-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MaLmQLyPmKLW55Kk/tQcW0zD6bO+2OakoOtl5kXps4n0DmO+iIxVuRU4csqeih1P S5RExW+H0YuRc9QvecDz1g== 0001021408-02-010609.txt : 20020813 0001021408-02-010609.hdr.sgml : 20020813 20020813130809 ACCESSION NUMBER: 0001021408-02-010609 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL PRODUCT DEVELOPMENT INC CENTRAL INDEX KEY: 0001003124 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 561640186 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27570 FILM NUMBER: 02728822 BUSINESS ADDRESS: STREET 1: 3151 SOUTH 17TH ST CITY: WILMINGTON STATE: NC ZIP: 28412 BUSINESS PHONE: 9102510081 MAIL ADDRESS: STREET 1: 3151 SOUTH 17TH ST CITY: WILMINGTON STATE: NC ZIP: 28412 10-Q 1 d10q.txt FORM 10-Q ================================================================================ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2002. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ______________ to ______________. Commission File Number 0-27570 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. (Exact name of registrant as specified in its charter) North Carolina 56-1640186 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3151 South Seventeenth Street Wilmington, North Carolina (Address of principal executive offices) 28412 (Zip Code) Registrant's telephone number, including area code (910) 251-0081 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 55,281,111 shares of common stock, par value $0.10 per share, as of August 1, 2002. ================================================================================ - -------------------------------------------------------------------------------- INDEX
Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2002 .................................................................. 3 Consolidated Condensed Balance Sheets as of December 31, 2001 and June 30, 2002 ....................................................................... 4 Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2002 .................................................................. 5 Notes to Consolidated Condensed Financial Statements ...................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk ............................. 22 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders .................................... 23 Item 6. Exhibits and Reports on Form 8-K ....................................................... 24 Signature ...................................................................................... 25
2 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2001 2002 2001 2002 ---------- ---------- ----------- ------------ Development revenues $ 98,046 $ 135,049 $ 191,818 $ 251,785 Discovery sciences revenues 3,992 5,122 17,173 10,501 Reimbursable out-of-pockets 7,367 11,395 13,267 19,863 ---------- ---------- ----------- ------------ Net revenue 109,405 151,566 222,258 282,149 ---------- ---------- ----------- ------------ Direct costs - Development 48,295 65,558 93,530 121,232 Direct costs - Discovery sciences 1,967 2,320 7,283 4,261 Reimbursed out-of-pocket expenses 7,367 11,395 13,267 19,863 Research and development 1,060 2,572 1,819 4,323 Selling, general and administrative expenses 30,969 37,655 60,555 73,290 Depreciation 4,605 5,730 9,151 11,096 Amortization 272 155 537 436 ---------- ---------- ----------- ------------ 94,535 125,385 186,142 234,501 ---------- ---------- ----------- ------------ Operating income 14,870 26,181 36,116 47,648 Interest income, net 1,420 613 2,900 1,490 Impairment of investment - - - (32,006) Other income, net 319 544 628 1,211 ---------- ---------- ----------- ------------ Income before provision for income taxes 16,609 27,338 39,644 18,343 Provision for income taxes 6,145 10,115 14,643 16,595 ---------- ---------- ----------- ------------ Income before equity in net loss of investee 10,464 17,223 25,001 1,748 Equity in net loss of investee, net of income taxes - 13 - 105 ---------- ---------- ----------- ------------ Net income $ 10,464 $ 17,210 $ 25,001 $ 1,643 ========== ========== =========== ============ Net income per share: Basic $ 0.20 $ 0.31 $ 0.49 $ 0.03 ========== ========== =========== ============ Diluted $ 0.20 $ 0.31 $ 0.48 $ 0.03 ========== ========== =========== ============ Weighted average number of common shares outstanding: Basic 51,667 55,123 51,467 53,837 Dilutive effect of stock options 845 646 828 717 ---------- ---------- ----------- ------------ Diluted 52,512 55,769 52,295 54,554 ========== ========== =========== ============
The accompanying notes are an integral part of these consolidated condensed financial statements. 3 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
Assets December 31, June 30, 2001 2002 ------------ ----------- (unaudited) Current assets Cash and cash equivalents $ 143,173 $ 119,760 Accounts receivable and unbilled services, net 140,744 188,574 Investigator advances 6,008 6,854 Prepaid expenses and other current assets 10,507 10,689 Current maturities of notes receivable 500 500 Deferred tax asset 9,273 9,867 ----------- ----------- Total current assets 310,205 336,244 Property, plant and equipment, net 85,690 103,709 Goodwill, net 7,590 143,426 Notes receivable, long-term portion 17,000 - Investments 43,758 20,175 Intangible assets 573 2,247 Other assets, net 584 2,233 ----------- ----------- Total assets $ 465,400 $ 608,034 =========== =========== Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 8,210 $ 7,289 Payables to investigators 7,988 14,799 Other accrued expenses 48,951 54,434 Unearned income 82,336 100,346 Accrued income taxes 8,688 16,692 Current maturities of long-term debt 1,203 2,240 ----------- ----------- Total current liabilities 157,376 195,800 Long-term debt, less current maturities 1,871 7,062 Deferred rent and other 3,518 3,109 ----------- ----------- Total liabilities 162,765 205,971 ----------- ----------- Shareholders' equity Common stock 5,193 5,518 Paid-in capital 164,162 258,620 Retained earnings 140,174 141,818 Deferred compensation (966) (550) Accumulated other comprehensive loss (5,928) (3,343) ----------- ----------- Total shareholders' equity 302,635 402,063 ----------- ----------- Total liabilities and shareholders' equity $ 465,400 $ 608,034 =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements. 4 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Six Months Ended June 30, ---------------------------------- 2001 2002 ------------ ----------- Cash flows from operating activities: Net income $ 25,001 $ 1,643 Adjustments to reconcile net income to net cash provided by operating activities: Impairment of investment - 32,006 Depreciation and amortization 9,688 11,532 Stock compensation amortization 242 67 Loss on disposition of property and equipment, net 58 8 Provision for doubtful accounts (34) (194) Gain on sale of investment - (173) Equity in net loss of investee - 119 Deferred income taxes (997) (2,510) Change in operating assets and liabilities, net of affect of acquisitions 12,105 (11,221) ----------- ------------ Net cash provided by operating activities 46,063 31,277 ----------- ----------- Cash flows from investing activities: Cash received from repayment of note receivable 500 17,000 Purchases of property and equipment (13,376) (18,662) Proceeds from sale of property and equipment 63 17 Purchases of investments - (8,642) Net cash paid for acquisitions - (50,579) ----------- ----------- Net cash used in investing activities (12,813) (60,866) ----------- ----------- Cash flows from financing activities: Repayment of capital leases obligation (933) (1,687) Proceeds from long-term debt - 1,464 Proceeds from exercise of stock options and employee stock purchase plan 11,490 3,489 ----------- ----------- Net cash provided by financing activities 10,557 3,266 ----------- ----------- Effect of exchange rate changes on cash (1,158) 2,910 ----------- ----------- Net increase (decrease) in cash and cash equivalents 42,649 (23,413) Cash and cash equivalents, beginning of the period 76,411 143,173 ----------- ----------- Cash and cash equivalents, end of the period $ 119,060 $ 119,760 =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements. 5 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 1. ACCOUNTING POLICIES The significant accounting policies followed by Pharmaceutical Product Development, Inc. and its subsidiaries (collectively "PPD") for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. We prepared these unaudited consolidated condensed financial statements in accordance with Rule 10-01 of Regulation S-X, and, in management's opinion, we have included all adjustments of a normal recurring nature necessary for a fair presentation. The accompanying consolidated condensed financial statements might not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto in PPD's Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the three-month and six-month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year or any other period. We derived the amounts on the December 31, 2001 consolidated condensed balance sheet from the audited financial statements included in PPD's Annual Report on Form 10-K for the year ended December 31, 2001. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications We have reclassified certain 2001 financial statement amounts to conform to the 2002 financial statement presentation. Principles of consolidation The accompanying unaudited consolidated condensed financial statements include the accounts and operations of PPD. We have eliminated all intercompany balances and transactions in consolidation. Earnings per share We compute basic net income per share information using the weighted average number of shares of common stock outstanding during the period. We compute diluted net income per common share using the weighted average number of shares of common and dilutive potential common shares outstanding during the period. Recent Accounting Pronouncements In November 2001, the FASB issued Emerging Issues Task Force Rule No. 01-14, or EITF 01-14, Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred. EITF 01-14 requires that in cases where the contractor acts as a principal, reimbursements received for out-of-pocket expenses incurred be characterized as revenue and the associated costs included as operating expenses in the income statement. PPD implemented this rule as of January 1, 2002 and, as required, has reclassified comparative financial information for 2001. The implementation of this rule resulted only in the gross-up of revenues and expenses and had no impact upon earnings. PPD pays on behalf of its customers fees to investigators and test subjects, and other out-of-pocket costs, such as travel, printing, meetings, couriers, etc., for which PPD is reimbursed at cost, without mark-up or profit. PPD will continue to exclude from revenue and expense in the income statement fees and associated reimbursements that we received as an agent. During the three months ended June 30, 2001 and2002, fees paid to investigators and other fees in which PPD acts as an agent and the associated reimbursements were approximately $40.9 million and $40.5 million, respectively. During the six months ended June 30, 2001 and 6 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 1. ACCOUNTING POLICIES (continued) 2002, fees paid to investigators and other fees in which PPD acts as an agent and the associated reimbursements were approximately $72.3 million and $74.3 million, respectively. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", or SFAS No. 144, which supersedes SFAS No. 121 and portions of APB Opinion No. 30. SFAS No. 144 provides guidance on the recognition and impairment of long-lived assets to be held and used, and for long-lived assets to be disposed. This statement also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as previously required. PPD has adopted SFAS No. 144 as of January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on PPD's consolidated financial statements. 2. GOODWILL AND INTANGIBLE ASSETS In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations", which eliminated the pooling of interests method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", or SFAS No. 142. PPD adopted SFAS No. 142 as of January 1, 2002. SFAS No. 142 addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination, and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and no longer be amortized but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption. PPD has completed the transitional impairment test and did not identify any impairments of goodwill. This test involved determining the fair market value of each of the reporting units with which the goodwill was associated and comparing the estimated fair market value of each of the reporting units with its carrying amount. Additionally, SFAS No. 142 requires intangible assets that do not meet the criteria for recognition apart from goodwill to be reclassified. As a result of PPD's analysis, no reclassifications to goodwill were required as of January 1, 2002. In accordance with SFAS No. 142, PPD discontinued the amortization of goodwill effective January 1, 2002. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization follows:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 2001 2002 2001 2002 ------------- ------------- ------------- ------------- Reported net income $ 10,464 $ 17,210 $ 25,001 $ 1,643 Add: Goodwill amortization 149 - 298 - ------------- ------------- ------------- ------------- Adjusted net income $ 10,613 $ 17,210 $ 25,299 $ 1,643 ============= ============= ============= ============= Reported basic income per share $ 0.20 $ 0.31 $ 0.49 $ 0.03 Add: Goodwill amortization 0.01 - - - ------------- ------------- ------------- ------------- Adjusted basic income per share $ 0.21 $ 0.31 $ 0.49 $ 0.03 ============= ============= ============= ============= Reported diluted income per share $ 0.20 $ 0.31 $ 0.48 $ 0.03 Add: Goodwill amortization - - - - ------------- ------------- ------------- ------------- Adjusted diluted income per share $ 0.20 $ 0.31 $ 0.48 $ 0.03 ============= ============= ============= =============
7 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 2. GOODWILL AND INTANGIBLE ASSETS (continued) Changes in the carrying amount of goodwill for the six months ended June 30, 2002, by operating segment, were as follows:
Development Discovery Total ----------- --------- ---------- Balance as of January 1, 2002 $ 6,839 $ 751 $ 7,590 Goodwill acquired during the period 133,287 - 133,287 Translation adjustments 2,549 - 2,549 ----------- --------- ---------- Balance as of June 30, 2002 $ 142,675 $ 751 $ 143,426 =========== ========= ==========
Information regarding PPD's other intangible assets follows:
As of December 31, 2001 As of June 30, 2002 ---------------------------------- ------------------------------------- Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net ------ ------------ --- ------ ------------ --- Backlog $ - $ - $ - $ 2,100 $ 372 $1,728 Patents 280 136 144 280 167 113 License agreements 500 96 404 500 120 380 Miscellaneous intangible assets 986 961 25 1,031 1,005 26 -------- -------- ------- ------- ------ ------ Total $ 1,766 $ 1,193 $ 573 $ 3,911 $1,664 $2,247 ======== ======== ======= ======= ====== ======
All intangible assets are amortized on a straight-line basis, based on estimated useful lives of two years for backlog, five years for patents, ten years for license agreements and two to ten years for miscellaneous intangible assets. The weighted average amortization period for all intangibles is approximately 2.5 years. Amortization expense for the three months ended June 30, 2002 and 2001 was $272 and $155, respectively. Amortization expense for the six months ended June 30, 2002 and 2001 was $537 and $436, respectively. Amortization expense includes goodwill amortization during 2001. Estimated amortization expense for the next five years is as follows: 2002 $ 1,048 2003 1,145 2004 215 2005 59 2006 50 3. STOCK DIVIDEND On April 16, 2001, the Board of Directors declared a one for one stock dividend. The record date for the dividend was April 27, 2001, and the distribution date for the dividend was May 11, 2001. All share and per share amounts for all periods presented in the accompanying consolidated condensed financial statements have been restated to reflect the effect of this stock dividend. 8 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 4. ACQUISITIONS In February 2002, PPD acquired 100% of the outstanding common stock of Medical Research Laboratories International, Inc. ("MRL U.S.") and Medical Research Laboratories International, BVBA ("MRL Belgium"), collectively, "MRL". MRL is part of the Development segment of PPD. MRL U.S. operates a central laboratory in Highland Heights, Kentucky, near Cincinnati, Ohio, and MRL Belgium operates a central laboratory in Brussels, Belgium. MRL provides highly standardized efficacy and safety testing services for pharmaceutical companies engaged in clinical drug development and is one of the largest central laboratory providers for Phase I-IV global studies involving agents used in cholesterol, endocrine, metabolic and cardiovascular clinical research. The acquisition of MRL should enable PPD to expand the global development services that it offers to its customers. The results of operations are included in PPD's condensed consolidated results of operations as of and since February 19, 2002, the effective date of the acquisition. PPD acquired MRL for total consideration of $113.1 million, including $39.0 million in cash, $73.5 million in PPD's common stock (approximately 2.6 million unregistered shares) and direct acquisition costs of $0.6 million for legal, appraisal and accounting fees. In April 2002, PPD acquired Piedmont Research Center II, Inc, or PRC, a cancer research laboratory based in Morrisville, N.C. that performs preclinical evaluations of anti-cancer therapies. The research facility serves national and international pharmaceutical and biotechnology companies. PRC is part of the Discovery segment of PPD. The acquisition of PRC should enable PPD to add another dimension to our vertically integrated oncology program, spanning from early discovery through clinical development. PRC provides PPD's clients another method of cost-effective evaluation of drug candidates. The results of operations are included in PPD's condensed consolidated results of operations as of and since April 1, 2002, the effective date of the acquisition. PPD acquired PRC for total consideration of $19.6 million, including $2.4 million in cash, $17.1 million in PPD's common stock (0.5 million unregistered shares) and direct acquisition costs of $0.1 million for legal and accounting fees. In June 2002, PPD acquired Complete Software Solutions, Inc., or CSS, a technical consulting firm offering implementation, validation and training services as well as specialized software for pharmaceutical and biotechnology industries. CSS is part of the Development segment of PPD. The acquisition of CSS should expand PPD's informatics' range of services and international reach, as well as its client base. With the acquisition of CSS, PPD will be able to offer a broader range of informatics solutions to a wider range of clients. The results of operations are included in PPD's condensed consolidated results of operations as of and since June 12, 2002, the effective date of the acquisition. PPD acquired CSS for total consideration of $16.8 million in cash. In June 2002, PPD acquired ProPharma Pte Ltd, an Asian-based clinical research organization with experience in managing pan-Asian clinical trials. ProPharma is part of the Development segment of PPD. The acquisition of ProPharma should enable PPD to expand its geographic reach and provide its clients country-specific expertise with extensive networks for clinical trials in key markets in Asia. The results of operations are included in PPD's condensed consolidated results of operations as of and since June 27, 2002, the effective date of the acquisition. PPD acquired ProPharma for total consideration of $3.0 million in cash. In addition, PPD agreed to pay up to $1.4 million as additional purchase price, depending upon the financial performance of ProPharma for a specified period following the acquisition. These acquisitions were accounted for using the purchase method. Accordingly, the estimated fair value of assets acquired and liabilities assumed were included in PPD's condensed consolidated balance sheet as of the effective date of the acquisitions. There were no significant differences between the accounting policies of PPD or any of the companies acquired in these acquisitions. 9 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 4. ACQUISITIONS (continued) The total purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed as set forth in the following table:
