   |         | 724,318 | (9) 
|                       |                             |      | 2000 |        |  |       | 600,000             | (10)         |              |         |       |              |      |              | (3 | )          |   |           | 553,403    | (11)      |      |   | 604,027 | (12)   
|                      
|Pamela J. Kirby        |                             |      | 2002 |        |  | $     | 570,625             |              |              | $       | 63,463 | (13)         |      | $            | (3 | )          |   |           | 237,813    |           |      | $ | 1,413   | (14)   
|                       | Chief Executive Officer     |      |      | 2001   |  |       |                     | 412,047      | (15)         |         |        | 24,063       | (16) |              |    | (3         | ) |           |            | 1,127,703 | (17) |   |         | 1,342   | (18)
|                      
|James L. Bierman       |                             |      | 2002 |        |  | $     | 365,750             |              |              | $       | 65,956 |              |      | $            | (3 | )          |   |           | 144,387    |           |      | $ | 5,782   | (19)   
|                       | Executive Vice President    |      |      | 2001   |  |       |                     | 368,749      |              |         |        | 12,031       |      |              |    | (3         | ) |           |            | 106,470   | (20) |   |         | 9,332   | (21)
|                       | And Chief Financial Officer |      |      | 2000   |  |       |                     | 261,252      |              |         |        |             |      |              |    | (3         | ) |           |            | 427,726   | (22) |   |         | 4,765   | (23)
|                      
|John S. Russell        |                             |      | 2002 |        |  | $     | 283,250             | (24)         |              | $       | 24,694 |              |      | $            | (3 | )          |   |           | 142,743    |           |      | $ | 9,663   | (25)   
|                       | Executive Vice President    |      |      | 2001   |  |       |                     | 271,248      | (26)         |         |        | 9,453        | (27) |              |    | (3         | ) |           |            | 95,800    | (28) |   |         | 9,332   | (29)
|                       | And General Counsel, Head   |      |      | 2000   |  |       |                     | 247,503      | (30)         |         |        |             |      |              |    | (3         | ) |           |            | 154,226   | (31) |   |         | 7,279   | (32)
|                       | Global Human Resources      |      |      |        |  |       |                     |              |              |         |        |              |      |              |    |            |   |           |            |           |      |   |         |         |     



---

|(1) |  | Dr. Gillings resigned as Chief Executive Officer effective April 2, 2001
and retained the office of Chairman.
|--- |  | -------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes $540,000 deferred during 2002 pursuant to the Companys Elective
Deferred Compensation Plan.        

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|(3)  |  | Perquisites and other personal benefits received did not exceed the
lesser of $50,000 or 10% of salary and bonus compensation for the named
executive officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(4)  |  | In 2002, with the use of his own plane, Dr. Gillings provided extensive
business-related travel services for himself and other Company employees.
The Human Resources and Compensation Committee approved reimbursing Dr.
Gillings for these services by authorizing cash payments up to
approximately $1.4 million, which is in addition to the amounts shown in
this table. The Company also granted options to Dr. Gillings with an
aggregate Black-Scholes value of approximately $1.4 million in quarterly
installments with an exercise price on March 31, 2002 of $17.75 per share;
on June 15, 2002 of $13.09 per share; on September 16, 2002 of $9.76 per
share; and on December 16, 2002 of $12.11 per share. These options to
purchase 190,250 shares are not included in the table as they were not
treated as long-term compensation. (see Certain Relationships and Related
Transactions for additional information).
|    
|(5)  |  | Includes contributions to the Companys 401(k) Plan on behalf of Dr.
Gillings in the amount of $1,688, the estimated value of forfeitures
allocated by the ESOP on behalf of Dr. Gillings in the amount of $158, the
present value of the benefit to Dr. Gillings of the premiums the Company
paid under a split-dollar life insurance arrangement in the amount of
$843,255 (see Employment Agreements below for a description of this
arrangement), and other life insurance premiums that the Company paid in
the amount of $2,321.                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(6)  |  | Includes $540,000 deferred during 2001 pursuant to the Companys Elective
Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(7)  |  | Includes $31,875 relating to bonus payable for 2001 deferred during 2002
pursuant to the Companys Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(8)  |  | Includes 8,281 shares subject to options granted pursuant to the 2001
bonus. In 2001, with the use of his own plane, Dr. Gillings provided
extensive business-related travel services for himself and other Company
employees. The Human Resources and Compensation Committee approved
reimbursing Dr. Gillings for these services by authorizing cash payments
up to $1.4 million, which is in addition to the amounts shown in this
table. The Company also granted options to Dr. Gillings with an aggregate
Black-Scholes value of $1.4 million in quarterly installments with an
exercise price on March 31, 2001 of $18.875 per share; on June 30, 2001 of
$25.25 per share; on September 30, 2001 of $14.60 per share; and on
December 31, 2001 of $16.05 per share. These options are included in the
table as long-term compensation.                                                                                        
|    
|(9)  |  | Includes contributions to the Companys 401(k) Plan on behalf of Dr.
Gillings in the amount of $2,700, the estimated value of forfeitures
allocated by the ESOP on behalf of Dr. Gillings in the amount of $869 and
interest in the amount of $1,228, the present value of the benefit to Dr.
Gillings of the premiums the Company paid under a split-dollar life
insurance arrangement in the amount of $717,199 (see Employment
Agreements below for a description of this arrangement), and other life
insurance premiums that the Company paid in the amount of $2,322.                                                                                                                                                                                                                                                                                                                                                         
|    
|(10) |  | Includes $300,000 deferred during 2000 pursuant to the Companys Elective
Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(11) |  | Includes 166,708 shares subject to options granted pursuant to the 2000
bonus. In 2000, with the use of his own plane, Dr. Gillings provided
extensive business-related travel services for himself and other Company
employees. The Compensation Committee approved reimbursing Dr. Gillings
for these services by authorizing cash payments up to $1.4 million, which
is in addition to the amounts shown in this table. The Company also
granted options to Dr. Gillings with a Black-Scholes value of $1.4 million
at an exercise price of $13.44 per share. These options are included in
the table as long-term compensation.                                                                                                                                                                                                                                                                                                   

33



---



##### 



|(12) |  | Includes contributions to the Companys 401(k) Plan on behalf of Dr.
Gillings in the amount of $2,550, the estimated value of contributions
made to the ESOP on Dr. Gillings behalf in the amount of $4,063, the
present value of the benefit to Dr. Gillings of the premiums the Company
paid under a split-dollar life insurance arrangement in the amount of
$591,480 (see Employment Agreements below for a description of this
arrangement), and other life insurance premiums that the Company paid in
the amount of $5,934.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(13) |  | Includes $62,543 relating to bonus payable for 2002 deferred during 2003
pursuant to the Companys Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(14) |  | Includes other life insurance premiums that the Company paid in the
amount of $810 and the estimated value of forfeitures allocated by the
ESOP on behalf of Dr. Kirby in the amount of $603.                                                                                                                                                                                                                                                                                                                                        
|    
|(15) |  | Dr. Kirby became Chief Executive Officer effective as of April 2, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(16) |  | Includes $24,063 relating to bonus payable for 2001 deferred during 2002
pursuant to the Companys Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(17) |  | Includes 3,126 shares subject to options granted pursuant to the 2001
bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(18) |  | Includes other life insurance premiums that the Company paid in the
amount of $473 and the estimated value of forfeitures allocated by the
ESOP on behalf of Dr. Kirby in the amount of $869.                                                                                                                                                                                                                                                                                                                                        
|    
|(19) |  | Includes $3,938 in contributions to the Companys 401(k) Plan on behalf
of Mr. Bierman. Includes $1,242, which represents the value of life
insurance premiums paid in 2002 and the estimated value of forfeitures
allocated by the ESOP on behalf of Mr. Bierman in the amount of $602.                                                                                                                                                                                                                                             
|    
|(20) |  | Includes 3,126 shares subject to options granted pursuant to the 2001
bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(21) |  | Includes $7,650 in contributions to the Companys 401(k) Plan on behalf
of Mr. Bierman. Includes $810, which represents the value of life
insurance premiums paid in 2001 and the estimated value of forfeitures
allocated by the ESOP on behalf of Mr. Bierman in the amount of $869 and
interest in the amount of $3.                                                                                                                                                                                                              
|    
|(22) |  | Includes 598 shares subject to options granted pursuant to the 2000
bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(23) |  | Includes $4,063, which represents the estimated value of contributions
made to the ESOP on behalf of Mr. Bierman and $702 representing the value
of life insurance premiums paid in 2000.                                                                                                                                                                                                                                                                                                                                            
|    
|(24) |  | Includes $28,325 deferred during 2002 pursuant to the Companys Elective
Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(25) |  | Includes $8,250 in contributions to the Companys 401(k) Plan on behalf
of Mr. Russell, $810 representing the value of life insurance premiums
paid in 2002 and the estimated value of forfeitures allocated by the ESOP
on behalf of Mr. Russell in the amount of $603.                                                                                                                                                                                                                                                             
|    
|(26) |  | Includes $27,125 deferred during 2001 pursuant to the Companys Elective
Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(27) |  | Includes $945 relating to bonus payable for 2001 deferred during 2002
pursuant to the Companys Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(28) |  | Includes 2,456 shares subject to options granted pursuant to the 2001
bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(29) |  | Includes $7,650 in contributions to the Companys 401(k) Plan on behalf
of Mr. Russell, $810 representing the value of life insurance premiums
paid in 2001 and the estimated value of forfeitures allocated by the ESOP
on behalf of Mr. Russell in the amount of $869 and interest in the amount
of $3.                                                                                                                                                                                                                            
|    
|(30) |  | Includes $24,750 deferred during 2000 pursuant to the Companys Elective
Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(31) |  | Includes 567 shares subject to options granted pursuant to the 2000
bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(32) |  | Includes $2,550 in contributions to the Companys 401(k) Plan on behalf
of Mr. Russell, $4,063, which represents the estimated value of
contributions made to the ESOP on behalf of Mr. Russell and $666
representing the value of life insurance premiums paid in 2000.                                                                                                                                                                                                                                                             