MRL PRC CSS ProPharma Total ----------- ----------- ----------- ----------- ----------- Condensed balance sheet: Current assets $ 16,249 $ 1,038 $ 957 $ 1,023 $ 19,267 Property and equipment, net 8,554 822 34 116 9,526 Current liabilities (7,813) (1,153) (758) (252) (9,976) Long-term capital lease obligation (1,107) (457) - - (1,564) Value of identifiable intangible assets: Backlog 2,100 - - - 2,100 Goodwill 95,136 19,411 16,533 2,113 133,193 ----------- ----------- ----------- ----------- ----------- Total $ 113,119 $ 19,661 $ 16,766 $ 3,000 $ 152,546 =========== =========== =========== =========== ===========
The purchase price allocations for the acquisitions are based on preliminary estimates, using available information and making assumptions management believes are reasonable. Accordingly, purchase price allocations are subject to finalization. Goodwill will be evaluated annually as required by SFAS 142. Goodwill related to MRL, PRC and ProPharma is not expected to be deductible for tax purposes, and, in accordance with SFAS No. 142, will not be amortized. The unaudited pro forma results from operations for PPD assuming the acquisitions were consummated as of January 1, 2001 and 2002 are as follows:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 2001 2002 2001 2002 ------------- ------------- ------------- ------------- Total revenue $ 125,227 $ 152,922 $ 250,228 $ 290,198 Net income $ 11,856 $ 17,629 $ 28,983 $ 1,119 Income per share: Basic $ 0.23 $ 0.32 $ 0.56 $ 0.02 Diluted $ 0.23 $ 0.32 $ 0.55 $ 0.02
The above amounts are based upon certain assumptions and estimates. PPD believes these assumptions and estimates are reasonable and do not reflect any benefit from economies that might be achieved from combined operations. Pro forma adjustments were made to amortization, interest income and income tax totaling $(1,595) and $(309) for the three-month ended June 30, 2001 and 2002, respectively. Pro forma adjustments were made to amortization, interest income and income tax totaling $(3,927) and $52 for the six-month periods ended June 30, 2001 and 2002, respectively. The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of the period indicated or of future results of operations of the combined companies. 10 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 5. COMPREHENSIVE INCOME PPD's total comprehensive income for the three-month periods ended June 30, 2001 and 2002 was $10,465 and $20,403, respectively, and for the six-month periods ended June 30, 2001 and 2002 was $23,843 and $4,228, respectively. PPD's other comprehensive income consisted of a change in the cumulative translation adjustment for the three-month periods ended June 30, 2001 and 2002 of $1 and $3,521, respectively, and an unrealized loss on investment of $328 for the 2002 period. PPD's other comprehensive income consisted of a change in the cumulative translation adjustment for the six-month periods ended June 30, 2001 and 2002 of $(1,158) and $2,913, respectively, and an unrealized loss on investment of $328 for the 2002 period. 6. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES Accounts receivable and unbilled services consisted of the following: December 31, June 30, 2001 2002 -------------- ------------- (unaudited) Billed $ 99,877 $ 122,919 Unbilled 43,748 69,141 Reserve for doubtful accounts (2,881) (3,486) -------------- ------------- $ 140,744 $ 188,574 ============== ============= 7. INVESTMENTS PPD assesses its investment portfolio on a quarterly basis to determine whether declines in the market value of these securities are other than temporary. This quarterly review includes an evaluation of, among other things, the market condition of the overall industry, historical and projected financial performance, expected cash needs and recent funding events. As a result of management's quarterly evaluations, during the three months ended March 31, 2002, PPD recorded a charge to earnings for an other than temporary decline in the fair market value of its investment in DNA Sciences of approximately $32.0 million. The investment in DNA Sciences was deemed to be impaired as a result of adverse events experienced by DNA Sciences during the first quarter of 2002. In April 2002, PPD purchased 1.0 million shares of SurroMed, Inc. Series E preferred stock for $5.0 million, which represents a 2.7% ownership interest in SurroMed as of April 2002. SurroMed is a private company that has developed a proprietary technology for biological markers. In April 2002, Apothogen, Inc., an equity method investment of PPD, was acquired by IntraBiotics Pharmaceuticals, Inc. As a result of the acquisition, PPD received shares of IntraBiotics common stock representing less than 1% ownership interest of IntraBiotics outstanding common stock. In connection with the acquisition, the contracts and commitments between Apothogen and its stockholders related to the initial investment were terminated. IntraBiotics rents facility space from PPD and PPD provides Intrabiotics with drug development services and specified administrative services. In June 2002, PPD purchased approximately 0.7 million units of BioDelivery Sciences International, Inc. for $3.6 million. Each unit consists of one share of common stock and one warrant for common stock. PPD's common stock in BioDelivery Sciences International represents a 9.9% ownership interest in BioDelivery Sciences International's outstanding common stock. BioDelivery Sciences International is a publicly traded company that is developing and seeking to commercialize a drug delivery technology designed for a potentially broad base of pharmaceuticals, vaccines and over-the-counter drugs. 11 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data) 8. BUSINESS SEGMENT DATA Revenues by principal business segment are separately stated in the consolidated financial statements. Impairment of equity investment of $30.0 million, net of a tax benefit of $2.0 million, and equity in net loss of investee of $105 for the six-months ended June 30, 2002 were not allocated to PPD's business segments and are shown separately for purposes of business segment analysis. The equity in net loss of investee was related to the investment in Apothogen, which operated in the discovery field. Apothogen was acquired by IntraBiotics Pharmaceuticals in April 2002. See Note 7 to Consolidated Condensed Financial Statements. Income taxes are allocated ratably to each division for purposes of business segment analysis. Income from operations, net income and identifiable assets by principal business segment were as follows:
Three months Ended June 30, Six Months Ended June 30, ----------------------------- ---------------------------- 2001 2002 2001 2002 -------------- ------------- ------------- ------------- Income (loss) from operations: Development $ 15,356 $ 28,041 $ 30,809 $ 49,554 Discovery sciences (486) (1,860) 5,307 (1,906) -------------- ------------- ------------- ------------- Total $ 14,870 $ $26,181 $ 36,116 $ 47,648 ============== ============= ============= ============= Net income (loss): Development $ 10,770 $ 18,395 $ 21,651 $ 32,955 Discovery sciences (306) (1,172) 3,350 (1,201) Impairment of equity investment - - - (30,006) Equity in net loss of investee - (13) - (105) -------------- ------------- ------------- ------------- Total $ 10,464 $ 17,210 $ 25,001 $ 1,643 ============== ============= ============= =============
December 31, June 30, 2001 2002 -------------- ------------- Identifiable assets: Development (a) $ 451,031 $ 571,001 Discovery sciences 14,369 37,033 -------------- ------------- Total $ 465,400 $ 608,034 ============== =============
_________________ (a) The note receivable from the sale of the environmental sciences segment in 1999 is included in the Development segment in 2001. The note was paid in June 2002. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the consolidated condensed financial statements and accompanying notes. In this discussion, the words "PPD", "we", "our" and "us" refer to Pharmaceutical Product Development, Inc., together with its subsidiaries where appropriate. Forward-looking Statements This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These statements relate to future events or our future financial performance. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performances, expectations, predictions, assumptions and other statements that are not statements of historical facts. In some cases, you can identify forward-looking statements by terminology such as "might", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "intend", "potential" or "continue", or the negative of these terms, or other comparable terminology. These statements are only predictions. These statements rely on a number of assumptions and estimates which could be inaccurate and which are subject to risks and uncertainties. Actual events or results might differ materially due to a number of factors, including those listed in "Potential Volatility of Quarterly Operating Results and Stock Price". Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We generally undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. Company Overview We are a leading global provider of drug discovery and development services to pharmaceutical and biotechnology companies. Our corporate mission is to help clients maximize the return on their research and development investments. We offer therapeutic expertise, advanced technologies and comprehensive resources for both drug discovery and drug development. We have been in the drug development business for more than 15 years. Our development services include preclinical programs through Phase 1 to Phase 4 clinical development. In addition, we also offer post-market support services for drugs that have received approval for market use, such as product launch services, patient compliance programs, and medical communications programs for consumer and healthcare providers on product use and adverse events. We have extensive clinical trial experience across a multitude of therapeutic areas that encompass various geographical areas, including regional, national and global studies. With more than 5,000 professionals in 24 countries around the world, we provided services to 38 of the top 50 pharmaceutical companies in the world as ranked by 2000 healthcare research and development spending, in addition to our work with leading biotechnology companies. We believe that we are one of the world's largest providers of drug development services to pharmaceutical and biotechnology companies in terms of 2001 annual net revenues generated from contract research organizations. Building on our outsourcing relationship with pharmaceutical and biotechnology clients, we established our discovery services group in 1997. Through this group, we focus more on early stage research to help our customers address the bottleneck at the beginning of the development process. This group focuses on functional genomics, which is the study of gene functions to identify drug targets within the body, as well as medicinal chemistry research and preclinical biology services. In addition, we developed an innovative risk-sharing research and development model to help pharmaceutical and biotechnology clients develop compounds. Through these arrangements, we help our clients research and evaluate the development potential for early stage compounds, when their investment is significantly less than the amount at risk at later development phases. We believe that our integrated drug discovery and development services offer our clients a way to identify and develop successful drugs more quickly and cost effectively. We also use our proprietary informatics technology to support our drug discovery and development services. In addition, because we are positioned globally, we are able to accommodate the multinational drug discovery and development needs of our customers. As a result of 13 having these core areas of expertise in discovery and development, we can provide integrated services across the entire drug development spectrum, from target discovery to market and beyond. For more detailed information on PPD, see our Annual Report on Form 10-K for the year ended December 31, 2001. Results of Operations We recognize revenues from fixed-price contracts on a percentage-of-completion basis in our Development Group. To measure the percentage of completion, PPD compares actual costs incurred to estimated total contract costs. We recognize revenues from time-and-materials contracts as hours are incurred, multiplied by the billable rates for each contract in both our Development Group and Discovery Sciences Group. We also recognize revenues from unitized contracts as subjects or samples are tested, multiplied by the price of each. In connection with the management of multi-site clinical trials, PPD pays on behalf of its customers fees to investigators and test subjects, and other out-of-pocket costs, such as travel, printing, meetings, couriers, etc., for which we are reimbursed at cost. Effective January 1, 2002, in connection with the required implementation of EITF 01-14, amounts paid for out-of-pocket costs are now included in cost of revenue, while the reimbursements received are reported as reimbursable out-of-pocket revenues in the income statement. We will continue to net revenue and expense in the income statement from fees and associated reimbursements that we receive as an agent. Most contracts are terminable either immediately or after a specified period following notice by the client. These contracts typically require payment to PPD of expenses to wind down a study, payment to PPD of fees earned to date, and in some cases, a termination fee or a payment to PPD of some portion of the fees or profit that could have been earned by PPD under the contract if it had not been terminated early. Discovery Sciences Group revenues also include nonrefundable technology license fees and milestone payments. For nonrefundable license fees received at the initiation of license agreements for which we have an ongoing research and development commitment, we defer these fees and recognize them ratably over the period of the related research and development. For nonrefundable license fees received under license agreements where our continued performance of future research and development services is not required, we recognize revenue upon delivery of the technology. These non-refundable fees are generally up-front payments for the initial license of and access to our technology. In addition to license fees, our Discovery Sciences Group also generates revenue from time to time in the form of milestone payments. Milestone payments are only received and recognized as revenues if the specified milestone is achieved and accepted by the customer and continued performance of future research and development services related to that milestone are not required. Although these payments are typically lower than up-front license fees, these payments can be significant because they are triggered as a result of achieving specified scientific milestones. We record our recurring operating expenses among five categories: . direct costs; . research and development; . selling, general and administrative; . depreciation; and . amortization. Direct costs consist of appropriate amounts necessary to carry out the revenue and earnings process, and include direct labor and related benefit charges, other costs directly related to contracts, an allocation of facility and information technology costs, and reimbursable out-of-pocket expenses. Direct costs, as a percentage of net revenues, tend to and are expected to fluctuate from one period to another, as a result of changes in labor utilization and the mix of service offerings involving the hundreds of studies conducted during any period of time. Research and development, or R&D, expenses consist primarily of labor and related benefit charges associated with personnel performing internal research and development work, supplies associated with this work and an allocation of facility and information technology costs. Selling, general and administrative, or SG&A, expenses consist primarily of administrative payroll and related benefit charges, sales, advertising and promotional expenses, recruiting and relocation expenses, administrative travel, an allocation of facility and information technology costs and costs related to professionals working in an indirect capacity. 14 Depreciation expenses consist of depreciation costs recorded on a straight-line method, based on estimated useful lives of 20 to 40 years for buildings, five to seven years for laboratory equipment, three to five years for computers and related equipment and seven to 10 years for furniture and equipment, except for our airplane, which we are depreciating over 30 years. Leasehold improvements are amortized over the shorter of the respective lives of the leases or the useful lives of the improvements. Property under capital leases is amortized over the life of the lease or the service life, whichever is shorter. Amortization expenses consist of amortization costs recorded on intangible assets on a straight-line method over the life of the intangible assets. The excess of the purchase price of a business acquired over the fair value of net tangible assets, identifiable intangibles and acquired in-process research and development costs at the date of the acquisition has been assigned to goodwill. Goodwill was being amortized over periods of 10 to 25 years prior to January 1, 2002. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", or SFAS No. 142. We adopted SFAS No. 142 as of January 1, 2002 and no longer amortize goodwill. We have analyzed goodwill for impairment at the reporting unit level during the first half of 2002 and, at a minimum, will analyze goodwill on an annual basis going forward. Amortization expense related to goodwill for 2001 was $0.9 million. General In February 2002, PPD acquired 100% of the outstanding common stock of Medical Research Laboratories International, Inc. ("MRL U.S.") and Medical Research Laboratories International, BVBA ("MRL Belgium"), collectively, "MRL". MRL is part of the Development segment of PPD. MRL U.S. operates a central laboratory in Highland Heights, Kentucky, near Cincinnati, Ohio, and MRL Belgium operates a central laboratory in Brussels, Belgium. MRL provides highly standardized efficacy and safety testing services for pharmaceutical companies engaged in clinical drug development. PPD acquired MRL for total consideration of $113.1 million, including $39.0 million in cash, $73.5 million in PPD's common stock (approximately 2.6 million unregistered shares) and direct acquisition costs of $0.6 million for legal, appraisal and accounting fees. See further details regarding this acquisition in Note 4 to Consolidated Condensed Financial Statements. In April 2002, PPD acquired Piedmont Research Center II, Inc, or PRC, a cancer research laboratory based in Morrisville, N.C. that performs preclinical evaluations of anti-cancer therapies. The research facility serves national and international pharmaceutical and biotechnology companies. PRC is part of the Discovery segment of PPD. PPD acquired PRC for total consideration of $19.6 million, including $2.4 million in cash, $17.1 million in PPD's common stock (0.5 million unregistered shares) and direct acquisition costs of $0.1 million for legal and accounting fees. See further details regarding this acquisition in Note 4 to Consolidated Condensed Financial Statements. In June 2002, PPD acquired Complete Software Solutions, Inc., or CSS, a technical consulting firm offering a full range of implementation, validation and training services as well as specialized software for pharmaceutical and biotechnology industries. CSS is part of the Development segment of PPD. PPD acquired CSS for total consideration of $16.8 million in cash. See further details regarding this acquisition in Note 4 to Consolidated Condensed Financial Statements. In June 2002, PPD acquired ProPharma Pte Ltd, an Asian-based clinical research organization with extensive experience in managing pan-Asian clinical trials. ProPharma is part of the Development segment of PPD. PPD acquired ProPharma for total consideration of $3.0 million in cash. In addition, PPD agreed to pay up to $1.4 million as additional purchase price, depending upon the financial performance of ProPharma for a specified period following the acquisition. See further details regarding this acquisition in Note 4 to Consolidated Condensed Financial Statements. These acquisitions were accounted for using the purchase method. Accordingly, the estimated fair value of assets acquired and liabilities assumed were included in PPD's condensed consolidated balance sheet as of the effective date of the acquisitions. The results of operations are included in PPD's condensed consolidated results of operations as of and since the effective dates of the acquisitions. There were no significant differences between the accounting policies of PPD or any of the companies acquired in these acquisitions. Three Months Ended June 30, 2002 Versus Three Months Ended June 30, 2001 15 Net revenue increased $38.1 million, or 37.4%, to $140.2 million, before reimbursable out-of-pockets of $11.4 million, in the second quarter of 2002 from $102.0 million, before reimbursable out-of-pockets of $7.4 million in the same period in 2001. The Development Group's operations accounted for 96.3% of net revenue for the second quarter of 2002. The Development Group generated net revenue of $135.0 million, an increase of $37.0 million, or 37.7%, from the 2001 second quarter. The growth in the Development Group operations was primarily attributable to an increase in the size, scope and number of contracts in the global contract research organization, or CRO, Phase 2 through 4 division. In addition, acquisitions in the Development Group completed during 2002 contributed net revenue of $12.6 million for the three months ended June 30, 2002. The Discovery Sciences Group generated net revenue of $5.1 million in the second quarter of 2002, an increase of $1.1 million, or 28.3%, from the second quarter of 2001. The increase in the Discovery Sciences operations was primarily attributable to net revenue generated from PRC for the three months ended June 30, 2002. Total direct costs, excluding reimbursable out-of-pocket expenses, increased 35.0% to $67.9 million in the second quarter of 2002 from $50.3 million in the second quarter of 2001 and decreased slightly as a percentage of net revenue to 48.4% for 2002 second quarter as compared to 49.3% in 2001 second quarter. Development direct costs increased to $65.6 million in the second quarter of 2002 as compared to $48.3 million in the second quarter of 2001. This increase resulted primarily from increased personnel costs due to the increase in the size and number of contracts in the global CRO Phase 2 through 4 division and the direct costs associated with the acquisitions completed during 2002. Development Group direct costs decreased as a percentage of related net revenue to 48.5% in the second quarter of 2002 from 49.3% in the second quarter of 2001. This decrease was principally due to the mix of levels of personnel involved in the contracts performed, variations in the utilization of personnel and the mix of contracts being performed during each quarter. Discovery Sciences direct costs increased to $2.3 million in the second quarter of 2002 as compared to $2.0 million in the second quarter of 2001. This increase was primarily due to the direct costs associated with PRC. R&D expenses increased 142.6% to $2.6 million in the second quarter of 2002 from $1.1 million in the second quarter of 2001. This increase was primarily attributable to an increase in spending on R&D in the Discovery Sciences Group to develop intellectual property. As of the end of the second quarter of 2002, the Discovery Sciences Group had increased the number of employees working on R&D by 45% as compared to the end of the second quarter of 2001. Internal R&D spending continues to increase in both target validation and the chemistry GGTase programs. SG&A expenses increased 21.6% to $37.7 million in the second quarter of 2002 from $31.0 million in the second quarter of 2001. The increase was primarily attributable to additional administrative personnel costs and an increase in recruiting and training costs associated with new hires to support our expanding operations. As a percentage of net revenue, SG&A expenses decreased to 26.9% in the second quarter of 2002 from 30.4% in the second quarter of 2001. This decrease is primarily attributable to the increase in revenue, and to a smaller extent, to increased efficiencies as our operations expanded. Depreciation expense increased $1.1 million, or 24.4%, to $5.7 million in the second quarter of 2002 from $4.6 million in the second quarter of 2001. The increase was related to the depreciation of the increased investment in property and equipment due primarily to our growth. Capital expenditures were $8.1 million in the second quarter of 2002. Capital expenditures primarily included additional spending on the buildout of our functional genomics lab in California and additional spending in the Development Group on information technology licenses and computer hardware for new employees. Amortization expense decreased to $0.16 million for the second quarter of 2002 from $0.27 million in the second quarter of 2001. During the second quarter of 2002, amortization of backlog associated with the acquisition of MRL accounted for $0.12 million of the amortization expense. During the second quarter of 2001, amortization of goodwill accounted for $0.24 million of the amortization expense. We adopted SFAS No. 142 as of January 1, 2002 and no longer record amortization of goodwill in our financial statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recently Issued Accounting Standards" . Operating income increased $11.3 million to $26.2 million in the second quarter of 2002, as compared to $14.9 million in the second quarter of 2002. As a percentage of net revenue, excluding reimbursable out-of-pockets, operating income of 18.7% in the 2002 period represents an increase from 14.6% of net revenue in 2001 period. 16 This increase was primarily due to our revenue growth and our focus on controlling the increase in both direct and administrative costs. Our provision for income taxes increased $4.0 million, or 64.6%, to $10.1 million in the second quarter of 2002, as compared to $6.1 million in the second quarter of 2001. Our effective income tax rate remained constant at 37.0%. Net income of $17.2 million in the second quarter of 2002 represents an increase of $6.7 million from $10.5 million in net income in the second quarter of 2001. Net income per diluted share of $0.31 for the second quarter of 2002 represents an increase from the $0.20 in net income per diluted share in the second quarter of 2001. Six Months Ended June 30, 2002 Versus Six Months Ended June 30, 2001 Net revenue increased $53.3 million, or 25.5%, to $262.3 million, before reimbursable out-of-pockets of $19.9 million, in the six months ended June 30, 2002 from $209.0 million, before reimbursable out-of-pockets of $13.3 million for the corresponding 2001 period. The Development Group's operations accounted for 96.0% of net revenue for the first six months of 2002. The Development Group generated net revenue of $251.8 million, an increase of $60.0 million, or 31.3%, from the same period in 2001. The growth in the Development Group operations was primarily attributable to an increase in the size, scope and number of contracts in the global CRO Phase 2 through 4 division. In addition, acquisitions in the Development Group completed during 2002 contributed net revenue of $18.5 million for the six months ended June 30, 2002. The Discovery Sciences Group generated net revenue of $10.5 million in the first six months of 2002, a decrease of $6.7 million, or 38.9%, from the first six months of 2001. The higher 2001 Discovery Sciences net revenue was primarily attributable to a milestone payment generated by the sublicensing of the compound dapoxetine to Alza Corporation (later acquired by Johnson & Johnson) in the first quarter of 2001. Total direct costs, excluding reimbursable out-of-pocket expenses increased 24.5% to $125.5 million for the six months ended June 30, 2002 from $100.8 million for the corresponding 2001 period and decreased slightly as a percentage of net revenue to 47.8% from 48.2% for the same period of 2001. Development direct costs increased to $121.2 million for the six months ended June 30, 2002 as compared to $93.5 million for the six months ended June 30, 2001. This increase resulted primarily from increased personnel costs due to the increase in the size and number of contracts in the global CRO Phase 2 through 4 division and the direct costs associated with acquisitions completed during 2002. Development Group direct costs decreased as a percentage of related net revenue to 48.1% from 48.8%. This decrease was principally due to the mix of levels of personnel involved in the contracts performed, variations in the utilization of personnel and the mix of contracts being performed during each period. Discovery Sciences direct costs decreased to $4.3 million in the first six months of 2002 as compared to $7.3 million in the corresponding 2001 period. This decrease was primarily due to the costs associated with sublicensing dapoxetine to Alza in the first quarter of 2001. R&D expenses increased 137.7% to $4.3 million in the six months ended June 30, 2002 from $1.8 million in the first six months of 2001. This increase was primarily attributable to an increase in spending on R&D in the Discovery Sciences Group to develop intellectual property. As of the end of the second quarter of 2002, the Discovery Sciences Group had increased the number of employees working on R&D by 45% as compared to the end of the second quarter of 2001. Internal R&D spending continues to increase in both target validation and the chemistry GGTase programs. SG&A expenses increased 21.0% to $73.3 million in the six months ended June 30, 2002 from $60.6 million in the first six months of 2001. The increase was primarily attributable to additional administrative personnel costs and an increase in recruiting and training costs associated with new hires to support our expanding operations. As a percentage of net revenue, SG&A expenses decreased to 27.9% in 2002 from 29.0% in the same period last year. This decrease is primarily attributable to the increase in revenue, and to a smaller extent, to increased efficiencies as our operations expand. Depreciation expense increased $1.9 million, or 21.3%, to $11.1 million in the six months ended June 30, 2002 from $9.2 million in the six months ended June 30, 2001. The increase was related to the depreciation of the increased investment in property and equipment due primarily to our growth. Capital expenditures were $18.7 million in the first six months of 2002. The majority of our capital investment in the six months ended June 30, 2002 17 was due to additional facility and equipment costs to increase laboratory capacity and costs to enhance and expand our information technology capacity. Amortization expense decreased to $0.4 million for the six months ended June 30, 2002 from $0.5 million for the six months ended June 30, 2001. During the six months ended June 30, 2002, amortization of backlog associated with the acquisition of MRL accounted for $0.37 million of the amortization expense. During the six months ended June 30, 2001, amortization of goodwill accounted for $0.47 million of the amortization expense. We adopted SFAS No. 142 as of January 1, 2002 and no longer record amortization of goodwill in our financial statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recently Issued Accounting Standards". Operating income increased $11.5 million to $47.6 million in the six months ended June 30, 2002, as compared to $36.1 for the same period last year. As a percentage of net revenue, excluding reimbursable out-of-pockets, operating income of 18.2% in the first six months of 2002 represents an increase from 17.3% of net revenue in the same period in 2001. This increase was primarily due to our revenue growth and our focus on controlling the increase in both direct and administrative costs. During the first quarter of 2002, we recorded an impairment of equity investment of $32.0 million to write down the carrying value of our investment in DNA Sciences, Inc. for an other than temporary decline in value. Our investment in DNA Sciences was deemed to be impaired as a result of adverse events experienced by DNA Sciences during the first quarter of 2002. Our provision for income taxes increased $2.0 million, or 13.3%, to $16.6 million in the first six months of 2002, as compared to $14.6 million in the corresponding 2001 period. We recorded a net tax benefit of $2.0 million and a valuation allowance of $10.7 million associated with the $32.0 million impairment of the DNA Sciences investment as a result of the uncertainty of the utilization of the deduction of the impairment prior to expiration. Our effective income tax rate, excluding this $2.0 million tax benefit and the related impairment expense, remained constant at approximately 37%. GAAP net income of $1.6 million in the first six months of 2002 represents a decrease of $23.4 million from $25.0 million in the same period last year. Excluding the impairment of equity investment and the related tax benefit, net income increased $6.7 million to $31.7 million for the six months ended June 30, 2002 as compared to $25.0 million for the corresponding period in 2001. GAAP net income per diluted share of $0.03 for the six months ended June 30, 2002 represents a decrease from the $0.48 in net income per diluted share in the same period in 2001. Excluding the impairment of equity investment and the related tax benefit, net income per diluted share increased to $0.58 for the first six months of 2002 as compared to $0.48 in the first six months of 2001. Liquidity and Capital Resources As of June 30, 2002, we had $119.8 million of cash and cash equivalents on hand. Our expected primary cash needs on both a short and long-term basis are for capital expenditures, expansion of services, possible future acquisitions, geographic expansion, working capital and other general corporate purposes. We have historically funded our operations and growth, including acquisitions, with cash flow from operations, borrowings and sales of our stock. We are exposed to changes in interest rates on cash equivalents and amounts outstanding under notes payable, notes receivable and lines of credit. Our cash and cash equivalents are invested in financial instruments that are rated A or better by Standard & Poor or Moodys and bear market interest rates. For the six months ended June 30, 2002, our operating activities provided $31.3 million in cash as compared to $46.1 million for the same period last year. Net income of $1.6 million, impairment of equity investment of $32.0 million and depreciation and amortization of $11.5 million were partially offset by the net increase of $11.2 million in net assets and liabilities and the $2.5 million decrease in deferred income taxes. For the six months ended June 30, 2002, our investing activities used $60.9 million in cash. The net cash paid for acquisitions of $50.6 million, purchases of investments of $8.6 million and capital expenditures of $18.7 million were partially offset by $17.0 million received from the repayment of a notes receivable. For the six months ended June 30, 2002, our financing activities provided $3.3 million in cash, as net proceeds from stock option exercises and purchases under our employee stock purchase plan totaling $3.5 million 18 and proceeds from long-term debt of $1.5 million were partially offset by $1.7 million in repayments of capital lease obligations. Working capital as of June 30, 2002 was $140.4 million, compared to $152.8 million at December 31, 2001. The decrease in working capital was due primarily to the decrease in cash and cash equivalents of $23.4 million. The