34



---



##### 



Option Grants In Last Fiscal Year

The following table reflects the stock options granted during the past
fiscal year to the named executive officers pursuant to the Companys 2002
Stock Option Plan, Equity Compensation Plan and Nonqualified Stock Option Plan.
No stock appreciation rights were granted to the named executive officers
during 2002. Unless otherwise noted, all options expire 10 years from the date
of grant or, if sooner, three months after termination of employment, unless
employment is terminated because of: (1) death or disability, in which case the
options expire one year after the date of such termination; (2) retirement, as
determined by the administrator of the Plan, in which case the options expire
10 years after such termination, if the holder has agreed to a non-compete
(otherwise, the options expire one year after such termination); or (3)
termination as a result of a Special Program, as determined by the
administrator of the Plan, in which case the options granted prior to August 1,
2002, expire three years after the date of such termination and the options
granted on or after August 1, 2002 expire one year after the date of
termination; however, in no event will options expire later than their original
10-year term.

|                   |  |                      |         |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  |                            |         |  |  |  |           | 
|------------------ |  | -------------------- | ------- | ------------------- |  | ---------------- | --- | ---------- |  | ------ | ----- | ------- |  |  | ---------- |  |  | -------------------------- | ------- |  |  |  | --------- | 
|                   |  |                      |         |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | Potential Realizable Value
|                   |  |                      |         |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | at Assumed Annual Rates   
|                   |  |                      |         |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | of Stock Price            
|                   |  |                      |         |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | Appreciation for Option   
|                   |  | Individual Grants    |         |                     |  |                  |     | Term(1)   
|                   |  |                      |         |                     |  |                  |     |           
|                   |  |                      |         |                     |  | Percent of Total |     |            |  |        |       |         |  |  |            |  |  |                            |         |  |  | 
|                   |  | Number of Securities |         | Options Granted to  |  | Exercise or Base |     |            |  |        |       |         |  |  |            |  |  |                           
|                   |  | Underlying Options   |         | Employees in Fiscal |  | Price Per Share  |     | Expiration |  |        |       |         |  |  |            | 
|Name               |  | Granted              |         | Year (2)            |  | ($)              |     | Date       |  | 5% ($) |       | 10% ($)
|                   |  |                      |         |                     |  |                  |     |            |  |        |       |        
|Dennis B. Gillings |  |                      | 32,930  | (3)                 |  |                  | 0.5 | %          |  |        | 17.75 |         |  |  | 03/31/2012 |  |  |                            | 367,594 |  |  |  | 931,554   | 
|                   |  |                      | 58,804  | (4)                 |  |                  | 0.8 | %          |  |        | 17.75 |         |  |  | 03/31/2012 |  |  |                            | 656,422 |  |  |  | 1,663,502 | 
|                   |  |                      | 44,909  | (5)                 |  |                  | 0.6 | %          |  |        | 13.09 |         |  |  | 06/15/2012 |  |  |                            | 369,701 |  |  |  | 936,896   | 
|                   |  |                      | 80,195  | (6)                 |  |                  | 1.1 | %          |  |        | 13.09 |         |  |  | 06/15/2012 |  |  |                            | 660,184 |  |  |  | 1,673,035 | 
|                   |  |                      | 62,544  | (7)                 |  |                  | 0.9 | %          |  |        | 9.76  |         |  |  | 09/16/2012 |  |  |                            | 383,896 |  |  |  | 972,867   | 
|                   |  |                      | 111,685 | (8)                 |  |                  | 1.6 | %          |  |        | 9.76  |         |  |  | 09/16/2012 |  |  |                            | 685,524 |  |  |  | 1,737,252 | 
|                   |  |                      | 49,867  | (9)                 |  |                  | 0.7 | %          |  |        | 12.11 |         |  |  | 12/16/2012 |  |  |                            | 379,783 |  |  |  | 962,444   | 
|                   |  |                      | 89,049  | (10)                |  |                  | 1.2 | %          |  |        | 12.11 |         |  |  | 12/16/2012 |  |  |                            | 678,190 |  |  |  | 1,718,665 | 
|                  
|Pamela J. Kirby    |  |                      | 41,163  | (4)                 |  |                  | 0.6 | %          |  |        | 17.75 |         |  |  | 03/31/2012 |  |  |                            | 459,498 |  |  |  | 1,164,457 | 
|                   |  |                      | 56,137  | (6)                 |  |                  | 0.8 | %          |  |        | 13.09 |         |  |  | 06/15/2012 |  |  |                            | 462,133 |  |  |  | 1,171,135 | 
|                   |  |                      | 78,179  | (8)                 |  |                  | 1.1 | %          |  |        | 9.76  |         |  |  | 09/16/2012 |  |  |                            | 479,864 |  |  |  | 1,216,069 | 
|                   |  |                      | 62,334  | (10)                |  |                  | 0.9 | %          |  |        | 12.11 |         |  |  | 12/16/2012 |  |  |                            | 474,730 |  |  |  | 1,203,060 | 
|                  
|James L. Bierman   |  |                      | 23,522  | (4)                 |  |                  | 0.3 | %          |  |        | 17.75 |         |  |  | 03/31/2012 |  |  |                            | 262,573 |  |  |  | 665,412   | 
|                   |  |                      | 8,493   | (11)                |  |                  | 0.1 | %          |  |        | 14.20 |         |  |  | 05/06/2012 |  |  |                            | 75,845  |  |  |  | 192,206   | 
|                   |  |                      | 32,078  | (6)                 |  |                  | 0.4 | %          |  |        | 13.09 |         |  |  | 06/15/2012 |  |  |                            | 264,073 |  |  |  | 669,214   | 
|                   |  |                      | 44,674  | (8)                 |  |                  | 0.6 | %          |  |        | 9.76  |         |  |  | 09/16/2012 |  |  |                            | 274,210 |  |  |  | 694,901   | 
|                   |  |                      | 35,620  | (10)                |  |                  | 0.5 | %          |  |        | 12.11 |         |  |  | 12/16/2012 |  |  |                            | 271,279 |  |  |  | 687,474   | 

35



---



##### 



|                |  |                      |        |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  |                            |         |  |  |  |         | 
|--------------- |  | -------------------- | ------ | ------------------- |  | ---------------- | --- | ---------- |  | ------ | ----- | ------- |  |  | ---------- |  |  | -------------------------- | ------- |  |  |  | ------- | 
|                |  |                      |        |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | Potential Realizable Value
|                |  |                      |        |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | at Assumed Annual Rates   
|                |  |                      |        |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | of Stock Price            
|                |  |                      |        |                     |  |                  |     |            |  |        |       |         |  |  |            |  |  | Appreciation for Option   
|                |  | Individual Grants    |        |                     |  |                  |     | Term(1)   
|                |  |                      |        |                     |  |                  |     |           
|                |  |                      |        |                     |  | Percent of Total |     |            |  |        |       |         |  |  |            |  |  |                            |         |  |  | 
|                |  | Number of Securities |        | Options Granted to  |  | Exercise or Base |     |            |  |        |       |         |  |  |            |  |  |                           
|                |  | Underlying Options   |        | Employees in Fiscal |  | Price Per Share  |     | Expiration |  |        |       |         |  |  |            | 
|Name            |  | Granted              |        | Year (2)            |  | ($)              |     | Date       |  | 5% ($) |       | 10% ($)
|                |  |                      |        |                     |  |                  |     |            |  |        |       |        
|John S. Russell |  |                      | 23,522 | (4)                 |  |                  | 0.3 | %          |  |        | 17.75 |         |  |  | 03/31/2012 |  |  |                            | 262,573 |  |  |  | 665,412 | 
|                |  |                      | 6,849  | (11)                |  |                  | 0.1 | %          |  |        | 14.20 |         |  |  | 05/06/2012 |  |  |                            | 61,164  |  |  |  | 155,001 | 
|                |  |                      | 32,078 | (6)                 |  |                  | 0.4 | %          |  |        | 13.09 |         |  |  | 06/15/2012 |  |  |                            | 264,073 |  |  |  | 669,214 | 
|                |  |                      | 44,674 | (8)                 |  |                  | 0.6 | %          |  |        | 9.76  |         |  |  | 09/16/2012 |  |  |                            | 274,210 |  |  |  | 694,901 | 
|                |  |                      | 35,620 | (10)                |  |                  | 0.5 | %          |  |        | 12.11 |         |  |  | 12/16/2012 |  |  |                            | 271,279 |  |  |  | 687,474 | 



---

|(1)  |  | Potential realizable value of each grant is calculated assuming that
market price of the underlying security appreciates at annualized rates of
5% and 10%, respectively, over the respective term of the grant. The
assumed annual rates of appreciation of 5% and 10% would result in the
price of the Common Stock increasing to $28.91 and $46.04 per share,
respectively, for the options expiring March 31, 2012, $23.13 and $36.83
per share, respectively, for the options expiring May 6, 2012, $21.32 and
$33.95 per share, respectively, for the options expiring June 15, 2012,
$15.90 and $25.31 per share, respectively, for the options expiring
September 16, 2012, and $19.73 and $31.41 per share, respectively, for the
options expiring December 16, 2012.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Options to purchase an aggregate of 7,196,710 shares were granted to
employees during 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(3)  |  | Nonqualified stock options granted March 31, 2002. Shares subject to the
options granted vest immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(4)  |  | Nonqualified stock options granted March 31, 2002. Shares subject to the
options granted vest over the next four years, with 25% of such shares
vesting on March 31 of each year beginning March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(5)  |  | Nonqualified stock options granted June 15, 2002. Shares subject to the
options granted vest immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(6)  |  | Nonqualified stock options granted June 15, 2002. Shares subject to the
options granted vest over the next four years, with 25% of such shares
vesting on June 15 of each year beginning June 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(7)  |  | Nonqualified stock options granted September 16, 2002. Shares subject to
the options granted vest immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(8)  |  | Nonqualified stock options granted September 16, 2002. Shares subject to
the options granted vest over the next four years, with 25% of such shares
vesting on September 16 of each year beginning September 16, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(9)  |  | Nonqualified stock options granted December 16, 2002. Shares subject to
the options granted vest immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(10) |  | Nonqualified stock options granted December 16, 2002. Shares subject to
the options granted vest over the next four years, with 25% of such shares
vesting on December 16 of each year beginning December 16, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(11) |  | Nonqualified stock options granted May 6, 2002. Shares subject to the
options granted vest over the next four years, with 25% of such shares
vesting on May 6 of each year beginning May 6, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

36



---



##### 



Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year End Option Values

The following table provides information about the stock options exercised
by the named executive officers during the year ended December 31, 2002 and
held by them as of that date.

|                   |  |                 |   |              |  |             |   |               |  |                                 |           |                             |  |  |           |  |  |  |            |  |  |  |            | 
|------------------ |  | --------------- | - | ------------ |  | ----------- | - | ------------- |  | ------------------------------- | --------- | --------------------------- |  |  | --------- |  |  |  | ---------- |  |  |  | ---------- | 
|                   |  |                 |   |              |  |             |   |               |  | Number of Securities Underlying |           | Value of Unexercised In-the
|                   |  |                 |   |              |  |             |   |               |  | Unexercised                     |           | Money Options              
|                   |  |                 |   |              |  |             |   |               |  | Options at FY-End               |           | at FY-End (1)              
|                   |  | Shares Acquired |   | Value        |  |             |   |              
|Name               |  | on Exercise (#) |   | Realized ($) |  | Exercisable |   | Unexercisable |  | Exercisable ($)                 |           | Unexercisable($)           
|                   |  |                 |   |              |  |             |   |               |  |                                 |           |                            
|Dennis B. Gillings |  |                 |  |              |  |             |  |               |  |                                 | 1,022,451 |                             |  |  | 703,679   |  |  |  | 146,352.96 |  |  |  | 261,342.90 | 
|Pamela J. Kirby    |  |                 |  |              |  |             |  |               |  |                                 | 284,271   |                             |  |  | 1,081,245 |  |  |  | 0.00       |  |  |  | 182,938.86 | 
|James L. Bierman   |  |                 |  |              |  |             |  |               |  |                                 | 382,487   |                             |  |  | 358,776   |  |  |  | 0.00       |  |  |  | 104,537.16 | 
|John S. Russell    |  |                 |  |              |  |             |  |               |  |                                 | 172,252   |                             |  |  | 280,257   |  |  |  | 0.00       |  |  |  | 104,537.16 | 



---

|(1) |  | The value of the options is based upon the difference between the
exercise price and the closing price per share on December 31, 2002,
$12.10.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

Director Compensation

Each non-officer Director receives annually a grant of stock options
valued at $100,000 with the number of options determined in accordance with the
Black-Scholes method. In addition, except as otherwise indicated below, each
non-officer Director receives (1) an annual retainer of $24,000; (2) $1,000 for
each Board meeting attended in person or by teleconference; and (3) $500 for
each committee meeting attended in person or by teleconference, each paid
quarterly in cash. Committee chairs also receive an extra $5,000 per year in
compensation for their additional responsibilities. Beginning in 2002, each
member of the Audit Committee received an additional $1,250 quarterly in light
of increased responsibilities in the current public company environment. Each
member of an ad hoc committee, formed during 2002, received $5,000. During
2002 each member of the Special Committee received $50,000 and the chair of the
Special Committee received an additional $25,000. For so long as the Special
Committee operates during 2003 each member of the Special Committee will
receive $16,667 per month and the chair of the Special Committee will receive
an additional $8,333 per month. The Company reimburses each non-officer
Director for out-of-pocket expenses incurred in connection with the rendering
of services as a Director. Some additional financial relationships with
Directors are described in Certain Relationships and Related Transactions.

Employment Agreements

The Company has entered into employment agreements with Dr. Gillings, Dr.
Kirby, Mr. Bierman and Mr. Russell. The named executive officers are eligible
to participate in any bonus, stock option, pension, insurance, medical, dental,
401(k), disability and other plans generally made available to the Companys
executives.

The employment agreement for Dr. Gillings extends for three years from
February 22, 1994 and automatically renews for additional and successive
one-year terms unless either party provides 90 days notice of intent to
terminate prior to the expiration of the then-current term. This agreement was
amended on October 26, 1999 to provide more detailed change in control
provisions. The agreement terminates upon Dr. Gillings death, upon notice by
the Company if Dr. Gillings becomes permanently disabled, upon notice by the
Company for cause, upon notice by Dr. Gillings in the event of a change in
control, as defined in his employment agreement (provided Dr. Gillings
terminates his employment within 18 months following such change in control),
upon notice by Dr. Gillings in the event of the Companys material breach or
improper termination of the employment agreement and upon notice by Dr.
Gillings if

37



---



##### 



Dr. Gillings is not elected as Executive Chairman of the Company. The
agreement provides for severance payments and continuation of benefits in the
event Dr. Gillings termination is for permanent disability, change in control,
breach or improper termination by the Company, or for a change in position. In
the event of termination by Dr. Gillings due to permanent disability, breach or
improper termination by the Company or for a change in position, the Company
must pay Dr. Gillings or his estate or beneficiaries his full base salary then
in effect and other benefits under the agreement for the lesser of three years
or the term of the non-compete covenant provided in the agreement. In the event
that Dr. Gillings terminates his employment or is terminated by the Company
without cause within 18 months following a change in control, the Company must
make a severance payment equal to 2.99 times the amount of Dr. Gillings base
salary and executive compensation plan benefits for the year of termination,
continue his other benefit plans for 18 months and make a lump sum payment of
any amounts held by Dr. Gillings in any of the Companys retirement plans. In
addition, upon a change in control, all options held by Dr. Gillings will
become fully vested and exercisable. The Company is not obligated to make any
additional payments or provide benefits to Dr. Gillings if the termination is
for cause. The agreement includes a three year (or such lesser period as the
Board determines, but in no event less than one year) non-compete provision
pursuant to which Dr. Gillings cannot compete with the Company in any
geographic area in which it does business and cannot solicit or interfere with
the Companys relationship with any person or entity doing business with the
Company, or offer employment to any person employed by the Company in the one
year period prior to Dr. Gillings termination of employment. The agreement
prohibits disclosure of any confidential information acquired during the period
of employment with the Company.

The Company entered into split-dollar life insurance agreements as of May
16, 1996 with certain trusts created by Dr. Gillings, pursuant to which the
Company and the trusts will share in the premium costs of certain variable and
whole life insurance policies that pay an aggregate death benefit to the trusts
upon the death of Dr. Gillings or his wife, Joan Gillings, whichever occurs
later. The trusts pay premiums on the policies as if each policy were a
one-year term life policy, and the Company pays the remaining premiums. The
Company may cause this arrangement to be terminated at any time upon 30 days
notice. Upon termination of the arrangement, surrender of a policy, or payment
of the death benefit under a policy, the Company is entitled to repayment of an
amount equal to the cumulative premiums previously paid by the Company
thereunder, with all remaining amounts going to the trust. Upon any surrender
of a policy, the liability of the related trust to the Company is limited to
the cash value of the policy. See footnotes (5), (9) and (12) to the Summary
Compensation Table above for additional information on premium payments made
by the Company under the policies.

The employment agreement for Dr. Kirby extends for two years from April 2,
2001 and automatically renews for additional and successive one-year terms
unless either party provides 90 days notice of intent to terminate prior to
the expiration of the then-current term. Either party may terminate the
employment relationship without cause at any time upon 90 days written notice.
The Company may terminate the agreement without written notice at any time for
the following reasons which constitute cause under the agreement: Dr. Kirbys
death; Dr. Kirbys physical or mental inability to perform her duties for a
specified period of time; any act or omission by Dr. Kirby constituting willful
or gross misconduct, gross negligence, fraud, misappropriation, embezzlement,
criminal behavior, conflict of interest or competitive business activities or
any other actions that are materially detrimental to the Company or any of its
affiliates interests; any other reason recognized as cause under applicable
law; or any uncured material and fundamental breach of the agreement by Dr.
Kirby. Dr. Kirby may terminate the agreement upon written notice in the event
of the Companys material breach or within 18 months of a change in control, as
defined in her employment agreement, whether or not for good reason, as
defined in the agreement. Good reason includes, without limitation: (1) if
within 18 months of a change in control, Dr. Kirby is not elected as Chief
Executive Officer of the Company, (2) if there is a reduction in Dr. Kirbys
base salary and (3) if Dr. Kirbys employment base is moved any place outside a
thirty (30) mile radius from her principal place of residence. In the event
Dr. Kirbys employment is not renewed by

38



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##### 



the Company or if she is terminated by the Company without cause, the
agreement provides for severance payments equal to Dr. Kirbys monthly base
salary then in effect for the 24 month term of the non-compete covenant
provided in the agreement and continuation of benefits. In the event that Dr.
Kirby terminates her employment, whether or not for good reason, or is
terminated by the Company without cause within 18 months following a change in
control, the Company must make a severance payment equal to 2.99 times the
amount of Dr. Kirbys base salary and executive compensation plan benefits for
the year of termination, continue her other benefit plans for 18 months and
make a lump sum payment of any amounts held by Dr. Kirby in any of the
Companys retirement plans. In addition, upon a change in control, all options
held by Dr. Kirby will become fully vested and exercisable and will remain
exercisable until the later of the expiration of the applicable exercise period
or three (3) years following the date of termination (but in no event later
than the expiration of the original 10-year term of the options). In the event
that Dr. Kirby terminates her employment as a result of an uncured material
breach of the agreement by the Company, in addition to any other damages or
other relief to which she may otherwise be entitled, the Company must make a
liquidated damage payment equal to Dr. Kirbys then current monthly salary for
the non-competition period set forth in the agreement. The Company is not
obligated to make any additional payments or provide additional benefits to Dr.
Kirby if the termination is for cause. The agreement includes a 24 month
non-compete provision pursuant to which Dr. Kirby cannot compete with the
Company in any geographic area in which it does business and cannot solicit or
interfere with the Companys relationship with any person or entity doing
business with the Company, or offer employment to any person employed by the
Company in the one year period prior to Dr. Kirbys termination of employment.
The agreement prohibits disclosure of any confidential information acquired
during the period of employment with the Company.