increase in accounts receivable and unbilled services, net, of $47.8 million was offset by the increase in unearned income of $18.0 million. The number of days' revenue outstanding in accounts receivable and unbilled services, net of unearned income, also known as DSO, were 33.2 and 42.5 days for the quarter ended June 30, 2002 and December 31, 2001, respectively. This improvement is a result of a focused effort by management on improving the accounts receivable collection process along with certain improved temporary terms regarding investigator fee down payments. We expect DSO in the future will fluctuate depending on the mix of contracts performed within a quarter and our success in collecting receivables. In June 2002, we amended our revolving credit facility for $50.0 million from Wachovia Bank, N.A., formerly known as First Union National Bank. The purpose of the amendment was to extend the expiration date. Indebtedness under the facility is unsecured and subject to traditional covenants relating to financial ratios. Borrowings under this credit facility are available to provide working capital and for general corporate purposes. As of June 30, 2002, there was no amount outstanding under this credit facility. This credit facility is currently scheduled to expire in June 2003, at which time any outstanding balance will be due. In July 2002, we entered into a new revolving credit facility for $50.0 million with Bank of America, N. A. Indebtedness under the facility is unsecured and subject to traditional covenants relating to financial ratios. Borrowings under this credit facility are available to provide working capital and for general corporate purposes. This credit facility is currently scheduled to expire in June 2003, at which time any outstanding balance would be due. In April 2000, we made an investment in Spotlight Health, Inc., formerly known as ADoctorInYourHouse.com. In January 2001, we entered into an agreement with Spotlight Health and Wachovia Bank, N.A. to guarantee a revolving $2.0 million line of credit to Spotlight Health. Indebtedness under the line is unsecured and subject to traditional covenants relating to financial ratios. As of June 30, 2002, Spotlight Health had $2.0 million outstanding under this credit facility. This credit facility is currently scheduled to expire in December 2002, at which time any outstanding balance will be due. We review the financial statements of Spotlight Health on a quarterly basis to determine if they have sufficient financial resources to continue operations. While we do not have current concerns regarding Spotlight Health's ability to repay this facility, there can be no assurance that Spotlight Health will be able to repay the facility or that Wachovia Bank will not collect under our guarantee in the future. We expect to continue expanding our operations through internal growth and strategic acquisitions. We expect these activities will be funded from existing cash, cash flow from operations and borrowings under our existing or future credit facilities. We believe that these sources of liquidity will be sufficient to fund our operations for the foreseeable future, but offer no assurances. In particular, our sources of liquidity could be affected by our dependence on a small number of industries and clients, compliance with regulations, international risks, personal injury, environmental or intellectual property claims, as well as other factors described in this document under "Potential Volatility of Quarterly Operating Results and Stock Price", and "Quantitative and Qualitative Disclosures about Market Risk". In addition, see "Critical Accounting Policies and Estimates" and "Factors that Might Affect our Business or Stock Price" in our Annual Report on Form 10-K for the year ended December 31, 2001. Critical Accounting Policies and Estimates Effective January 1, 2002, we adopted SFAS 142, which establishes new accounting and reporting requirements for goodwill and other intangible assets. We did not identify any impairments of goodwill during our transitional impairment test. This test involved the use of estimates related to the fair market value of the reporting unit with which the goodwill was associated. Impairment adjustments recognized after adoption, if any, generally are required to be recognized as an operating expense. There have been no material changes to our critical accounting policies and estimates since December 31, 2001. For detailed information on our critical accounting policies and estimates, see our Annual Report on Form 10-K for the year ended December 31, 2001. 19 Recently Issued Accounting Standards In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations", or SFAS No. 141. As of July 1, 2001, PPD adopted SFAS No. 141, which requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. As discussed previously, we have implemented and followed SFAS No. 141 for all acquisitions completed during 2002. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", or SFAS No. 142. PPD adopted SFAS No. 142 as of January 1, 2002. SFAS No. 142 addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination, and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and no longer be amortized but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption. PPD has completed the transitional impairment test and did not identify any impairments of goodwill. This test involved determining the fair market value of each of the reporting units with which the goodwill was associated and comparing the estimated fair market value of each of the reporting units with its carrying amount. Additionally, SFAS No. 142 requires intangible assets that do not meet the criteria for recognition apart from goodwill to be reclassified. As a result of PPD's analysis, no reclassifications to goodwill were required as of January 1, 2002. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", or SFAS No. 144, which supersedes SFAS No. 121 and portions of APB Opinion No. 30. SFAS No. 144 provides guidance on the recognition and impairment of long-lived assets to be held and used, and for long-lived assets to be disposed. This statement also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as previously required. PPD has adopted SFAS No. 144 as of January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on PPD's consolidated financial statements. In November 2001, the FASB issued Emerging Issues Task Force Rule No. 01-14, or EITF 01-14, Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred. EITF 01-14 requires that in cases where the contractor acts as a principal, reimbursements received for out-of-pocket expenses incurred be characterized as revenue and the associated costs included as operating expenses in the income statement. PPD implemented this rule effective January 1, 2002 and, as required, has reclassified comparative financial information for 2001. The implementation of this rule resulted only in the gross-up of revenues and expenses and had no impact upon earnings. Taxes Because we conduct operations on a global basis, our effective tax rate has and will continue to depend upon the geographic distribution of our pretax earnings among locations with varying tax rates. Our profits are also impacted by changes in the tax rates of the various taxing jurisdictions. In particular, as the geographic mix of our pre-tax earnings among various tax jurisdictions changes, our effective tax rate might vary from period to period. Inflation While most of our net revenues are earned under contracts, the long-term contracts, those in excess of one year, generally include an inflation or cost of living adjustment for the portion of the services to be performed beyond one year from the contract date. As a result, we believe that the effects of inflation generally do not have a material adverse effect on our operations or financial condition. 20 Potential Volatility of Quarterly Operating Results and Stock Price Our quarterly and annual operating results have fluctuated in the past, and we expect that they will continue to fluctuate in the future. Factors that could cause these fluctuations to occur include: . our dependence on a small number of industries and clients; . the timing of the initiation, progress or cancellation of significant projects; . the mix of products and services sold in a particular period; . our need to recruit and retain experienced personnel; . rapid technological change and the timing and amount of start-up costs incurred in connection with the introduction of new products and services; . intellectual property risks; . the timing of our Discovery Sciences Group milestone payments or other revenue; . the timing of the opening of new offices; . the timing of other internal expansion costs; . the timing and amount of costs associated with integrating acquisitions; and . exchange rate fluctuations between periods. Delays and terminations of trials are often the result of actions taken by our customers or regulatory authorities and are not typically controllable by us. Because a large percentage of our operating costs are relatively fixed while revenue is subject to fluctuation, variations in the timing and progress of large contracts can materially affect our quarterly operating results. We believe that comparisons of our quarterly financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Fluctuations in quarterly results or other factors beyond our control could affect the market price of our common stock. Such factors include changes in earnings estimates by analysts, market conditions in our industry, changes in pharmaceutical and biotechnology industries, general economic conditions, and differences in assumptions used as compared to actual results. Any effect on our common stock could be unrelated to our longer-term operating performance. 21 Item 3. Quantitative and Qualitative Disclosures about Market Risk We are exposed to foreign currency risk by virtue of our international operations. We conduct business in several foreign countries. Approximately 15.1% and 19.4% of our net revenues for the three-month periods ended June 30, 2001 and 2002, respectively, were derived from operations outside the United States. Approximately 13.6% and 18.9% of our net revenues for the six-month periods ended June 30, 2001 and 2002, respectively, were derived from operations outside the United States. Funds generated by each subsidiary are generally reinvested in the country where they are earned. We do not engage in derivative or hedging activities related to our potential foreign exchange exposures. Our operations in the United Kingdom generated approximately 46.8% of our revenue from international operations during the second quarter of 2002. Accordingly, we do have some exposure to adverse movements in the pound sterling and other foreign currencies. The United Kingdom has traditionally had a relatively stable currency compared to our functional currency, the U.S. dollar. We anticipate that those conditions will persist for at least the next 12 months, but cannot make any guarantees. The vast majority of our contracts are entered into by our United States or United Kingdom subsidiaries. The contracts entered into by the United States subsidiaries are almost always denominated in United States dollars. Contracts entered into by our United Kingdom subsidiaries are generally denominated in pounds sterling, United States dollar or Euros. In most transactions involving multiple currencies, contractual provisions either limit or reduce the economic risk. We do have some currency risk resulting from the passage of time between the invoicing of customers under contracts and the ultimate collection of customer payments against those invoices. If a contract is denominated in a currency other than the subsidiary's local currency, we recognize a receivable at the time of invoicing for the local currency equivalent of the foreign currency invoice amount. Changes in exchange rates from the time the invoice is prepared and payment from the customer is received will result in our receiving either more or less in local currency than the local currency equivalent of the invoice amount at the time the invoice was prepared and the receivable established. We recognize this difference as a foreign currency transaction gain or loss, as applicable, and report it in other income, net. Changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of foreign subsidiaries' financial results into U.S. dollars for purposes of reporting our consolidated financial results. The process by which each foreign subsidiary's financial results are translated to U.S. dollars is as follows: . income statement accounts are translated at average exchange rates for the period; . balance sheet assets and liability accounts are translated at end of period exchange rates; and . equity accounts are translated at historical exchange rates. Translation of the balance sheet in this manner affects the shareholders' equity account, referred to as the cumulative translation adjustment account. This account exists only in the foreign subsidiary's U.S. dollar balance sheet and is necessary to keep the foreign balance sheet, stated in U.S. dollars, in balance. Translation adjustments are reported with accumulated other comprehensive income (loss) as a separate component of shareholders' equity. To date, cumulative translation adjustments have not been material to our consolidated financial position. However, adjustments could in the future be material to our financial statements. There are no material exchange controls currently in effect in any country in which we conduct operations on the payment of dividends or otherwise restricting the transfer of funds outside these countries. Although we perform services for clients located in a number of foreign jurisdictions, we have not experienced any difficulties in receiving funds remitted from foreign countries. However, if any of these jurisdictions imposed or modified existing exchange control restrictions, the restrictions could have an adverse effect on our financial condition. We are exposed to changes in interest rates on our cash equivalents and amounts outstanding under notes payable and lines of credit. We invest our cash and cash equivalents and short-term investments in financial instruments with interest rates based on financial market conditions. 22 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders The 2002 Annual Meeting of Shareholders of the Company was held on May 15, 2002. At the Annual Meeting, the following proposal was voted upon: The following directors were elected to office for the ensuing year and were approved by the following votes: For Against/1/ --- ---------- Ernest Mario 44,882,310 608,798 Fredric N. Eshelman 45,206,929 284,179 John A. McNeill, Jr. 44,805,415 685,693 Stuart Bondurant 45,216,202 274,906 Frederick Frank 45,200,108 291,000 Paul J. Rizzo 45,218,489 272,619 Terry Magnuson 45,218,121 272,987 Catherine M. Klema 45,216,391 274,717 _________________________ /1/ Includes abstentions. 23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.162 Severance Agreement dated January 1, 2001, between Pharmaceutical Product Development, Inc. and various individuals. 10.181 Employment Agreement dated May 16, 2002, between Pharmaceutical Product Development, Inc. and Linda Baddour. 10.182 Employment Agreement dated May 1, 2002, between PPD Development, LP and W. Richard Staub. 10.183 Termination Agreement dated April 30, 2002, between PPD Development, LLC and Francis J. Casieri. 10.184 Third Amendment dated June 30, 2002 among Spotlight Health, Inc., Pharmaceutical Product Development, Inc. and Wachovia Bank, National Association (formerly known as First Union National Bank). 10.185 Eighth Amendment to Loan Agreement dated June 29, 2002, between Pharmaceutical Product Development, Inc. and Wachovia Bank, National Association (formerly known as First Union National Bank). 10.186 Loan Agreement dated July 25, 2002 between Pharmaceutical Product Development, Inc. and Bank of America, N.A. 10.187 Deferred Compensation Plan for Directors dated June 15, 2002. 10.188 Lease Agreement dated October 12, 1994 between Evan A. Stein, M.D., Ph.D. and Medical Research Laboratories. 10.189 Lease Agreement dated July 1, 2001 between Brandywine Grande C,L.P. and PPD Development, LLC. Exhibit 10.162 has been updated to include W. Richard Staub and Kim V. Greene with severance of one year's salary and to delete Philippe Maitre, Karl Thor and Francis Casieri from the listing. (b) Reports on Form 8-K On April 29, 2002, PPD filed an amended report on Form 8-K to file financial information required under Regulation S-X regarding its acquisition of Medical Research Laboratories International, Inc. and Medical Research Laboratories International BVBA. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who certify to their knowledge that this report fully complies with the requirements of Section 13(a) or 15(d) of that Act and that the information contained in this report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of and for the period ended June 30, 2002. PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. -------------------------------------------------------- (Registrant) By /s/ Fredric N. Eshelman, Pharm.D. ------------------------------------------------------- Chief Executive Officer (Principal Executive Officer) By /s/ Linda Baddour -------------------------------------------------------- Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 13, 2002 25 EX-10.162 3 dex10162.txt SEVERANCE AGREEMENT Exhibit 10.162 SEVERANCE AGREEMENT THIS AGREEMENT, effective the 1st day of January, 2001, by and between Pharmaceutical Product Development, Inc. and its subsidiaries and affiliates (collectively, "PPD") and (see Exhibit A) ("Employee"). WHEREAS, Employee is a valued employee of PPD and in order to induce Employee to remain in the employ of PPD, PPD desires to provide the severance benefits hereinafter described in the event of a "Change in Control", as hereinafter defined, of PPD. NOW, THEREFORE, it is agreed as follows: 1. Definitions 1.01 "AFR" means the interest rate determined under Section 1274 of the Code. 1.02 "Base Amount" shall have the meaning set forth and shall be determined as provided in Section 280G of the Code. 1.03 "Change in Control" means (i) a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), provided that such a Change in Control shall be deemed to have occurred if any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of PPD representing 50% or more of the combined voting power of PPD's then outstanding securities; (ii) a sale of substantially all of the assets of PPD; or (iii) a liquidation of PPD. 1.04 "Constructive Termination" means a termination of Employee's employment by PPD during the Covered Period initiated by Employee after (i) a substantial diminution or alteration in the duties of Employee, (ii) a reduction by PPD in Employee's base salary in effect on the date of the Change in Control, or (iii) the relocation of Employee's primary work location to a location that is more than twenty-five (25) miles from Employee's primary work location prior to the Change in Control. Constructive Termination specifically does not include termination of Employee by reason of death, Disability or retirement at or after age 65. Employee shall give PPD written notice of a Constructive Termination, which notice shall provide a brief description of the circumstances which Employee asserts gives rise to a right of Constructive Termination, and PPD shall have ten (10) days from receipt of said notice within which to remedy said circumstances. 