Mr. Biermans employment agreement, dated June 16, 1998, may be terminated
by either party with 90 days written notice. This employment agreement was
amended on March 31, 2003 to revise the change in control provisions. Either
party may terminate the employment relationship without cause at any time upon
90 days written notice. The Company may terminate this agreement without
notice upon Mr. Biermans death, his physical or mental inability to perform
his duties for a period of 180 days, his material breach or his acts or
omissions that are materially harmful to the Companys interest. Mr. Bierman
may terminate the agreement if the Company fails to cure its material breach of
the agreement within 30 days of receiving notice of the breach from him or
within 18 months of a change in control, as defined in his employment
agreement. Mr. Bierman is entitled to severance payments for 12 months
following termination if the Company terminates the agreement for non-renewal
or without cause, in which case he is also entitled to continuation of
benefits, or if Mr. Bierman terminates the agreement for the Companys failure
to cure its material breach, in each instance subject to his compliance with
the noncompete, confidentiality, intellectual property and release provisions
of the agreement. In the event that Mr. Bierman terminates his employment or
is terminated by the Company for any reason other than a reason for which the
Company may terminate without notice (as described above), in either case
within 18 months following a change in control, as defined in the agreement,
the Company must make a severance payment equal to 2.99 times the amount of Mr.
Biermans base salary and executive compensation plan benefits for the year of
his termination, continue his other benefit plans for 18 months and make a lump
sum payment of any amounts held by Mr. Bierman in any of the Companys
retirement plans. In addition, upon a change in control, all options held by
Mr. Bierman will become fully vested and exercisable. The agreement includes
a one year non-compete provision and prohibits Mr. Bierman from soliciting or
interfering with the Companys relationship with any person doing business with
the Company or offering employment to any person employed by the Company in the
one year period prior to termination of Mr. Biermans employment.

Mr. Russells employment agreement, dated December 3, 1998, extends for
successive one-year intervals unless terminated by either party with 90 days
written notice. This employment agreement was amended on October 26, 1999 to
provide more detailed change in control provisions. Either party may

39



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##### 



terminate the employment relationship without cause at any time upon 90
days written notice. The Company may terminate this agreement without notice
upon Mr. Russells death, his physical or mental inability to perform his
duties for a period of 180 days, his material breach, his acts or omissions
that are materially harmful to the Companys interest or any other reason
recognized as cause under applicable law. Mr. Russell may terminate the
agreement if the Company fails to cure its material breach of the agreement
within 30 days of receiving notice of the breach from him or within 18 months
of a change in control, as defined in his employment agreement, whether or not
for good reason, as defined in the agreement. Good reason includes,
without limitation: (1) if within 18 months of a change in control, Mr.
Russells status, title, position or responsibilities are changed adversely,
(2) if there is a reduction in Mr. Russells base salary and (3) if Mr.
Russells employment base is moved any place outside a thirty (30) mile radius
from his principal place of residence. Mr. Russell is entitled to severance
payments and continuation of benefits during the 12 months following
termination if the Company terminates the agreement for non-renewal or without
cause or if Mr. Russell terminates the agreement for the Companys failure to
cure its material breach, in each instance subject to his compliance with the
noncompete, confidentiality, intellectual property and release provisions of
the agreement. In the event that Mr. Russell terminates his employment or is
terminated by the Company without cause within 18 months following a change in
control, as defined in the agreement, the Company must make a severance payment
equal to 2.99 times the amount of Mr. Russells base salary and executive
compensation plan benefits for the year of termination, continue his other
benefit plans for 18 months and make a lump sum payment of any amounts held by
Mr. Russell in any of the Companys retirement plans. In addition, upon a
change in control, all options held by Mr. Russell will become fully vested and
exercisable. The Company is not obligated to make any additional payments or
provide additional benefits to Mr. Russell if the termination is for cause. The
agreement includes a one year non-compete provision and prohibits Mr. Russell
from soliciting or interfering with the Companys relationship with any person
doing business with the Company or offering employment to any person employed
by the Company in the one year period prior to Mr. Russells termination of
employment.

Special Bonus Arrangements

The Company has implemented special bonus arrangements for certain groups
of employees which permit payment of cash bonuses to employees in the
circumstances specified. These arrangements are described below.

In connection with the Special Committees process that commenced in the
fall of 2002, the Company established the Special Bonus Plan to provide
appropriate incentives to certain of the Companys executive officers. The
Special Bonus Plan, as administered by the Special Committee, provides for two
types of bonus structures: Plan I and Plan II. In the event of a sale or other
change in control of the Company, Plan I provides for cash bonus payments to
certain executive officers of the Company designated by the Special Committee,
including Dr. Kirby and Messrs. Bierman and Russell. Pursuant to the terms of
Plan I, upon the earlier of June 30, 2003 or the date of a public announcement
of a sale or a change in control, 50% of the Plan I bonus pool will be
allocated pro rata among the participants in Plan I meeting performance
standards set by the Special Committee in proportion to such participants 2002
base salary. The remaining funds in the Plan I bonus pool will be allocated
among the participants in Plan I as determined by the Special Committee and
paid to such participants either (i) upon closing of the sale or change in
control transaction, (ii) December 31, 2003 or (iii) if a sale or change in
control transaction is announced but is subsequently terminated or abandoned,
on the date that is three months after first public announcement of such
termination or abandonment. The Plan I bonus pool is equal to 50% of the
aggregate of the 2002 base salaries of all participants in Plan I, but in no
event will it be less than $1,000,000 nor more than $2,500,000. Plan II
provides for cash bonus payments to certain executive officers of the Company
designated by the Special Committee who have change in control provisions in
their employment agreements with the Company, including Dr. Kirby and Messrs.
Bierman

40



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##### 



and Russell. Pursuant to the terms of Plan II, either (a) on the same date as
normal 2003 cash bonuses are paid to participants in Plan II or (b) if a sale
or change in control transaction is announced but is subsequently terminated or
abandoned, on the date that is three months after first public announcement of
such termination or abandonment, 100% of the Plan II bonus pool, equal to
$1,500,000, will be allocated among the participants in Plan II as determined
by the Special Committee. If a sale or change in control occurs within six
months of payment of the Plan II bonus, then any change in control payment
otherwise due to an executive pursuant to the terms of such participants
employment agreement will be reduced by the amount of Plan II bonus paid to
such executive. In order to receive payment of an additional bonus under
either Plan I or Plan II, each participant must be employed by the Company or a
subsidiary of the Company on the applicable payment date. In addition, if
absent written consent of the Special Committee, a participant commits to a
specific potential bidder in an exclusive or inappropriate manner, as
determined by the Special Committee in its sole discretion, such participant
will be excluded from participation in either aspect of the Special Bonus Plan.

In connection with the PharmaBio Development groups mission to structure
innovative partnering solutions, the Company has created a discretionary cash
bonus pool designed to link the groups compensation to its performance and to
serve as a retention incentive. The amount of the bonus is discretionary to
the Companys Chairman in relation to the performance of the group. For 2002,
the Company accrued aggregate bonus payments of $1.6 million in cash, of which
$875,000 was allocated to the top managers of the PharmaBio Development group.
While a portion of the amount accrued was paid in 2003, the remainder was
accrued for payment during 2004 and 2005, subject to the continued employment
of the affected employees.

The Company also has established an incentive plan for customer
relationship management executives in the Product Development group. The plan
has two components, including a quarterly commission program and an annual
recognition program. The quarterly commission program allows eligible managers
to earn commissions on gross contract wins less cancellations, subject to
adjustments for change orders. The program is available only with respect to
contracts that satisfy certain contribution criteria. Commission rates are
established annually. Participating employees who leave the Company forfeit
their rights to any commissions earned but unpaid. There is no cap on the
amount of payouts that can be earned for over-achieving targets, but senior
management must approve any payouts that are due to significant anomalies. In
2002, the Company paid an aggregate of $500,046 in cash commissions under this
incentive plan to an aggregate of 47 participants.

41



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##### 





|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- |  | ----------------------------------------------------------------------------------------------

Stock Ownership of Management

The following table provides information, as of March 31, 2003, regarding
shares of Common Stock of the Company owned of record or known to the Company
to be owned beneficially by each Director, executive officer named in the
Summary Compensation Table on page 32 and all current Directors and executive
officers as a group. On March 31, 2003, there were 118,283,920 shares of
Common Stock outstanding. Except as set forth in the footnotes, each of the
shareholders identified in the table below has sole voting and investment power
over the shares beneficially owned by such person, except to the extent such
power may be shared with a spouse.

|                                                                          |  |                       |           |          |  |  |     |  
|------------------------------------------------------------------------- |  | --------------------- | --------- | -------- |  |  | --- | -
|                                                                          |  | Shares                |           | Percent 
|Name                                                                      |  | Beneficially Owned(1) |           | of Class
|                                                                          |  |                       |           |         
|Dennis B. Gillings, Ph.D. (2)                                             |  |                       | 7,546,803 |          |  |  | 6.3 | %
|Pamela J. Kirby, Ph.D. (3)                                                |  |                       | 548,956   |          |  |  | *   |  
|James L. Bierman (4)                                                      |  |                       | 406,172   |          |  |  | *   |  
|John S. Russell (5)                                                       |  |                       | 192,227   |          |  |  | *   |  
|Robert C. Bishop, Ph.D. (6)                                               |  |                       | 67,746    |          |  |  | *   |  
|Chester W. Douglass, DMD, Ph.D. (7)                                       |  |                       | 482,494   |          |  |  | *   |  
|Arthur M. Pappas (8)                                                      |  |                       | 80,844    |          |  |  | *   |  
|Vaughn D. Bryson (9)                                                      |  |                       | 78,986    |          |  |  | *   |  
|Virginia V. Weldon, M.D. (10)                                             |  |                       | 53,002    |          |  |  | *   |  
|E.G.F. Brown (11)                                                         |  |                       | 60,002    |          |  |  | *   |  
|William L. Roper, M.D., MPH (12)                                          |  |                       | 13,730    |          |  |  | *   |  
|All current Directors and executive
officers as a group (11 persons) (13) |  |                       | 9,530,962 |          |  |  | 7.9 | %



---

|* Less than one percent
|-----------------------
|                       
|(1)                    
|                       
|(2)                    

42



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##### 



|     |  | the Gillings Family Limited Partnership, and all shares owned by the GFEF
Limited Partnership, except to the extent of his interest therein.                                                                                                                                                                                                                                                                                  
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(3)  |  | Includes 544,562 shares subject to presently exercisable stock options
and 104 shares held by the ESOP for Dr. Kirbys account. Includes 2,918
shares owned by Dr. Geoffrey Barker, Dr. Kirbys husband, 1,296 shares
subject to presently exercisable stock options owned by Dr. Barker and 76
shares held by the ESOP for Dr. Barkers account. Dr. Kirby disclaims
beneficial ownership of all shares owned by her husband.
|    
|(4)  |  | Includes 402,014 shares subject to presently exercisable stock options
and 473 shares held by the ESOP for Mr. Biermans account.                                                                                                                                                                                                                                                                                             
|    
|(5)  |  | Includes 190,118 shares subject to presently exercisable stock options
and 473 shares held by the ESOP for Mr. Russells account.                                                                                                                                                                                                                                                                                             
|    
|(6)  |  | Includes 65,246 shares subject to presently exercisable stock options.                                                                                                                                                                                                                                                                                                                                                        
|    
|(7)  |  | Includes 79,994 shares subject to presently exercisable stock options.
Includes 117,000 shares owned by the Douglass Family Limited Partnership,
of which Dr. Douglass is the sole general partner. Dr. Douglass disclaims
beneficial ownership of the shares held by the limited partnership except
to the extent of his pecuniary interest therein.                                                                         
|    
|(8)  |  | Includes 77,244 shares subject to presently exercisable stock options.                                                                                                                                                                                                                                                                                                                                                        
|    
|(9)  |  | Includes 43,986 shares subject to presently exercisable stock options.                                                                                                                                                                                                                                                                                                                                                        
|    
|(10) |  | Includes 52,002 shares subject to presently exercisable stock options.
Includes 1,000 shares held in a trust under which Dr. Weldon is a
beneficiary and a trustee.                                                                                                                                                                                                                                                           
|    
|(11) |  | Includes 52,002 shares subject to presently exercisable stock options.
Includes 8,000 shares owned by Mr. Browns wife. Mr. Brown disclaims
beneficial ownership of the shares held by his wife.                                                                                                                                                                                                                              
|    
|(12) |  | Includes 13,730 shares subject to presently exercisable stock options.                                                                                                                                                                                                                                                                                                                                                        
|    
|(13) |  | Includes 2,631,260 shares subject to presently exercisable stock options
and 162,658 shares held by the ESOP for the accounts of individual
executive officers and Dr. Barker.                                                                                                                                                                                                                                                

Stock Ownership of Certain Beneficial Owners

The following table provides information regarding shares of the Companys
Common Stock known to be beneficially owned by persons holding more than five
percent of the Companys outstanding Common Stock (other than Directors and
executive officers shown in the preceding table) as of March 31, 2003. The
percentage is calculated based on 118,283,920 total shares outstanding of the
Company as of March 31, 2003.

|                                       |  |                           |            |       |  |           
|-------------------------------------- |  | ------------------------- | ---------- | ----- |  | ----------
|                                       |  |                           |            |       |  | Percent of
|Name and Address of Beneficial Owner   |  | Shares Beneficially Owned |            | Class
|                                       |  |                           |            |      
|Wellington Management Company, LLP (1) |  |                           | 15,897,900 |       |  | 13.4 %    
|75 State Street                        |  |                           |            |       |  |           
|Boston, MA 02109                       |  |                           |            |       |  |           
|                                       |  |                           |            |       |  |           
|Vanguard Specialized Funds            |  |                           | 8,171,800  |       |  | 6.9 %     
|Vanguard Health Care Fund (2)          |  |                           |            |       |  |           
|100 Vanguard Blvd.                     |  |                           |            |       |  |           
|Malvern, PA 19355                      |  |                           |            |       |  |           



---

|(1) |  | Based on a Schedule 13G/A filed with the Securities and Exchange
Commission on February 12, 2003. Wellington Management Company, LLP
(WMC), an investment advisor, reports shared voting power over 7,327,560
shares and shared dispositive power over 15,897,900 shares held by its
clients, including Vanguard Health Care Fund. WMC is the parent holding
company of
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43



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##### 



|    |  | Wellington Trust Company, NA, a bank which is deemed to have acquired the
securities being reported.                                                                                                                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Based on a Schedule 13G/A filed with the Securities and Exchange
Commission on February 12, 2003. Vanguard Specialized Funds  Vanguard
Health Care Fund, an investment company, reports sole voting and shared
dispositive power over the shares.

Changes in Control

On April 10, 2003, the Company entered into a merger agreement with Pharma
Services and its wholly owned subsidiary, Pharma Services Acquisition Corp.,
pursuant to which Pharma Services Acquisition Corp. will be merged with and
into the Company, with the Company continuing as a wholly owned subsidiary of
Pharma Services. Pharma Services was founded by Dr. Gillings and One Equity
Partners LLC, the private equity arm of Bank One Corporation.

If the merger is completed, each issued and outstanding share of the
Companys common stock will be converted into the right to receive $14.50 in
cash, excluding shares held by subsidiaries of the Company, Pharma Services or
Pharma Services Acquisition Corp.

In order to finance the transaction, Pharma Services and Pharma Services
Acquisition Corp. have received an equity commitment from One Equity Partners
LLC of $415.7 million and debt commitments from Citicorp North America, Inc.
and Citigroup Global Markets Inc. totaling $875 million. In addition, Dr.
Gillings has agreed to contribute all shares of the Companys common stock and
options to purchase the Companys common stock held by him or his affiliates to
Pharma Services in exchange for an equity interest totaling approximately $95.2
million in Pharma Services. Pharma Services intends to fund the remainder of
the aggregate merger consideration, approximately $586 million, with the
Companys cash.

The proposed merger, which is targeted to be completed later in 2003, is
subject to Pharma Services completion of its committed financing and customary
conditions, including regulatory and shareholder approvals. The Companys
shareholders are expected to vote on the proposal at a special meeting to be
held later this year.

Equity Compensation Plans

The Company currently maintains the following plans pursuant to which it
may grant equity awards to eligible persons: (1) the Equity Compensation Plan,
or the 1994 Plan, which was originally adopted in 1994, (2) the Nonqualified
Stock Option Plan, or the 1997 Plan, which was originally adopted in 1997, (3)
the 2002 Stock Option Plan, or the 2002 Plan, and (4) the 1999 Employee Stock
Purchase Plan, or the ESPP. In addition, in the past the Company has granted
equity securities, and options currently remain outstanding, under certain of
the following plans: (5) the 1990 Nonqualified Stock Option Plan, (6) the
Quintiles Lewin Nonqualified Stock Option Plan, (7) the Quintiles BRI
Nonqualified Stock Option Plan, (8) the Innovex Limited 1996 Unapproved
Executive Share Option Scheme, (9) the Action International Marketing Services
Limited Nonqualified Stock Option Plan, (10) the Professional Pharmaceutical
Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan and
(11) the Quintiles Share Save Scheme. Of these, plans 6-10 were adopted so
that substitute stock options could be granted to employees of companies
acquired by the Company to replace options granted by the acquired companies.
Plan 11 was adopted to replace a stock purchase plan of an acquired company
located in the United Kingdom. No further options will be granted under plans
5-10 and plan 11 was discontinued in 2002. In addition, in connection with its
acquisition of Envoy Corporation in March 1999, the Company assumed outstanding
options granted under (12) the Envoy 1990 Officer and Employee Stock Option
Plan, (13) the Envoy 1995 Stock Option Plan, (14) the Envoy 1998 Stock
Incentive Plan, and (15) the 1998

44



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##### 



Synergy Stock Option Plan. The Company did not adopt plans 12-15, and no
further options will be granted under those plans. The material terms of each
of these plans is described more fully below.

The following table provides information, as of December 31, 2002, for all
equity compensation plans of the Company (including individual arrangements)
under which the Company is authorized to issue equity securities.

|                                                           |  |                   |            |                |  |                         |         |  |  |  |           |    
|---------------------------------------------------------- |  | ----------------- | ---------- | -------------- |  | ----------------------- | ------- |  |  |  | --------- | ---
|                                                           |  | Number of         |            | Weighted       |  | Number of securities   
|                                                           |  | securities to be  |            | average        |  | remaining available for
|                                                           |  | issued upon       |            | exercise price |  | future issuance under  
|                                                           |  | exercise of       |            | of outstanding |  | equity compensation    
|                                                           |  | outstanding       |            | options,       |  | plans (excluding       
|                                                           |  | options, warrants |            | warrants and   |  | securities reflected in
|Plan Category                                              |  | and rights(1).    |            | rights         |  | column (a))(1)         
|                                                           |  |                   |            |                |  |                        
|                                                           |  | (a)               |            | (b)            |  | (c)                    
|Equity compensation
plans approved by
security holders     |  |                   | 5,970,374  | (2)            |  | $                       | 19.1032 |  |  |  | 4,408,037 | (3)
|Equity compensation
plans not approved
by security holders |  |                   | 27,707,190 | (4)            |  | $                       | 19.8097 |  |  |  | 107,461   | (5)
|Total                                                      |  |                   | 33,677,564 |                |  | $                       | 19.6844 |  |  |  | 4,515,498 |    



---

|(1) |  | Refers to shares of the Companys common stock. All amounts are as of
December 31, 2002.                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes shares issuable upon exercise of outstanding options under the
following plans in the amounts indicated:
      1994 Plan  4,076,845 shares, with a weighted exercise price of
$39.5752 for incentive stock options and $21.1325 for nonqualified stock
options and
      2002 Plan  1,893,529 shares, with a weighted exercise price of
$10.4942.
|   
|(3) |  | Includes shares remaining for future issuance under the following plans
in the amounts indicated:                                                                                                                                                                                                                                                             



| |  |      1994 Plan  343,993 shares;                                                                                                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |      2002 Plan  3,106,471 shares and                                                                                                                                                                                        
|
| |  |      ESPP  957,573 shares.                                                                                                                                                                                                  
|
| |  | Although the 1994 Plan includes an evergreen share replenishment
feature described below, no shares were added on January 1, 2003 because
there was no increase in the authorized and issued shares outstanding
during 2002.



|(4) |  | Includes shares issuable upon exercise of outstanding options under the
following plans in the amounts indicated:
|--- |  | -----------------------------------------------------------------------------------------------------------------



| |  |      1990 Nonqualified Stock Option Plan  46,000 shares, with a weighted
exercise price of $4.3175;                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |      Action International Marketing Services Limited Nonqualified Stock
Option Plan  105,828 shares, with a weighted exercise price of
$34.2187;
|
| |  |      Quintiles BRI Nonqualified Stock Option Plan  225,401 shares, with a
weighted exercise price of $28.1726;                                  
|
| |  |      Envoy 1990 Officer and Employee Stock Option Plan  29,853 shares,
with a weighted exercise price of $3.3060;                               
|
| |  |      Envoy 1995 Stock Option Plan  176,218 shares, with a weighted
exercise price of $10.5883;                                                  
|
| |  |      Envoy 1998 Stock Incentive Plan  291,500 shares, with a weighted
exercise price of $6.6500;                                                
|
| |  |      1998 Synergy Stock Option Plan  87,450 shares, with a weighted
exercise price of $34.3100;                                                 