1.05 "Covered Payment" means the amounts and benefits paid to Employee pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Employee by PPD. 1.06 "Covered Period" means the time period commencing on the date of and coincident with a Change of Control and ending one year thereafter. 1.07 "Disability" means the inability of Employee to perform his assigned duties for PPD for a period of three (3) months due to Employee's physical or mental illness as determined by a reputable medical doctor. 1.08 "Excess Parachute Payment" shall have the meaning set forth and shall be determined as provided in Section 280G of the Code. 1.09 "Excise Tax" shall mean the tax imposed under Section 4999 of the Code on an Excess Parachute Payment. 1.10 "Executive Consultant" shall mean the executive compensation or comparable consultant used from time to time by PPD in designing its compensation program for executive and senior management employees of PPD; provided, however, that in its sole discretion PPD may at any time designate its independent auditors as its Executive Consultant for the purpose of performing any calculations required under Section 2.05 of this Agreement. 1.11 "Final Determination" means a final determination by a court of competent jurisdiction or a proceeding of the Internal Revenue Service or its successor agency. 1.12 "First Period" means the twelve-month period ending on the Termination Date. 1.13 "Internal Revenue Code" means the Internal Revenue Code of 1986 as heretofore or hereafter amended, and any successor code. References in this agreement to specific sections of the Code shall also include any successor sections. 1.14 "Parachute Payments" shall have the meaning set forth and shall be determined as provided in Section 280G of the Code. 1.15 "Payment Cap" means the maximum amount which may be paid to Employee under the terms of this Agreement without subjecting Employee to the Excise Tax. 1.16 "Payment Date" means the date thirty (30) days following the Termination Date. 2 1.17 "Stock Awards" means Employee's outstanding awards of PPD non-qualified stock options or restricted stock as of the Termination Date. 1.18 "Termination for Cause" means (i) an act or acts involving fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated failure to follow directions of the Board of Directors that continues for at least ten (10) days following written notice of the Board of Directors of such failure to follow directions, or (iii) termination for cause as defined in and made pursuant to a then effective employment agreement, if any, between Employee and PPD. 1.19 "Termination Date" means the date on which Employee's employment is terminated such that Employee is entitled to the compensation and benefits provided for in Section 2 of this Agreement. 2. Compensation Upon Change of Control. If during the Covered Period (i) PPD terminates Employee's employment for reason other than Termination for Cause or (ii) Employee's employment is terminated by reason of Constructive Termination, Employee shall be entitled to the following compensation and benefits: 2.01 Base Salary and Bonus. PPD shall pay Employee an amount equal to (see Exhibit A) times the sum of Employee's (i) base salary for the First Period (determined as if Employee was employed for the entire First Period if employed for less than the First Period) and (ii) the greater of (x) Employee's target bonus under the PPD incentive cash bonus plan in which Employee is eligible to participate immediately prior to the Termination Date or (y) the average of the cash bonuses received in the First Period and in the twelve-month period immediately preceding the First Period, said amount to be paid on the Payment Date. 2.02 Unpaid and Deferred Compensation. PPD shall pay Employee any bonus or deferred compensation (whether in the form of cash, stock or otherwise) accrued but unpaid as of the Termination Date, said sum to be paid on the Payment Date. 2.03 Benefits. For a period of (see Exhibit A) after the Termination Date, PPD shall continue to pay for and provide welfare benefits which Employee was receiving immediately prior to the Termination Date, including life insurance, health, medical, dental, vision and wellness, accidental death and dismemberment and disability benefits; provided, however, that PPD's obligations under this clause shall terminate from the date that Employee first becomes eligible after the Termination Date for similar coverage under another employer's plan. 2.04 Stock Awards. Notwithstanding anything to the contrary in any agreement for Stock Awards, (i) all unvested shares underlying Stock Awards granted more than six months prior to the Termination Date shall become fully vested as of the Termination Date, and (ii) Employee shall continue to be treated under each award 3 agreement evidencing a Stock Award as if Employee was an employee of PPD until the first to occur of (x) the third anniversary of the Termination Date, or (y) the expiration of the exercise period provided for therein; provided, however, in the event of Employee's death or his disability (as disability is defined in the award agreement) after the Termination Date, the time for exercise after death or such disability prescribed in the award agreement shall apply. The provisions of this Section 2.04 shall also apply to any and all substitute awards for nonqualified stock options and restricted stock granted to Employee in exchange for Stock Awards to which this section applies. 2.05 Limitation on Payments. a. Application of Section 2.05. If a Covered Payment hereunder would be an Excess Parachute Payment and would thereby subject Employee to the Excise Tax, the provisions of this Section 2.05 shall apply to determine the amounts payable to Employee pursuant to this Agreement. b. Calculation of Benefits. At least fifteen (15) days prior to the Payment Date, PPD shall notify Employee of the aggregate present value of all amounts and benefits to which Employee would be entitled under this Agreement and any other plan, program or arrangement with PPD as of the Termination Date, together with the projected maximum payments, determined as of such Date of Termination, that could be paid without Employee being subject to the Excise Tax. c. Imposition of Payment Cap. If (i) the aggregate value of all amounts and benefits to which Employee would be entitled under this Agreement and any other plan, program or arrangement with PPD exceeds the amount which can be paid to Employee without Employee incurring an Excise Tax and (ii) Employee would receive a greater net after-tax amount (taking into account all applicable taxes payable by Employee, including an Excise Tax) by applying the limitation contained in this Section 2.05(c), then the amounts otherwise payable to Employee under this Section 2 shall be reduced to an amount equal to the Payment Cap. If Employee receives reduced payments and benefits hereunder, Employee shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that Employee will receive in connection with the application of the Payment Cap. d. Application of Code Section 280G. The Executive Consultant shall determine whether any part of the Covered Payment will be subject to the Excise Tax and the amount of such Excise Tax. For purposes of such determination, the Executive Consultant shall take into consideration and be guided by the following: (i) such Covered Payment will be treated as Parachute Payments and all Parachute Payments in excess of the Base Amount shall be treated as subject to the Excise Tax, unless and except to the extent that in the good faith judgment of the Executive Consultant, PPD has a reasonable basis to conclude that such Covered Payment, in whole or in part, either do not constitute Parachute Payments or represent 4 reasonable compensation for personal services actually rendered (within the meaning of Section 280G of the Code) in excess of the Base Amount, or such Parachute Payments are otherwise not subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Executive Consultant in accordance with the principles of Section 280G of the Code. (e) Applicable Tax Rates. For purposes of determining whether Employee would receive a greater net after-tax benefit if the amounts payable under this Agreement are reduced in accordance with Section 2.05(c), Employee shall be deemed to pay: (i) federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year; provided, however, that Employee may request that such determination be made based on Employee's individual tax circumstances, which shall govern such determination so long as Employee provides to the Executive Consultant such information and documents as the Executive Consultant shall reasonably request to determine such individual circumstances. (f) Adjustments in Respect to Payment Cap. (i) If Employee receives reduced payments and benefits under Section 2.05 or if Section 2.05 is determined not to be applicable to Employee because the Executive Consultant concludes that Employee is not subject to any Excise Tax, and it is established pursuant to a Final Determination that, notwithstanding the good faith of Employee and PPD in applying the terms of this Agreement, the aggregate Parachute Payments paid to Employee or for Employee's benefit are in an amount that would result in Employee being subject to an Excise Tax and Employee would still be subject to the Payment Cap under the provisions of Section 2.05(c), then the amount in excess of the Payment Cap shall be deemed for all purposes to be a loan to Employee made on the date of the receipt of such excess payment, which Employee shall have an obligation to repay to PPD on demand, together with interest at the AFR, from the date of the payment hereunder to the date of repayment by Employee. (ii) If Section 2.05 is not applied to reduce Employee's entitlements under this Section 2 because the Executive Consultant determines that 5 Employee would not receive a greater net after-tax benefit by applying Section 2.05 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Employee and PPD in applying the terms of this Agreement, Employee would have received a greater net after-tax benefit by subjecting Employee's payments and benefits hereunder to the Payment Cap, then the aggregate Parachute Payments paid to Employee or for Employee's benefit in excess of the Payment Cap shall be deemed for all purposes a loan to Employee made on the date of receipt of such excess payments, which Employee shall have an obligation to repay to PPD on demand, together with interest at the AFR, from the date of payment hereunder to the date of repayment by Employee. (iii) If Employee receives reduced payments and benefits by reason of this Section 2.05 and it is established pursuant to a Final Determination that Employee could have received a greater amount without exceeding the Payment Cap, then PPD shall promptly thereafter pay Employee the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the AFR, from the original payment due date to the date of actual payment by PPD. 3. Miscellaneous. 3.01 Successor-in-Interest. PPD will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of PPD, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that PPD would be required to perform it if no succession had taken place. 3.02 Binding Effect. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executives, administrators, successors, heirs, distributees, devisees and legatees. 3.03 Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be given (i) by certified mail, return receipt requested, postage prepaid, (ii) by personal delivery or (iii) by recognized overnight carrier, and shall be deemed received when actually received. Notices shall be addressed as follows: If to PPD: Pharmaceutical Product Development, Inc. 3151 South 17/th/ Street Wilmington, North Carolina 28412 Attention: Chief Executive Officer If to Employee: ________________________________________ ________________________________________ ________________________________________ ________________________________________ 6 Either party hereto may change the notice address by giving notice thereof in the manner provided for herein. 3.04 Waiver. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any provision or condition of this Agreement to be performed by such other party shall be deemed a subsequent waiver of the same or similar provisions or conditions. 3.05 Entire Agreement. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement, and this Agreement supersedes and replaces in its entirety all prior agreements and representations, expressed, implied, oral or otherwise, made by PPD to or with Employee, including but not limited to that certain Severance Agreement dated _______________ between PPD and Employee. 3.06 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of North Carolina. 3.07 Unenforceability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 3.08 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 3.09 Headings. Headings used in this Agreement are for convenience only and shall not be used to construe or interpret this Agreement. 3.10 Enforcement by Employee. All legal expenses incurred by Employee in the successful enforcement of any of the terms of this Agreement shall be paid by PPD. IN WITNESS WHEREOF, the parties have executed this Agreement effective the date first hereinabove set forth. Pharmaceutical Product Development, Inc. Employee By: _________________________________ ________________________ Name: Name: Title: 7 Exhibit A Section 2.01 Base Salary & Employee Bonus Multiplier Fredric N. Eshelman three Fred B. Davenport, Jr. two and one-half Paul S. Covington two and one-half Patrick C. O'Connor one David R. Williams one Linda Baddour one Brainard Judd Hartman one W. Richard Staub one Kim V. Greene one 8 EX-10.181 4 dex10181.txt EMPLOYMENT AGREEMENT (MAY 16, 2002) Exhibit 10.181 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement"), is made and entered into effective the 16/th/ day of May, 2002, by and between Pharmaceutical Product Development, Inc. (the "Company"), a North Carolina corporation whose mailing address for notice purposes is 3151 South Seventeenth Street, Wilmington, North Carolina 28412, Attention: Chief Executive Officer, and Linda Baddour ("Employee"), an individual whose mailing address for notice purposes is 5208 Masonboro Harbor Drive, Wilmington, North Carolina 28409. RECITALS A. The Company is engaged in providing research and development services to pharmaceutical and biotech companies and other entities (the "Business"). B. The Company desires to employ Employee and Employee desires to be employed by the Company, all upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE 1 EMPLOYMENT AND DUTIES 1.1 Engagement of Employee. The Company agrees to employ Employee and Employee accepts such employment pursuant and subject to the terms and conditions of this Agreement. 1.2. Duties and Powers. During the Employment Period (as defined herein), Employee shall serve as Chief Financial Officer of the Company and will have such responsibilities, duties and authority, and will render such services for and in connection with the Company and its affiliates as are customary in such position and as the Board of Directors of the Company (the "Board") and the Chief Executive Officer of the Company shall from time to time reasonably direct. Employee shall devote Employee's full business time and attention exclusively to the Business of the Company and shall use best efforts to faithfully carry out Employee's duties and responsibilities hereunder. Employee shall comply with all personnel policies and procedures of the Company as the same now exist or may be hereafter implemented by the Company from time to time, including those policies contained in the Pharmaceutical Product Development, Inc. ("PPD") employee manual or handbook which sets forth policies and procedures generally for employees of PPD and its subsidiaries and affiliates (the "Handbook") to the extent not inconsistent with this Agreement. ARTICLE 2 TERM OF EMPLOYMENT Unless sooner terminated as provided elsewhere in this Agreement, Employee's employment under this Agreement shall commence on May 16, 2002 and shall terminate at 11:59 p.m. on May 15, 2003 ("Initial Employment Period"). This Agreement automatically shall renew for successive one-year periods, unless either the Company or Employee provides written notice to the other at least sixty (60) days prior to the expiration of the then current Employment Period (as hereinafter defined) stating said party's desire not to renew this Agreement. The Initial Employment Period and any extension or renewal thereof shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to Article 4 hereof. ARTICLE 3 COMPENSATION AND BENEFITS 3.1 Compensation. The Company will pay Employee a base salary at a rate of $200,000.00 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary of Employee may be subject to increase annually during the Employment Period by the Board of the Company. If the Employment Period is terminated pursuant to Article 4 hereof, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee. 3.2 Benefits. During the Employment Period, Employee shall be eligible to participate in and/or receive benefits under such employee and welfare benefit plans as may be established from time to time by the Company, including any profit-sharing, stock purchase, stock option, bonus, pension, disability, group-term life insurance, health insurance and flexible benefit payroll deduction plans, subject in each instance to Employee meeting all eligibility and qualification requirements of such plans. 3.3 Expenses. The Company will reimburse Employee, in accordance with and subject to Employee's compliance with the Company's policy, for Employee's necessary and reasonable out-of-pocket expenses incurred in the course of performance of Employee's duties hereunder. All reimbursement of expenses to Employee hereunder shall be conditioned upon presentation of sufficient documentation evidencing such expenses. 3.4 Vacation and Leave. Employee shall be entitled to the number of days of "Paid Time Off" ("PTO") and other leave as may be established from time to time by the Company for the benefit of its executive employees, subject to Employee's compliance with the guidelines set forth in the Handbook. 