45



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##### 





|    |  |      Innovex Limited 1996 Unapproved Executive Share Option
Scheme 
115,502 shares, with a weighted exercise price of $19.5134;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  |      Quintiles Lewin Nonqualified Stock Option Plan 
92,650 shares, with a
weighted exercise price of $36.7340;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  |      1997 Plan  26,531,026 shares, with a weighted
exercise price of
$19.8223 and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  |      Professional Pharmaceutical Marketing Services
(Proprietary) Limited
Nonqualified Stock Option Plan  5,762 shares, with a weighted exercise
price of $40.5000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Although the 1997 Plan includes an evergreen share replenishment
feature described below, no shares were added on January 1, 2003 because
there was no increase in the authorized and issued shares outstanding
during 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Action International Marketing Services Limited Nonqualified Stock
Option Plan, Quintiles BRI Nonqualified Stock Option Plan, Innovex
Limited 1996 Unapproved Executive Share Option Scheme, Quintiles Lewin
Nonqualified Stock Option Plan and Professional Pharmaceutical Marketing
Services (Proprietary) Limited Nonqualified Stock Option Plan were
adopted so that substitute stock options could be granted to employees of
companies acquired by the Company. In connection with its acquisition of
Envoy Corporation, the Company assumed outstanding options granted under
the Envoy 1990 Officer and Employee Stock Option Plan, Envoy 1995 Stock
Option Plan, Envoy 1998 Stock Incentive Plan, and 1998 Synergy Stock
Option Plan but did not adopt those plans.
|   
|(5) |  | Includes 107,461 shares remaining for future issuance under the 1997
Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Summary Description of the Companys Equity Compensation Plans

Option Plans under which Future
Grants may be Awarded  General. The 1994
Plan, the 1997 Plan and the 2002 Plan are administered by the Human Resources
and Compensation Committee of the Board of Directors, or the Committee, which
is composed entirely of directors who are not employed by the Company. The
Committee has broad discretion to determine the terms and conditions of options
granted under the plans and must approve, among other things, (1) the
individuals to whom options are granted, (2) the date of grant of each option,
(3) the number of shares subject to each option, (4) the vesting schedule of
each option, and (5) the term of each option. The Committee may grant options
under these plans to employees, directors and other service providers of the
Company and its subsidiaries and affiliated companies. The Committee has never
granted options under these plans with exercise prices less than the fair
market value of the Common Stock on the date of grant.

Each of these plans provides that
the exercise price and the number of
shares subject to options granted under the plans shall be appropriately
adjusted upon a stock split, stock dividend, recapitalization or other
specified events involving a change in the capitalization of the Company. The
vesting of certain options granted under these plans will accelerate upon a
corporate transaction that is a change in control of the Company, as defined
in the plans and applicable option agreements. The terms of these plans permit
the Board of Directors to amend or terminate the plans, provided that no
modification or termination may adversely affect prior awards without the
optionees approval. In the case of the 1994 and the 2002 Plans, amendments to
increase the number of shares reserved for issuance under the plans are subject
to shareholder approval.

1994 Plan. The 1994 Plan provides
for grants to participants of incentive
stock options and nonqualified stock options. Incentive stock options are
options that are intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended. Although restricted stock and stock appreciation
rights may be granted under the 1994 Plan, only stock options have been granted
under the 1994 Plan. Most stock options granted under the 1994 Plan have been
nonqualified stock options, and it is the

46



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##### 



present intention of the Committee to grant only nonqualified stock
options in the future. The 1994 Plan has been approved by the shareholders of
the Company.

As of December 31, 2002,
5,958,004 shares had been reserved for issuance
under the 1994 Plan. The 1994 Plan contains a so-called evergreen share
replenishment feature, under which up to the lesser of 500,000 shares or 5% of
any increase in the authorized and issued shares since the preceding January 1
(other than increases attributable to exercises of stock options) will be added
to the 1994 Plan on January 1 of each year. As of December 31, 2002, there
were 435,302 incentive stock options and 3,641,543 nonqualified stock options
outstanding under the 1994 Plan, and 343,993 shares remained available for
future grants of options. During 2002, options to purchase 832,303 shares were
granted under the 1994 Plan at an average exercise price of $12.69 per share.

1997 Plan. The 1997 Plan provides
solely for grants of nonqualified stock
options. The 1997 Plan is not required to be, and has never been, approved by
the shareholders of the Company. As of December 31, 2002, 29,577,462 shares
had been reserved for issuance under the 1997 Plan. The 1997 Plan contains a
so-called evergreen share replenishment feature, under which up to the lesser
of 500,000 shares or 5% of any increase in the authorized and issued shares
since the preceding January 1 (other than increases attributable to exercises
of stock options) will be added to the 1997 Plan on January 1 of each year. As
of December 31, 2002, there were 26,531,026 nonqualified stock options
outstanding under the 1997 Plan, and 107,461 shares remained available for
future grants of options. During 2002, options to purchase 4,559,240 shares
were granted under the 1997 Plan at an average exercise price of $13.76 per
share.

2002 Plan. Like the 1994 Plan, the
2002 Plan is a shareholder-approved
plan that provides for grants of incentive stock options and nonqualified stock
options, although no incentive stock options have been granted under the 2002
Plan. As of December 31, 2002, 5,000,000 shares had been reserved for issuance
under the 2002 Plan. There is no evergreen share replenishment feature in the
2002 Plan. As of December 31, 2002, there were 1,893,529 nonqualified stock
options outstanding under the 2002 Plan, and 3,106,471 shares remained
available for future grants of options. During 2002, 1,920,062 nonqualified
stock options were granted under the 2002 Plan at an average exercise price of
$10.48. No options granted under the 2002 Plan had been exercised as of
December 31, 2002.

The ESPP. The ESPP is an employee
stock purchase plan that is intended to
qualify under Section 423 of the Internal Revenue Code of 1986, as amended.
The Committee administers the ESPP. Employees of the Company may participate
in the ESPP through payroll deductions of up to 15% of compensation. Shares
are automatically purchased with accumulated payroll deductions at the end of
each calendar quarter. The purchase price is 85% of the lower of the fair
market value of the Common Stock on the first or the last day of the quarter.
As of December 31, 2002, 2,500,000 shares had been reserved for issuance,
1,542,427 shares had been purchased and 957,573 shares remained available for
purchase under the ESPP.

Option Plans under which No Future
Grants may be Awarded. The 1990
Nonqualified Stock Option Plan, the Quintiles Lewin Nonqualified Stock Option
Plan, the Quintiles BRI Nonqualified Stock Option Plan, the Innovex Limited
1996 Unapproved Executive Share Option Scheme, the Quintiles Share Save Scheme,
the Action International Marketing Services Limited Nonqualified Stock Option
Plan, and the Professional Pharmaceutical Marketing Services (Proprietary)
Limited Nonqualified Stock Option Plan are all plans under which no future
grants may be made. With the exception of the 1990 Plan and the Quintiles
Share Save Scheme, all of these plans were adopted so that substitute options
could be granted to optionees of companies acquired by the Company. With the
exception of the Innovex 1996 Unapproved Executive Share Option Scheme and the
Quintiles Share Save Scheme, which are plans drafted to comply with applicable
law in the United Kingdom, the terms of these plans correspond closely

47



---



##### 



to those of the 1997 Plan described above. The Innovex 1996 Unapproved
Executive Share Option Scheme was a plan under which stock options were granted
that were not qualified for preferred tax treatment under U.K. law. The
Quintiles Share Save Scheme was a stock purchase plan under which employees
could purchase shares at a discount through payroll deductions. As of December
31, 2002, options to purchase an aggregate of 591,143 shares were outstanding
under these plans at an average exercise price of $27.17 per share and only a
small percentage of those options remained unvested.

Options Assumed in the Acquisition
of Envoy Corporation. In connection
with the acquisition of Envoy Corporation in March 1999, pursuant to which
Envoy Corporation became a wholly-owned subsidiary of the Company, the Company
assumed outstanding stock options that had been granted under the Envoy 1990
Officer and Employee Stock Option Plan, the Envoy 1995 Employee Stock Option
Plan, the Envoy 1998 Stock Incentive Plan and the Envoy 1998 Synergy Stock
Option Plan. As of December 31, 2002, there were 585,021 options outstanding
under these Envoy plans with an average exercise price of $11.80 per share and
only a small percentage of those options remained unvested. The Company did
not assume the Envoy plans and since the closing of the acquisition, no
additional stock options have been awarded, nor are any authorized to be
awarded, under any of these Envoy plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 2002, Dr. Gillings
provided extensive business-related travel services
for himself and other Company employees with the use of his own plane. The
Company reimbursed Dr. Gillings for the use of his plane by cash payments
totaling approximately $1.4 million and by granting options to Dr. Gillings
with an annual aggregate Black-Scholes value of approximately $1.4 million
granted on a quarterly basis at an exercise price of $17.75 on March 31; $13.09
on June 15; $9.76 on September 16; and $12.11 on December 16. This
reimbursement package was approved by the Human Resources and Compensation
Committee.

On April 10, 2003, the
Company entered into a merger agreement with Pharma
Services and its wholly owned subsidiary, Pharma Services Acquisition Corp.,
pursuant to which Pharma Services Acquisition Corp. will be merged with and
into the Company, with the Company continuing as a wholly owned subsidiary of
Pharma Services. Pharma Services was founded by Dr. Gillings and One Equity
Partners LLC, the private equity arm of Bank One Corporation. Please refer to
the disclosure provided above in Item 12 under the heading Changes in Control
for additional information regarding Dr. Gillings interest in the proposed
merger.

Dr. Geoffrey Barker, the
husband of the Companys Chief Executive Officer,
is the Companys Chief Medical and Scientific Officer and reports to the
Companys Chairman. In connection with his employment, the Company pays him an
annual salary of $225,000. The Company granted Dr. Barker options to purchase
1,552 shares of Common Stock at an exercise price of $17.75 per share on March
31, 2002; 4,812 shares of Common Stock at an exercise price of $13.09 on June
15, 2002; 6,701 shares of Common Stock at an exercise price of $9.76 on
September 16, 2002; and 5,343 shares of Common Stock at an exercise price of
$12.11 on December 16, 2002. The Company affords Dr. Barker customary employee
benefits.

On January 1, 2001, the
Company entered into a new consulting agreement
with A.M. Pappas & Associates, LLC, or AMP&A, which superseded the consulting
agreement dated January 1, 2000. The 2001 consulting agreement requires the
Company to pay AMP&A specified fees for each day of services provided by AMP&A
under the agreement. The Company has agreed to reimburse AMP&A for all
reasonable out-of-pocket and administrative expenses incurred by AMP&A in
connection with performing its services. In 2002, the Company paid AMP&A
consulting fees of approximately $171,500

48



---



##### 



in cash and reimbursed AMP&A for approximately $3,050 in expenses pursuant to
the consulting agreement entered into with AMP&A in January 2001. The Company
terminated the January 1, 2001 consulting agreement in January 2003.

The Company is a limited partner
in A. M. Pappas Life Science Ventures I,
LP (formerly TechAMP International, L.P.) and A. M. Pappas Life Science
Ventures II, LP (formerly A. M. Pappas TechAMP II, L.P.), funds organized to
make venture capital investments in the equity securities of private companies
in the life science sector. A. M. Pappas Life Science Ventures I and A. M.
Pappas Life Science Ventures II are managed by their general partner, AMP&A
Management, LLC and AMP&A Management II, LLC, respectively, affiliates of
AMP&A. The Company has committed to invest an aggregate of $18.0 million in A.
M. Pappas Life Science Ventures I and A. M. Pappas Life Science Ventures II.
As a limited partner, the Company will make capital contributions under this
commitment from time to time at the request of the funds general partner. In
2002, the Company made capital contributions of $800,000 to A. M. Pappas Life
Science Ventures I and $2.1 million to A. M. Pappas Life Science Ventures II.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements. The following financial statements and
supplementary data are included in Item 8 of the Annual Report
on Form 10-K filed on February 24, 2003.

|                                                                                                                           |  |                |    | 
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -- | 
|Financial Statements                                                                                                       |  | Form 10-K Page
|                                                                                                                           |  |               
|Consolidated Statements of Operations for the years
ended
December 31, 2002, 2001 and 2000                                 |  |                | 46 | 
|Consolidated Balance Sheets as of December 31,
2002 and 2001                                                               |  |                | 47 | 
|Consolidated Statements of Cash Flows for the years
ended
December 31, 2002, 2001 and 2000                                 |  |                | 48 | 
|Consolidated Statements of Shareholders Equity
for the
years ended December 31, 2002, 2001 and 2000                       |  |                | 49 | 
|Notes to Consolidated Financial
Statements                                                                                 |  |                | 50 | 
|Report of Independent Public Accountants,
PricewaterhouseCoopers LLP, dated January 29, 2003                               |  |                | 87 | 
|Report of Independent Public Accountants, Arthur
Andersen
LLP, dated January 23, 2002 (previously issued and not
reissued) |  |                | 88 | 

(a)(2) Financial Statement Schedules. All applicable financial statement
schedules required under Regulation S-X have been included in the Notes to the
Consolidated Financial Statements.

(a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K are
listed below.

49



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##### 



|            |  |                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit     |  | Description                                                                                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|3.01(1)     |  | Amended and Restated Articles of Incorporation, as amended                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|3.02(2)     |  | Amended and Restated Bylaws, as amended                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.01        |  | Amended and Restated Articles of Incorporation, as amended (see Exhibit 3.01)                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.02        |  | Amended and Restated Bylaws, as amended (see Exhibit 3.02)                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.03(3)     |  | Specimen certificate for Common Stock, $0.01 par value per share                                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.04(4)     |  | Amended and Restated Rights Agreement, dated as of November 5, 1999 and
amended and restated as of May 4, 2000 between Quintiles Transnational Corp.
and First Union National Bank, including form of Articles of Amendment of
Amended and Restated Articles of Incorporation, form of Rights Certificate
and the Summary of Rights to Purchase Preferred Stock
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.01(5)(6) |  | Employment Agreement, dated March 13, 2001, by and between Dr. Pamela J.
Kirby and Quintiles Transnational Corp.                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.02(5)(7) |  | Employment Agreement, dated February 22, 1994, by and between Dr. Dennis B.
Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.03(5)(8) |  | Amendment to Contract of Employment, dated October 26, 1999, by and between
Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.04(5)(9) |  | Second Amendment to Contract of Employment, dated April 1, 2002, by and
between Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.05(5)(8) |  | Executive Employment Agreement, dated June 16, 1998, by and between James L.
Bierman and Quintiles Transnational Corp.                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.06(5)(8) |  | Executive Employment Agreement, dated December 3, 1998, by and between John
S. Russell and Quintiles Transnational Corp.                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.07(5)(8) |  | Amendment to Executive Employment Agreement, dated October 26, 1999, by and
between John S. Russell and Quintiles Transnational Corp.                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.08(5)(9) |  | Quintiles Transnational Corp. Equity Compensation Plan, as amended and
restated on January 1, 2001                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.09(5)(8) |  | Quintiles Transnational Corp. Elective Deferred Compensation Plan, as
amended and restated                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.10(5)(9) |  | Quintiles Transnational Corp. Nonqualified Stock Option Plan, amended
January 1, 2001                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.11*      |  | Quintiles Transnational Corp. 2002 Stock Option Plan                                                                                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                

50



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##### 



|          |  |                                                                                                                                                                                                                                                                                                                
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  | Description                                                                                                                                                                                                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|10.12*    |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                                                                                                                                               
|          |  |                                                                                                                                                                                                                                                                                                                
|10.13(10) |  | Underlease, dated November 28, 1997, by and between PDFM Limited and
Quintiles (UK) Limited and guaranteed by the Company                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                
|10.14(11) |  | Agreement for the Provision of Research Services and Purchase of Business
Assets, dated as of January 1, 1999, between Hoescht Marion Roussel, Inc.
and Quintiles, Inc.                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                
|10.15(12) |  | Agreement and Plan of Merger, dated as of January 22, 2000, among Quintiles
Transnational Corp., Healtheon/WebMD Corporation, Pine Merger Corp., Envoy
Corp. and QFinance, Inc.                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|10.16(13) |  | Settlement Agreement, dated October 12, 2001, between Quintiles
Transnational Corp. and WebMD Corporation.                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                
|10.17(9)  |  | Master Services Agreement dated as of January 1, 2001 between Quintiles
Transnational Corp. and A.M. Pappas & Associates, LLC. [Note: Certain
confidential portions of this exhibit have been omitted as indicated in the
exhibit with an asterisk (*), and filed with the Securities and Exchange
Commission.]
|          |  |                                                                                                                                                                                                                                                                                                                
|10.18(5)  |  | Amendment to Executive Employment Agreement, dated March 31, 2003, by and
between James L. Bierman and Quintiles Transnational Corp.                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                
|16.01(14) |  | Letter regarding change in the Companys certifying accountant dated May 17,
2002                                                                                                                                                                                                                              
|          |  |                                                                                                                                                                                                                                                                                                                
|18.01*    |  | Letter regarding change in accounting principle                                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|21*       |  | Subsidiaries                                                                                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                
|23.01*    |  | Consent of PricewaterhouseCoopers LLP, dated February 21, 2003                                                                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                                                                                                
|23.02*    |  | Information Regarding the Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                
|24.01*    |  | Power of Attorney (included on the signature page hereto)                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                
|99.01*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                         
|          |  |                                                                                                                                                                                                                                                                                                                
|99.02*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                         

51



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##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.03   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.04   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.



---

|*   |  | Previously filed with the Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on February 24, 2003 for
the fiscal year ended December 31, 2002.                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, as filed with the Securities and Exchange
Commission on November 15, 1999, and incorporated herein by
reference. 
|   
|(2) |  | Exhibit to our Current Report on Form 8-K dated November 5,
1999, as filed with the Securities and Exchange Commission on
November 5, 1999 and incorporated herein by reference.                       
|   
|(3) |  | Exhibit to our Registration Statement on Form S-8 as filed
with the Securities and Exchange Commission (File No. 333-92987)
effective December 17, 1999, and incorporated herein by reference.         
|   
|(4) |  | Exhibit to our Registration Statement on Form 8-A/A,
Amendment No. 1 (File No. 000-23520), as filed with the Securities
and Exchange Commission on May 10, 2000, and incorporated herein by
reference. 
|   
|(5) |  | Executive compensation plans and arrangements                                                                                                                                                          
|   
|(6) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended March 31, 2001, as filed with the Securities and Exchange
Commission on May 15, 2001, and incorporated herein by reference.          
|   
|(7) |  | Exhibit to our Registration Statement on Form S-1, as
amended, as filed with the Securities and Exchange Commission (File
No. 33-75766) effective April 20, 1994, and incorporated herein by
reference.
|   
|(8) |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000, and incorporated herein by reference.   

52



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##### 



|(9)  |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, as filed with the Securities and Exchange
Commission on March 22, 2002, and incorporated herein by reference. 
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(10) |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Securities and Exchange
Commission on March 30, 1998, and incorporated herein by reference. 
|    
|(11) |  | Exhibit to our Current Report on Form 8-K dated March 3,
1999, as filed with the Securities and Exchange Commission on March
3, 1999, and incorporated herein by reference.                          
|    
|(12) |  | Exhibit to our Current Report on Form 8-K, dated January 25,
2000, as filed with the Securities and Exchange Commission on
January 25, 2000, and incorporated herein by reference.                   
|    
|(13) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 2001, as filed with the Securities and Exchange
Commission on November 1, 2001, and incorporated herein by
reference.
|    
|(14) |  | Exhibit to our Current Report on Form 8-K dated May 17, 2002,
as filed with the Securities and Exchange Commission on May 22,
2002, and incorporated herein by reference.                            



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

We furnished the following four
Current Reports on Form 8-K between
October 1, 2002 and December 31, 2002:

On October 15, 2002, we
furnished a Current Report on Form 8-K attaching a
press release announcing that an entity wholly owned by Dennis Gillings, our
Chairman of the Board and Founder, had made a non-binding proposal to acquire
all of our outstanding shares. The Current Report on Form 8-K dated October
15, 2002 was furnished pursuant to Regulation FD. This report shall not be
deemed to be incorporated by reference into this Form 10-K or filed hereunder
for purposes of liability under the Securities Exchange Act of 1934.