2 3.5 Working Facilities. The Company shall furnish Employee with such office space, equipment, technical, secretarial and clerical assistance and such other facilities, services and supplies as shall be reasonably necessary to enable Employee to perform the duties required of Employee hereunder in an efficient and professional manner. ARTICLE 4 TERMINATION OF EMPLOYMENT 4.1 Basis for Termination. Notwithstanding any other provision in this Agreement to the contrary, the Employment Period and Employee's employment hereunder shall terminate effective on the date indicated upon the happening of any of the following events: a. Upon the death of Employee, effective immediately on the date of death without any notice. b. A determination by the Chief Executive Officer of the Company, acting in good faith but made in the sole discretion of the Chief Exeuctive Officer that Employee has failed to substantially perform her duties under or otherwise breached any of the material terms of this Agreement, effective upon the date said determination is communicated to Employee or such later date, if any, as specified by the Chief Executive Officer of the Company. c. A determination by the Chief Executive Officer of the Company, acting in good faith but made in the sole discretion of the Chief Executive Officer, that Employee (i) has become physically or mentally incapacitated and is unable to perform her duties under this Agreement as a result of such disability, which inability continues for a period of sixty (60) days during any twelve-month period hereunder, (ii) has demonstrated gross negligence or willful misconduct in the execution of her duties, or (iii) has been convicted of a felony, effective upon the date said determination is communicated to Employee or such later date, as specified by the Chief Executive Officer of the Company. 4.2 Compensation After Termination During Employment Period. If the Company shall terminate Employee's employment during the Employment Period pursuant to Section 4.1 hereof, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination or expiration date, except that the Company shall pay Employee's Base Salary accrued through the date of termination or expiration and shall provide such benefits as are required by applicable law. From and after such termination or expiration date, the Company shall continue to have all other rights available hereunder, including without limitation all rights under Article 5 hereof, and at law or in equity. 3 ARTICLE 5 PROPRIETARY INFORMATION Prior to or coincident with the commencement date hereof, Employee shall execute in favor of the Company its standard Proprietary Information and Inventions Agreement (the "Proprietary Agreement"), a copy of the form of which is attached hereto as Annex A. ARTICLE 6 MISCELLANEOUS 6.1 Withholding Taxes. All amounts payable under this Agreement, whether such payment is to be made in cash or other property, shall be subject to withholding for Federal, state and local income taxes, employment and payroll taxes, and other legally required withholding taxes and contributions to the extent appropriate in the determination of the Company, and Employee shall report all such amounts as ordinary income on Employee's personal income returns and for all other purposes. 6.2 Assignment. No party hereto may assign or delegate any of its rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement (i) to any subsidiary or affiliate of the Company or any surviving entity following any merger or consolidation of any of those entities with any entity other than the Company, or (ii) in connection with the sale of the Business by the Company. 6.3 Binding Effect. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall be binding upon and inure to the benefit of the respective legal representatives, heirs, successors and permitted assigns of the parties hereto. 6.4 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement sets forth the entire understanding of the parties and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof. 6.5 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.6 Amendment; Modification. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein 4 shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.7 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina, without giving effect to provisions thereof regarding conflict of laws. 6.8 Arbitration. Any dispute, controversy or claim arising out of or relating to this Agreement, including but not limited to its existence, validity, interpretation, performance or non-performance or breach, shall be decided by a single neutral arbitrator agreed upon by the parties hereto in Wilmington, North Carolina in binding arbitration pursuant to the commercial arbitration rules of the American Arbitration Association then in effect. The parties to any such arbitration shall be limited to the parties to this Agreement or any successor thereof. The written decision of the arbitrator shall be final and binding and may be entered and enforced in any court of competent jurisdiction. Each party waives any right to a jury trial in any such forum. Each party to the arbitration shall pay its fees and expenses, unless otherwise determined by the arbitrator. 6.9 Notices. All notices, demands or other communications to be given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the address first set forth above, or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) the date of receipt if sent by certified mail, or (iii) the date of receipt if sent by overnight courier. 6.10 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same Agreement. 6.11 Descriptive Heading; Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: Pharmaceutical Product Development, Inc. By: /s/ Fred B. Davenport, Jr. ----------------------------------- Fred B. Davenport, Jr. President EMPLOYEE: By: /s/ Linda Baddour -------------------------------- Linda Baddour 6 EX-10.182 5 dex10182.txt EMPLOYMENT AGREEMENT (MAY 1,2002) Exhibit 10.182 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), made this 1/st/ day of May, 2002 (the "Effective Date"), by and between PPD Development, LP, a Texas limited partnership (hereinafter "PPD Development"), and W. Richard Staub (hereinafter "Employee"). RECITALS: A. Employee desires employment upon the terms and conditions herein stated. B. PPD Development desires to employ Employee upon the terms and conditions herein stated. C. Employee and PPD Development desire to embody in writing the terms and conditions of such employment in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and considerations contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Employment. PPD Development hereby employs Employee and Employee hereby accepts such employment on a full time basis as Senior Vice President - Global Business Development upon the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall begin on the Effective Date and shall end on December 31, 2002, unless sooner terminated as provided herein. Thereafter, this Agreement shall be automatically renewed for successive one-year terms upon the terms and conditions herein set forth except for (a) salary adjustments as provided for in Section 9 below and (b) new bonus plans as provided in Section 3 below, unless either party gives notice as herein provided to the other of said party's intent not renew this Agreement not less than 60 days prior to the expiration of the then current term of this Agreement. 3. Salary. For all services rendered by Employee under this Agreement, PPD Development shall pay to Employee for the initial term hereof a monthly salary of $13,750. Employee shall also be entitled to a Quarterly Bonus if the Businesses (as hereinafter defined) attain a certain level of Authorizations for the applicable calendar quarter of the initial term hereof, as set forth in Appendix I (effective May 1, 2002) attached. Each Quarterly Bonus, if any, to which Employee is entitled shall be paid within thirty (30) days after its determination. Employee shall also be entitled to a Plan Bonus as provided for in Appendix I (effective May 1, 2002) attached, which Plan Bonus shall be paid to Employee at the same time annual bonuses, if any, for the initial term are or would have been paid to other senior executives of PPD Development. In addition, Employee shall be entitled to an award of non-qualified stock options under the Pharmaceutical Product Development, Inc. ("PPD") Equity Compensation Plan if Authorizations for the Businesses attain specified percentages of the Annual Target for the initial term hereof as set forth in Appendix I (effective May 1, 2002). Any such award of stock options for the initial term shall have an exercise price equal to the NASDAQ closing price on December 31, 2002, and shall contain such other terms and conditions, including a three-year linear vesting schedule, as included in stock option awards generally for other senior executives of PPD Development. As a condition to PPD Development's obligation to pay the bonuses provided for under this Section 3, Employee must be employed by PPD Development under and pursuant to the terms and conditions of this Agreement on the date on which such bonus is due and payable. A new bonus plan shall be agreed upon by Employee and PPD Development for each one-year renewal term of this Agreement. 4. Duties. Employee shall have overall responsibility for business development of (a) PPD Development and all of its subsidiaries as of the Effective Date, except Pharmaco Investments, Inc., (b) PPD Global Ltd., (c) Leicester Clinical Research Centre Ltd. and (d) Chelmsford Clinical Trials Unit Ltd., (e) Piedmont Research Center, Inc., (f) Medical Research Laboratories International, LLC, (g) Medical Research Laboratories International, BVBA and (g) PPD Discovery, Inc. (collectively, the "Businesses"). Employee's duties shall include but not be limited to supervision of the Businesses' sales and bids and contracts divisions. Employee shall carry out his duties and responsibilities under the general supervision of the Chief Executive Officer of PPD. Employee shall undertake such travel as may be required to perform the duties prescribed herein. During the term of this Agreement, Employee shall devote substantially all of his working time, attention and energies to the business of PPD Development and shall perform such other duties as reasonably requested from time to time by the Chief Executive Officer of PPD. 5. Working Facilities. PPD Development shall furnish Employee with office space, equipment, technical, secretarial and clerical assistance and such other facilities, services, support and supplies as may be reasonably needed to perform the duties herein prescribed in an efficient and professional manner. 6. Non-Compete. During the term of this Agreement, Employee hereby agrees that he shall not (a) become an officer, employee, director, agent, representative, member, associate or consultant of or to a corporation, partnership or other business entity or person, (b) directly or indirectly acquire a proprietary interest in a corporation, partnership or other business entity or person, or (c) directly or indirectly own any stock in a corporation (other than a publicly traded corporation of which Employee owns less than five percent (5%) of the outstanding stock) which is engaged in the business of managing clinical research programs for pharmaceutical and medical products or in any other business which is developed by PPD Development during the term of this Agreement anywhere in the United States (whether or not such business is physically located within the United States). The parties agree that the business and operations of PPD Development are national in scope. For that reason, the parties agree that a geographical limitation on the foregoing covenant is not appropriate. 7. Termination. Notwithstanding any other provision in this Agreement to the contrary, this Agreement and Employee's employment hereunder shall terminate effective upon the date indicated upon the occurrence of any of the following events: a. Death of Employee, effective immediately on the date of death without any notice. b. A determination by the Chief Executive Officer of PPD, acting in good faith but made in the sole discretion of the Chief Executive Officer, that Employee has failed to substantially perform his duties under or otherwise breached any of the material terms of this Agreement, effective upon the date said determination is communicated to Employee or such later date, if any, as specified by the Chief Executive Officer of PPD. c. A determination by the Chief Executive Officer of PPD, acting in good faith but made in the sole discretion of the Chief Executive Officer, that Employee (i) has become physically or mentally incapacitated and is unable to perform his duties under this Agreement as a result of such disability, which inability continues for a period of sixty (60) consecutive calendar days, (ii) has breached any of the material terms of this Agreement, including failure to meet Quarterly Targets as set forth in Appendix I attached, (iii) has demonstrated gross negligence or willful misconduct in the execution of his duties, or (iv) has been convicted of a felony, effective upon the date said determination is communicated to Employee or such later date, as specified by the Chief Executive Officer of PPD. 8. Disclosure of Information. Prior to or coincident with the commencement of the date hereof, Employee shall execute in favor of PPD Development its standard Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Annex A. 9. Benefits. During the term hereof, Employee shall be entitled to participate in all benefits provided by PPD Development to its employees generally, including but not limited to health insurance, disability insurance and retirement plans, all of which are currently provided to employees of PPD Development, subject to the eligibility requirements of any plan(s) establishing same. Employee shall be subject to PPD Development's policies applicable to other executive employees of PPD Development with respect to periodic reviews and adjustments in salary, and shall be considered for and eligible to participate in benefits, if any, provided generally by PPD Development to its executive employees, including but not limited to issuance of stock options, cash bonuses, etc., to the extent such stock options, bonuses, etc., are not otherwise provided for herein (including in Appendix I), in connection with Employee's duties and performance as an executive employee. Employee shall be entitled to four (4) weeks paid vacation during each year. 10. Expenses. PPD Development will reimburse Employee, in accordance with and subject to Employee's compliance with PPD Development's policy, for Employee's necessary and reasonable out-of-pocket expenses incurred in the course of performance of Employee's duties hereunder. All reimbursement of expenses to Employee hereunder shall be conditioned upon presentation of sufficient documentation evidencing such expenses. 11. Remedies. In the event of Employee's actual or threatened breach of the provisions of Section 6 of this Agreement, PPD Development shall be entitled to a temporary restraining order and/or permanent injunction restraining Employee from such breach. Nothing herein shall be construed as preventing PPD Development from pursuing any other available remedies for such breach or threatened breach, including recovery of damages from Employee and from any corporation, partnership or other business entity or person with which the Employee has entered or attempted to enter into a relationship. 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be altered or amended except by agreement in writing signed by the parties. 13. Waiver of Breach. Waiver by either party of a breach of any provision of this Agreement by the other party shall not operate as a waiver of any subsequent breach by the other party. No waiver shall be valid unless in writing and signed by the party against whom the waiver is sought. 14. Severability. If any portion of this Agreement shall be declared invalid by a court of competent jurisdiction, the remaining portion shall continue in full force and effect as if this Agreement has been executed with the invalid portion eliminated and this Agreement shall be so construed. 15. Benefit. This Agreement shall inure to the benefit of and be binding upon PPD Development, its successors and assigns, and Employee, his heirs, successors, assigns and personal representatives. 16. Applicable Law. This Agreement shall be governed by the laws of the State of North Carolina. 17. Assignment. Neither party may assign his or its rights or obligations hereunder without the prior written consent of the other. 18. Notice. All notices, demands or other communications to be given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) the date of receipt if sent by certified mail, or (iii) the date of receipt if sent by overnight courier. Such notices, demands and other communications shall be sent to the address set forth below, or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party: If to PPD Development, then to PPD Development, LP 3151 South 17/th/ Street Wilmington, NC 28412 Attn: Chief Executive Officer Facsimile: (910) 772-6951 If to Employee, then to: W. Richard Staub 3900 Paramount Parkway Morrisville, NC 27560 Facsimile: (919) 462-4297 19. Arbitration. Except for disputes, controversies, breaches or claims directly or indirectly related to Sections 6 and the rights to pursue remedies as set forth in Section 11, any dispute, controversy or claim arising out of or relating to this Agreement, including but not limited to any breach, or as to its existence, validity, interpretation, performance or non-performance, or damages, including claims in tort, shall be decided by a single neutral arbitrator in Wilmington, North Carolina in binding arbitration pursuant to the Employment Arbitration Rules of the American Arbitration Association then in effect. The parties to any such arbitration shall be limited to the parties to this Agreement or any successor thereof. The arbitration shall be conducted in accordance with the procedural laws of the United States Federal Arbitration Act, as amended. The written decision of the arbitrator shall be final and binding, and may be entered and enforced in any court of competent jurisdiction and each party specifically acknowledges and agrees to waive any right to a jury trial in any such forum. Each party to the arbitration shall pay its fees and expenses, unless otherwise determined by the arbitrator. 20. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same agreement. 