On October 17, 2002, we
furnished a Current Report on Form 8-K reporting
the commencement of several purported class action lawsuits seeking to enjoin
the consummation of the transaction contemplated by the non-binding proposal
made by Pharma Services Company, a newly formed company wholly owned by Dennis
B. Gillings, Ph.D., to acquire all of our outstanding shares for $11.25 per
share in cash. The Current Report on Form 8-K dated October 17, 2002 was
furnished pursuant to Regulation FD. This report shall not be deemed to be
incorporated by reference into this Form 10-K or filed hereunder for purposes
of liability under the Securities Exchange Act of 1934.

On October 28, 2002, we
furnished a Current Report on Form 8-K attaching a
press release updating the activities of the Special Committee of our Board of
Directors and identifying the members of the Special Committee. The Current
Report on Form 8-K dated October 28, 2002 was furnished pursuant to Regulation
FD. This report shall not be deemed to be incorporated by reference
into this      
Form 10-K or filed hereunder for purposes of liability under the Securities
Exchange Act of 1934.

53



---



##### 



On November 12, 2002, we
furnished a Current Report on Form 8-K attaching
a press release in which the Special Committee of our Board of Directors
announced that it had rejected the proposal by Pharma Services Company, an
entity wholly owned by Dennis B. Gillings, Ph.D., our Chairman of the Board and
Founder, to acquire all of our outstanding shares. The Current Report on Form
8-K dated November 12, 2002 was furnished pursuant to Regulation FD. This
report shall not be deemed to be incorporated by reference into this Form 10-K
or filed hereunder for purposes of liability under the Securities Exchange Act
of 1934.



|(c) |  | Exhibits Required by this Form 10-K.
|--- |  | ------------------------------------

See (a)(3) above.



|(d) |  | Financial Statements and Schedules.
|--- |  | -----------------------------------

See (a)(2) above.

54



---



##### 



SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in Durham, North
Carolina, on the 29th day of April, 2003.

| |                               |                                                             
| | ----------------------------- | ------------------------------------------------------------
| | QUINTILES TRANSNATIONAL CORP.
| |                               |                                                             
| | By:                           | /s/ Dennis B. Gillings                                      
| |                               |                                                             
| |                               | Dennis B. Gillings, Ph.D.
Chairman of the Board of Directors

55



---



##### 



CERTIFICATIONS

I, Dennis B. Gillings, Ph.D., certify that:



|1. |  | I have reviewed this annual report, as amended, on Form 10-K/A of
Quintiles Transnational Corp.;                                                                                                                                                                                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report, as amended, does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report, as amended;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, as amended,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report, as amended;                    
|  
|4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:                                                                                                                        



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report, as amended, is being prepared;
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report, as amended (the
Evaluation Date); and                                                                                                   
|
| | c. |  | presented in this annual report, as amended, our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

56



---



##### 





|6. |  | The registrants other certifying officers and I have indicated in
this annual report, as amended, whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                   
|-------------------- |  | ----------------------------------
|Date: April 29, 2003 |  |                                   
|                     |  | /s/ Dennis B. Gillings            
|                     |  |                                   
|                     |  | Dennis B. Gillings, Ph.D.
Chairman

57



---



##### 



I, James L. Bierman, certify that:



|1. |  | I have reviewed this annual report, as amended, on Form
10-K/A of Quintiles Transnational Corp.;                                                                                                                                                                                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report, as amended, does
not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report,
as amended;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, as amended,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report, as amended;                    
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                                        



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report, as amended, is being prepared;
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                               
|
| | c. |  | presented in this annual report, as amended, our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

58



---



##### 





|6. |  | The registrants other certifying officers and I have
indicated in this annual report, as amended, whether or not there
were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |                                         
|--------------------- |  | ----------------------------------------
|Date:  April 29, 2003 |  |                                         
|                      |  |                                         
|                      |  | /s/ James L. Bierman                    
|                      |  |                                         
|                      |  | James L. Bierman
Chief Financial Officer

59



---



##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit     |  | Description                                                                                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|3.01(1)     |  | Amended and Restated Articles of Incorporation, as amended                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|3.02(2)     |  | Amended and Restated Bylaws, as amended                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.01        |  | Amended and Restated Articles of Incorporation, as amended (see Exhibit 3.01)                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.02        |  | Amended and Restated Bylaws, as amended (see Exhibit 3.02)                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.03(3)     |  | Specimen certificate for Common Stock, $0.01 par value per share                                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.04(4)     |  | Amended and Restated Rights Agreement, dated as of November 5, 1999 and
amended and restated as of May 4, 2000 between Quintiles Transnational Corp.
and First Union National Bank, including form of Articles of Amendment of
Amended and Restated Articles of Incorporation, form of Rights Certificate
and the Summary of Rights to Purchase Preferred Stock
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.01(5)(6) |  | Employment Agreement, dated March 13, 2001, by and between Dr. Pamela J.
Kirby and Quintiles Transnational Corp.                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.02(5)(7) |  | Employment Agreement, dated February 22, 1994, by and between Dr. Dennis B.
Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.03(5)(8) |  | Amendment to Contract of Employment, dated October 26, 1999, by and between
Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.04(5)(9) |  | Second Amendment to Contract of Employment, dated April 1, 2002, by and
between Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.05(5)(8) |  | Executive Employment Agreement, dated June 16, 1998, by and between James L.
Bierman and Quintiles Transnational Corp.                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.06(5)(8) |  | Executive Employment Agreement, dated December 3, 1998, by and between John
S. Russell and Quintiles Transnational Corp.                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.07(5)(8) |  | Amendment to Executive Employment Agreement, dated October 26, 1999, by and
between John S. Russell and Quintiles Transnational Corp.                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.08(5)(9) |  | Quintiles Transnational Corp. Equity Compensation Plan, as amended and
restated on January 1, 2001                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.09(5)(8) |  | Quintiles Transnational Corp. Elective Deferred Compensation Plan, as
amended and restated                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.10(5)(9) |  | Quintiles Transnational Corp. Nonqualified Stock Option Plan, amended
January 1, 2001                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                

60



---



##### 



|          |  |                                                                                                                                                                                                                                                                                                                
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  | Description                                                                                                                                                                                                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|10.11*    |  | Quintiles Transnational Corp. 2002 Stock Option Plan                                                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                
|10.12*    |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                                                                                                                                               
|          |  |                                                                                                                                                                                                                                                                                                                
|10.13(10) |  | Underlease, dated November 28, 1997, by and between PDFM Limited and
Quintiles (UK) Limited and guaranteed by the Company                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                
|10.14(11) |  | Agreement for the Provision of Research Services and Purchase of Business
Assets, dated as of January 1, 1999, between Hoescht Marion Roussel, Inc.
and Quintiles, Inc.                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                
|10.15(12) |  | Agreement and Plan of Merger, dated as of January 22, 2000, among Quintiles
Transnational Corp., Healtheon/WebMD Corporation, Pine Merger Corp., Envoy
Corp. and QFinance, Inc.                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|10.16(13) |  | Settlement Agreement, dated October 12, 2001, between Quintiles
Transnational Corp. and WebMD Corporation.                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                
|10.17(9)  |  | Master Services Agreement dated as of January 1, 2001 between Quintiles
Transnational Corp. and A.M. Pappas & Associates, LLC. [Note: Certain
confidential portions of this exhibit have been omitted as indicated in the
exhibit with an asterisk (*), and filed with the Securities and Exchange
Commission.]
|          |  |                                                                                                                                                                                                                                                                                                                
|10.18(5)  |  | Amendment to Executive Employment Agreement, dated March 31, 2003, by and
between James L. Bierman and Quintiles Transnational Corp.                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                
|16.01(14) |  | Letter regarding change in the Companys certifying accountant dated May 17,
2002                                                                                                                                                                                                                              
|          |  |                                                                                                                                                                                                                                                                                                                
|18.01*    |  | Letter regarding change in accounting principle                                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|21*       |  | Subsidiaries                                                                                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                
|23.01*    |  | Consent of PricewaterhouseCoopers LLP, dated February 21, 2003                                                                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                                                                                                
|23.02*    |  | Information Regarding the Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                
|24.01*    |  | Power of Attorney (included on the signature page hereto)                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                
|99.01*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                         
|          |  |                                                                                                                                                                                                                                                                                                                
|99.02*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                         

61



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.03   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.04   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.



---

|*   |  | Previously filed with the Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on February 24, 2003 for
the fiscal year ended December 31, 2002.                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, as filed with the Securities and Exchange
Commission on November 15, 1999, and incorporated herein by
reference. 
|   
|(2) |  | Exhibit to our Current Report on Form 8-K dated November 5,
1999, as filed with the Securities and Exchange Commission on
November 5, 1999 and incorporated herein by reference.                       
|   
|(3) |  | Exhibit to our Registration Statement on Form S-8 as filed
with the Securities and Exchange Commission (File No. 333-92987)
effective December 17, 1999, and incorporated herein by reference.         
|   
|(4) |  | Exhibit to our Registration Statement on Form 8-A/A,
Amendment No. 1 (File No. 000-23520), as filed with the Securities
and Exchange Commission on May 10, 2000, and incorporated herein by
reference. 
|   
|(5) |  | Executive compensation plans and arrangements                                                                                                                                                          
|   
|(6) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended March 31, 2001, as filed with the Securities and Exchange
Commission on May 15, 2001, and incorporated herein by reference.          
|   
|(7) |  | Exhibit to our Registration Statement on Form S-1, as
amended, as filed with the Securities and Exchange Commission (File
No. 33-75766) effective April 20, 1994, and incorporated herein by
reference.
|   
|(8) |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000, and incorporated herein by reference.   

62



---



##### 



|(9)  |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, as filed with the Securities and Exchange
Commission on March 22, 2002, and incorporated herein by reference. 
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(10) |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Securities and Exchange
Commission on March 30, 1998, and incorporated herein by reference. 
|    
|(11) |  | Exhibit to our Current Report on Form 8-K dated March 3,
1999, as filed with the Securities and Exchange Commission on March
3, 1999, and incorporated herein by reference.                          
|    
|(12) |  | Exhibit to our Current Report on Form 8-K, dated January 25,
2000, as filed with the Securities and Exchange Commission on
January 25, 2000, and incorporated herein by reference.                   
|    
|(13) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 2001, as filed with the Securities and Exchange
Commission on November 1, 2001, and incorporated herein by
reference.
|    
|(14) |  | Exhibit to our Current Report on Form 8-K dated May 17, 2002,
as filed with the Securities and Exchange Commission on May 22,
2002, and incorporated herein by reference.                            

63