21. Descriptive Headings: Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first hereinabove set forth. PPD DEVELOPMENT, LP By: PPD GP, LLC Its General Partner By: /s/ Fred B. Davenport, Jr. -------------------------------------- Name: Fred B. Davenport, Jr. ----------------------------------- Title: Vice President ----------------------------------- /s/ W. Richard Staub (SEAL) ---------------------------------- W. Richard Staub EX-10.183 6 dex10183.txt TERMINATION AGREEMENT Exhibit 10.183 TERMINATION AGREEMENT This Termination Agreement (the "Agreement"), dated this 30/th/ day of April, 2002, by and between PPD Development, LP, a Texas limited partnership and successor-in-interest to PPD Development, LLC ("PPD Development"), and Francis J. Casieri ("Employee"). WHEREAS, PPD Development and Employee are parties to that certain Employment Agreement dated December 17, 1999, as amended by that certain First Amendment to Employment Agreement dated February 19, 2001 (the "Employment Agreement"); and WHEREAS, Employee has previously expressed his interest in retiring from the Company for personal reasons and now desires to do so; and WHEREAS, PPD Development and Employee desire to mutually terminate the Employment Agreement upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, covenants and considerations contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Termination of Employment Agreement. The Employment Agreement shall be deemed terminated as of the close of business on April 30, 2002 (the "Termination Date"). 2. Rights and Obligations. From and after the Termination Date, neither party hereto shall have any rights or obligations under the Employment Agreement, except that (i) the Company shall pay Employee's base salary set forth in Section 3 of the Employment Agreement through the Termination Date, (ii) the Company shall pay the Employee a bonus for the first quarter of 2002 in the amount of $15,927.01 within ten (10) days of the Termination Date, (iii) the Company shall pay Employee for any remaining accrued and unused vacation time, and (iv) the Company shall reimburse Employee for any unreimbursed expenses pursuant to Section 10 of the Employment Agreement. Employee acknowledges and agrees that the Proprietary Information and Inventions Agreement dated September 7, 1999 executed by Employee shall not be affected by the termination of the Employment Agreement and shall continue in full force and effect in accordance with the terms thereof. 3. Miscellaneous. a. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may not be altered or amended except by writing signed by the parties. b. This Agreement shall be governed by the laws of State of North Carolina. c. This Agreement shall inure to the benefit of and be binding upon the PPD Development, Employee and their respective heirs, successors, assigns and personal representatives. d. The parties agree that any dispute under this Agreement or the Employment Agreement shall be submitted to arbitration pursuant to Section 19 of the Employment Agreement. IN WITNESS WHEREOF, the parties have caused this agreement to be executed as of the date first hereinabove set forth. PPD DEVELOPMENT, LP By: PPD GP, LLC Its General Partner By: /s/ Fred B. Davenport, Jr. -------------------------------------- Name: Fred B. Davenport, Jr. --------------------------------- Title: Vice President --------------------------------- /s/ Francis J. Casieri ----------------------------------------- Francis J. Casieri EX-10.184 7 dex10184.txt THIRD AMD. TO LOAN AGREEMENT Exhibit 10.184 THIRD AMENDMENT THIS THIRD AMENDMENT (this "Amendment") dated as of June 30, 2002, to the Loan Agreement referenced below, is by and among Spotlight Health, Inc., a Delaware corporation (the "Borrower"), Pharmaceutical Product Development, Inc., a North Carolina corporation (the "Company"), and Wachovia Bank, National Association (formerly known as First Union National Bank) (the "Bank"). Terms used herein but not otherwise defined herein shall have the meanings provided to such terms in the Loan Agreement. W I T N E S S E T H WHEREAS, a $2 million credit facility has been established in favor of the Borrower pursuant to the terms of that Loan Agreement dated as of January 24, 2001 (as amended and modified from time to time, the "Loan Agreement") among the Borrower, the Company and the Bank; WHEREAS, the Borrower has requested certain modifications to Loan Agreement; and WHEREAS, the Bank has agreed to the modifications on the terms and conditions set forth herein. NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Loan Agreement is amended in the following respects: (a) In Section 1 of the Loan Agreement, the definition of "Termination Date" is amended to read as follows: "Termination Date" means December 31, 2002, or such later date as to which the Bank may agree in its sole discretion. 2. This Amendment shall be effective upon satisfaction of the following conditions precedent: (a) execution of this Amendment by the Borrower, the Company and the Bank; and (b) receipt by the Bank of certified resolutions of the Company approving this Amendment and the terms hereof. 3. Except as expressly modified hereby, all of the terms and provisions of the Loan Documents (including schedules and exhibits thereto) shall remain in full force and effect. 4. The Borrower agree to pay all reasonable costs and expenses of the Bank in connection with the preparation, execution and delivery of this Amendment, including without limitation the reasonable fees and expenses of Moore & Van Allen, PLLC. 5. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. 6. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of North Carolina. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. BORROWER: SPOTLIGHT HEALTH, INC., a Delaware corporation By: /s/ Tyler J. Spring ------------------- Name: Tyler J. Spring Title: Chief Financial Officer and Treasurer COMPANY: PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation By: /s/ Fred B. Davenport Jr. --------------------------- Name: Fred B. Davenport Jr. Title: President BANK: WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Douglas T. Davis -------------------- Name: Douglas T. Davis Title: Director EX-10.185 8 dex10185.txt EIGHTH AMD. TO LOAN AGREEMENT Exhibit 10.185 EIGHTH AMENDMENT THIS EIGHTH AMENDMENT (this "Amendment") dated as of June 29, 2002, to the Loan Agreement referenced below, is by and among Pharmaceutical Product Development, Inc., a North Carolina corporation (the "Borrower"), the Subsidiary of the Borrower identified on the signature pages hereto (the "Guarantor") and Wachovia Bank, National Association (formerly known as First Union National Bank) (the "Bank"). Terms used herein but not otherwise defined herein shall have the meanings provided to such terms in the Loan Agreement. W I T N E S S E T H WHEREAS, a $50 million credit facility has been established in favor of the Borrower pursuant to the terms of that Loan Agreement dated as of June 24, 1998 (as amended and modified from time to time, the "Loan Agreement") among the Borrower, the Guarantor and the Bank; WHEREAS, the Borrower has requested certain modifications to Loan Agreement; and WHEREAS, the Bank has agreed to the modifications on the terms and conditions set forth herein. NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment. In Section 1 of the Loan Agreement, the definition of "Termination Date" is amended to read as follows: "Termination Date" means June 30, 2003, or such later date as to which the Bank may agree in its sole discretion. 2. This Amendment shall be effective upon execution by the Borrower, the Guarantor and the Bank. 3. Except as expressly modified hereby, all of the terms and provisions of the Loan Agreement (including schedules and exhibits thereto) shall remain in full force and effect. 4. The Borrower agrees to pay all reasonable costs and expenses of the Bank in connection with the preparation, execution and delivery of this Amendment, including without limitation the reasonable fees and expenses of Moore & Van Allen, PLLC. 5. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. Delivery of an executed counterpart of this Amendment by telecopy by any party hereto shall be effective as such party's original executed counterpart and shall constitute a representation that such party's original executed counterpart will be delivered. 6. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of North Carolina. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. BORROWER: PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation By: /s/ Fredric N. Eshelman ------------------------------------------ Name: Fredric N. Eshelman Title: Chief Executive Officer GUARANTOR: PPD DEVELOPMENT, LP, a Texas limited partnership By: PPD GP, LLC, a Delaware limited liability company Its: General Partner By: /s/ Fredric N. Eshelman -------------------------------------- Name: Fredric N. Eshelman Title: Chief Executive Officer BANK: WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Douglas T. Davis ------------------------------------------ Name: Douglas T. Davis Title: Director EX-10.186 9 dex10186.txt LOAN AGREEMENT Exhibit 10.186 LOAN AGREEMENT LOAN AGREEMENT dated July 25, 2002 (the "Loan Agreement" or this "Agreement") by and among PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation (the "Borrower"), the subsidiaries and affiliates identified on the signature pages hereto or hereafter joined as a Guarantor hereunder (the "Guarantors", and together with the Borrower, the "Credit Parties") and BANK OF AMERICA, N.A. (the "Bank"). W I T N E S S E T H WHEREAS, the Borrower has requested a $50 million revolving credit facility for the purposes hereinafter set forth; WHEREAS, the Bank has agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina are authorized or required by law to close; provided, however, that when used in connection with a rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the term "Business Day" shall also exclude any day on which banks in London, England are not open for dealings in U.S. dollar deposits in the London interbank market. "Closing Date" means the date hereof. "Commitment Period" means the period from and including the date hereof to but excluding the earlier of (i) the Termination Date, or (ii) the date on which the commitments hereunder shall have been terminated in accordance with the provisions hereof. "Committed Amount" means the aggregate amount of the commitments of the Bank hereunder, being initially $50,000,000. "Consolidated EBITDA" means, for any period for the Borrower and its subsidiaries on a consolidated basis, the sum of (i) Consolidated Net Income, plus (ii) to the extent deducted in determining net income, (A) Consolidated Interest Expense, (B) taxes and (C) depreciation and amortization, in each case on a consolidated basis determined in accordance with GAAP. "Consolidated EBITDAR" means, for any period for the Borrower and its subsidiaries on a consolidated basis, the sum of Consolidated EBITDA plus rental and lease expense, in each case on a consolidated basis determined in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, as of the last day of each fiscal quarter, the ratio of Consolidated EBITDAR for the period of four consecutive fiscal quarters ending as of such day to Consolidated Fixed Charges for the period of four consecutive fiscal quarters ending as of such day. "Consolidated Fixed Charges" means, for the applicable period for the Borrower and its subsidiaries on a consolidated basis, the sum of Consolidated Interest Expense plus rental and lease expense, in each case as determined in accordance with GAAP applied on a consistent basis. Except as expressly provided otherwise, the applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Funded Debt" means Funded Debt of the Borrowers and its subsidiaries on a consolidated basis determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period for the Borrower and its subsidiaries on a consolidated basis, all interest expense, including the amortization of debt discount and premium, the interest component under capital leases and the implied interest component under securitization transactions, expense, in each case determined in accordance with GAAP applied on a consistent basis. Except as expressly provided otherwise, the applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Net Income" means, for any period for the Borrower and its subsidiaries on a consolidated basis, net income as determined in accordance with GAAP applied on a consistent basis, but excluding for purposes of determining the Fixed Charge Coverage Ratio, (i) extraordinary gains or losses, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses, and (ii) one-time non-recurring charges associated with mergers and acquisitions permitted hereunder. Except as expressly provided otherwise, the applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Senior Funded Debt" means Consolidated Funded Debt that is not Subordinated Debt. "Consolidated Senior Leverage Ratio" means, as of the last day of each fiscal quarter, the ratio of Consolidated Senior Funded Debt on such day to Consolidated EBITDA for the period of four consecutive fiscal quarters ending as of such day. "Consolidated Total Leverage Ratio" means, as of the last day of each fiscal quarter, the ratio of Consolidated Funded Debt on such day to Consolidated EBITDA for the period of four consecutive fiscal quarters ending as of such day. "Credit Documents" means, collectively, this Agreement and the Note. "Eurodollar Reserve Percentage" means for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities, as defined in Regulation D of such Board as in effect from time to time, or any similar category of liabilities for a member bank of the Federal Reserve System in New York City. "Extension of Credit" means the making of any loans (including the extension of, or conversion into, Eurodollar Loans) or the issuance or extension of any letter of credit hereunder. "Funded Debt" means, as of any day for the Borrower, without duplication, (i) all indebtedness for borrowed money, (ii) all indebtedness and obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations to pay the deferred purchase price of property or services (other than 2 trade accounts payable arising in the ordinary course of business), (iv) all obligations as lessee under capital leases, (v) all obligations of reimbursement relating to letters of credit, bankers' acceptances or other similar instruments (whether or not then drawn and owing), (vi) all Guaranty Obligations, (vii) the attributed principal amount of any securitization transaction and (viii) all obligations under any synthetic lease, tax retention operating lease, off-balance sheet loan or other similar off-balance sheet financing product where the product is considered borrowed money indebtedness for tax purposes, but is classified as an operating lease for purposes of GAAP. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis. "Governmental Authority" means any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guaranteed Obligations" means: (a) All unpaid principal of and interest on (including, without limitation, interest accruing at the then applicable rate provided in this Agreement after the maturity of the Loans and other obligations owing under this Agreement and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Bank, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Note or any other document relating hereto, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Bank that are required to be paid by the Borrower pursuant to the terms of this Agreement); and (b) all other indebtedness, liabilities and obligations of any kind or nature, now existing or hereafter arising, owing by the Borrower to the Bank, arising under any interest rate protection agreement, currency agreement or other agreement or arrangement, whether primary, secondary, direct, contingent, or joint and several. "Guaranty Obligation" means any obligation, contingent or otherwise, directly or indirectly guaranteeing the indebtedness or other obligation of another Person, including without limitation, (i) an agreement to purchase or pay (or to supply or advance funds for the purchase or payment of) any such indebtedness or other obligation (whether by way of partnership agreement, keep-well agreement, comfort letter, maintenance agreement or the like), or (ii) any arrangement entered into for the purpose of assuring payment of the indebtedness or other obligation of another Person or otherwise protecting a party from loss in respect thereof; provided that such term shall not include endorsements for collection or deposit in the ordinary course of business. "Interest Payment Date" means (a) as to any Prime Loan, the last Business Day of each March, June, September and December to occur while such Loan is outstanding, (b) as to any LIBOR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period and (c) as to any LIBOR Rate Loan having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period. "Interest Period" means with respect to any LIBOR Rate Loan, 3 (i) initially, the period commencing on the date of borrowing or conversion date, as the case may be, with respect to such LIBOR Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower in the notice of borrowing or notice of conversion given with respect thereto; and (ii) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Bank not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that the foregoing provisions are subject to the following: (A) if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (B) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month; (C) if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected a Prime Loan to replace the affected LIBOR Rate Loan as provided herein; (D) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date; and (E) no more than 6 LIBOR Rate Loans may be in effect at any time. For purposes hereof, LIBOR Rate Loans with different Interest Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date and have the same duration, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Rate Loan with a single Interest Period. "LIBOR" means the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered rates for deposits in U.S. dollars for a period equal to the Interest Period selected which appears on the Telerate Page 3750 at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period. If, for any reason, such rate is not available, then "LIBOR" shall mean the rate per annum at which, as determined by the Bank, U.S. dollars in the amount of $5,000,000 are being offered to leading banks at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected. "LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Bank pursuant to the following formula: LIBOR Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage 4 "LIBOR Rate Loan" means Loans hereunder bearing interest at a rate determined by reference to the LIBOR Rate. "Lien" means any mortgage, pledge, hypothecation, assignment, security interest, encumbrance, lien, preference or priority of any kind. "LOC Obligations" means, at any time, the sum of (i) the maximum amount which is, or any time may become, available to be drawn under letters of credit issued hereunder assuming compliance with all requirements for drawings referred to therein, and (ii) the aggregate amount of unreimbursed drawings owing in respect of letters of credit issued hereunder. "Loan" or "loan" shall mean revolving loans under Section 2.1 hereof. "Obligations" means, collectively, loans advanced and extended and letters of credit issued hereunder. "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Prime Loan" means Loans hereunder bearing interest at a rate determined by reference to the Prime Rate. "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Bank as its prime rate in effect at its principal office in Charlotte, North Carolina, with each change in the Prime Rate being effective on the date such change is publicly announced as effective (it being understood and agreed that the Prime Rate is a reference rate used by the Bank in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit by the Bank to any debtor). "Pro Forma Basis" means, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the four fiscal quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction with respect to which the Bank has received annual or quarterly financial statements and accompanying officer's certificate. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable or any of its material property is subject. "Subordinated Debt" means any indebtedness of the Borrower or any of its subsidiaries which by its terms is expressly subordinated in right of payment to the prior payment of the obligations of the Borrower and the Guarantors under the Credit Documents on terms and conditions and evidenced by documentation satisfactory to the Bank. "Termination Date" means June 30, 2003, or such later date as to which the Bank may agree in its sole discretion. SECTION 2. LOAN. 2.1 Loan. During the Commitment Period, subject to the terms and conditions hereof, the Bank agrees to make revolving loans to and to issue letters of credit for the account of the Borrower upon request up to FIFTY MILLION DOLLARS ($50,000,000) at any time outstanding in the aggregate 5 principal amount of Obligations. The loans hereunder may consist of Prime Loans or LIBOR Rate Loans, or a combination thereof. The obligation of the Bank to make any Extension of Credit is subject to the condition that the Representations and Warranties set forth herein are true and correct in all material respects. Letters of credit issued hereunder (i) shall be of a duration reasonably acceptable to the Bank, but shall not, in any event, extend more than ninety (90) days beyond the Termination Date, (ii) may be issued subject to any additional terms and provisions provided in any application or other document executed in connection therewith, and (iii) may be issued subject to The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce. 2.2 Notices. Requests by the Borrower for Extensions of Credit hereunder (including extensions or conversions of loans hereunder), shall be made by written notice (or telephone notice promptly confirmed in writing) by 12:00 Noon Charlotte, North Carolina time (i) on the Business Day of the requested borrowing, extension or conversion in the case of Prime Loans, (ii) on the third Business Day prior to the date of the requested borrowing, extension or conversion in the case of Eurodollar Loans and (iii) on third Business Day prior to the date of requested issuance or extension in the case of letters of credit. Each request shall be in a minimum principal amount of $1,000,000 in the case of LIBOR Rate Loans and $100,000 in the case of Prime Loans and, in each case, integral multiples of $100,000 in excess thereof, and shall specify the date of the requested borrowing, extension or conversion, the aggregate amount to be borrowed, extended or converted and if an extension of conversion, the loan which is being extended or converted, and whether the borrowing, extension or conversion shall consist of LIBOR Rate Loans, Prime Loans or combination thereof. If the Borrower shall fail to specify (A) the type of Loan requested for a borrowing, the request shall be deemed a request for a LIBOR Rate Loan with an Interest Period of one month, (B) the duration of the applicable Interest Period in the case of LIBOR Rate Loans, the request shall be deemed to be a request for an Interest Period of one month. Each request for an Extension of Credit hereunder shall be deemed a reaffirmation that the Representations and Warranties set forth herein are true and correct in all material respects as of such date. Unless extended in accordance with the provisions hereof, LIBOR Rate Loans shall be converted to Prime Loans at the end of the applicable Interest Period. 2.3 Interest Rate. (a) Loans. Loans outstanding hereunder shall bear interest at a per annum rate equal to (i) for any day that the average amount of outstanding Obligations for such day exceeds an amount equal to fifty percent (50%) of the Committed Amount, the LIBOR Rate plus seven-eighths of one percent (0.875%), (ii) for any day that the average amount of outstanding Obligations for such day is less than an amount equal to fifty percent (50%) of the Committed Amount, the LIBOR Rate plus five-eighths of one percent (0.625%) or (iii) the Prime Rate, as the Borrower may elect; provided that after the occurrence and during the continuance of an Event of Default, the principal and, to the extent permitted by law, interest on the Loan and any other amounts owing hereunder shall bear interest, payable on demand, at a rate equal to the Prime Rate plus two percent (2%). Interest will be payable in arrears on each Interest Payment Date. (b) Letters of Credit. The unreimbursed portion of any drawing under a letter of credit shall bear interest, payable on demand, at a per annum rate equal to the Prime Rate plus two percent (2%) from the date of drawing. 2.4 Repayment. (a) Repayment of Loans. Unless sooner paid, the Loan shall be due and payable in full on the Termination Date. (b) Reimbursement of Letters of Credit. The Bank will notify the Borrower of any drawing under a letter of credit issued hereunder and the amount of any such drawing shall be due and 6 payable in full on the date of such drawing. Unless it shall receive direction from the Borrower to the contrary, the Bank may, but shall not be required, to make a loan advance to reimburse the amount of any such drawing. The Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of setoff, counterclaim or defense to payment the Borrower may claim to have against the Bank, the beneficiary of the letter of credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower or any other Credit Party to receive consideration or the legality, validity, regularity or unenforceability of the letter of credit. 2.5 Note. The Loan shall be evidenced by a promissory note of the Borrower dated as of the Closing Date, in the form of Annex A hereto (as amended, modified, extended, renewed or replaced, the "Note"). 2.6 Fees. (a) Facility Fee. In consideration of the commitments hereunder, the Borrower agrees to pay to the Bank a facility fee (the "Facility Fee") equal to fifteen basis points (0.15%) per annum on the average daily unused portion of the Committed Amount for the applicable period. The Facility Fee shall be payable quarterly in arrears on the 15th day following the last day of each calendar quarter for the immediately preceding quarter (or portion thereof) beginning with the first such date to occur after the date hereof. (b) Letters of Credit Fees. In consideration of the commitments relating to letters of credit hereunder, the Borrower agrees to pay the Bank a fee (collectively the "Letter of Credit Fee") equal to five-eighths of one percent (.625%) per annum on the average daily amount of LOC Obligations for the applicable period plus other customary charges of administration of Letters of Credit. The Letter of Credit Fee shall be payable at issuance in advance. 2.7 Prepayments. The Loans may be prepaid in whole or in part without premium or penalty. LIBOR Rate Loans may not be prepaid in whole or in part prior to the end of the applicable Interest Period. Amounts prepaid may, subject to the terms and conditions hereof, be reborrowed. 2.8 Capital Adequacy. If the Bank shall have reasonably determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof as a consequence of its obligations hereunder or compliance by the Bank or any corporation controlling the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority made subsequent to the date hereof as a consequence of its obligations hereunder does or shall have the effect of reducing the rate of return on the Bank's or such corporation's capital as a consequence of its obligations hereunder to a level below that which the Bank or such corporation could have achieved but for such adoption, change or compliance (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by the Bank to be material, then from time to time, within 15 days after demand by the Bank, the Borrower shall pay to the Bank such additional amount as shall be certified by the Bank as being required to compensate it for such reduction. Such a certificate as to any additional amounts payable under this subsection submitted by the Bank (which certificate shall include a description in reasonable detail of the basis for the computation) to the Borrower shall be conclusive absent manifest error. 2.9 Inability to Determine Interest Rate. Notwithstanding any other provision of this Agreement, if (i) the Bank shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that, by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for ascertaining LIBOR for such Interest Period, or (ii) the Bank shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that 7 the LIBOR Rate does not adequately and fairly reflect the cost of funding LIBOR Rate Loans, the Bank shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower, and thereafter the right to request and continue Loans as LIBOR Rate Loans shall be suspended until such time as the conditions giving rise to such notice shall no longer exist. In the event LIBOR Rate Loans are not available on account of operation of this Section, the Bank will endeavor to provide an alternative index or reference rate. 2.10 Illegality. Notwithstanding any other provision of this Agreement, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof, in each case occurring after the Closing Date, by the relevant Governmental Authority shall make it unlawful for the Bank to make or maintain LIBOR Rate Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market through its LIBOR Lending Office the funds with which to make such Loans, (a) the Bank shall promptly notify the Borrower thereof, (b) the commitment of the Bank hereunder to make LIBOR Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until the Bank shall give notice that the condition or situation which gave rise to the suspension shall no longer exist, and (c) Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law to Prime Loans. The Borrower hereby agrees promptly to pay the Bank, upon its demand, any additional amounts necessary to compensate the Bank for actual and direct costs (but not including anticipated profits) reasonably incurred in making any repayment in accordance with this subsection including, but not limited to, any interest or fees payable by the Bank to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. A certificate as to any additional amounts payable pursuant to this subsection submitted by the Bank, to the Borrower shall be conclusive in the absence of manifest error. 2.11 Requirements of Law. If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the date hereof: (i) shall subject the Bank to any tax of any kind whatsoever with respect to any letter of credit or LIBOR Rate Loan made by it, or change the basis of taxation of payments to the Bank in respect thereof (except for changes in the rate of tax on the net income or franchise tax applicable to the Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of the Bank which is not otherwise included in the determination of the LIBOR Rate hereunder; or (iii) shall impose on the Bank any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to the Bank of making or maintaining LIBOR Loans or issuing letters of credit or to reduce any amount receivable hereunder or under the Note, then, in any such case, the Borrower shall promptly pay the Bank, within 15 days after its demand, any additional amounts necessary to compensate the Bank for such additional cost or reduced amount receivable as determined by the Bank with respect to its LIBOR Rate Loans and/or letters of credit. A certificate as to any additional amounts payable pursuant to this subsection submitted by the Bank, describing in reasonable detail the nature of such event and a reasonably detailed explanation of the calculation thereof, to the Borrower shall be conclusive in the absence of manifest error. 8 2.12 Indemnity. The Borrower hereby agree to indemnify the Bank and to hold the Bank harmless from any funding loss or expense which the Bank may sustain or incur (other than as a result of and to the extent the Bank's gross negligence or willful misconduct) as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on any LIBOR Rate Loan by the Bank in accordance with the terms hereof, (b) default by the Borrower in accepting a LIBOR Rate Loan after the Borrower have given a notice in accordance with the terms hereof, (c) default by the Borrower in making any prepayment of a LIBOR Rate Loan after the Borrower have given a notice in accordance with the terms hereof, and/or (d) the making by the Borrower of a prepayment of a LIBOR Rate Loan, or the conversion thereof, on a day which is not the last day of the Interest Period with respect thereto, in each case equal to (i) the amount of interest which would have accrued on the amount so prepaid, or not so paid, borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to pay, borrow, convert or continue, the Interest Period that would have commenced on the date of such failure), in each case at the applicable rate of interest for such Loans provided for herein (exclusive of any margin), over (ii) the amount of interest (as reasonably determined by the Bank) which would have accrued to the Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any additional amounts payable pursuant to this subsection submitted by the Bank, to the Borrower shall be conclusive in the absence of manifest error. 2.13 Taxes. All payments made by the Borrower hereunder or under any Note will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any Governmental Authority or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding (i) any tax imposed on or measured by the net income or profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of the Bank is located or any subdivision thereof or therein and (ii) any franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of the Bank pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or its applicable lending office is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any such Taxes, will not be less than the amount provided for herein or in such Note. The Borrower will furnish to the Bank as soon as practicable after the date the payment of any Taxes is due pursuant to applicable law certified copies (to the extent reasonably available and required by law) of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless, and reimburse, the Bank upon its written request, for the amount of any Taxes so levied or imposed and paid by the Bank. The agreements in this subsection shall survive termination of this Agreement and payment of the Notes and all other amounts payable hereunder. 2.14 Payments and Computations. Payments shall be made hereunder in U.S. dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind at the offices of the Bank provided in the notice section hereof. Payments received after 2:00 P.M. (Charlotte, North Carolina time) will be given credit the next following Business Day. Computations of interest hereunder shall be made on the basis of actual number of days elapsed over a year of 360 days. SECTION 3. GUARANTY 3.1 Guaranty. Each of the Guarantors hereby jointly and severally guarantees to the Bank as hereinafter provided the prompt payment of the Guaranteed Obligations in full when due (whether at 9 stated maturity, as a mandatory prepayment, by acceleration or otherwise and after giving effect to any grace periods) strictly in accordance with the terms hereof. Each of the Guarantors hereby further agrees that if any of the Guaranteed Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise and after giving effect to any grace periods), the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise and after giving effect to any grace periods) in accordance with the terms of such extension or renewal. This is a guaranty of payment and not of collection. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of any Guarantor as guarantor hereunder shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of such Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 3.2 Obligations Unconditional. The obligations of the Guarantors under Section 3.1 hereof are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of this Agreement or the Note, or any other agreement or instrument referred to herein or therein or relating hereto or thereto, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 3.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each of the Guarantors agrees that it shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other guarantor for amounts paid under this Guaranty until such time as the Bank has been paid in full, all commitments, if any, have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Bank in connection with monies received under the Credit Documents. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or the Note or any other agreement or instrument referred to herein or therein or relating hereto or thereto shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (iv) any Lien granted to, or in favor of, the Bank as security for any of the Guaranteed Obligations shall fail to attach or be perfected or shall be released or discharged in whole or in part; or (v) any of the Guaranteed Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor or any other 10 guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any guarantor). With respect to its obligations hereunder, each of the Guarantors hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Bank exhaust any right, power or remedy or proceed against any Person under this Agreement or the Note or any other agreement or instrument referred to herein or therein or relating hereto or thereto, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 3.3 Reinstatement. The obligations of the Guarantors under this Section 3 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each of the Guarantors agrees that it will indemnify the Bank on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Bank in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 3.4 Certain Additional Waivers. Without limiting the generality of the provisions of this Section 3, each of the Guarantors hereby specifically waives the benefits of N.C. Gen. Stat. Sec. 26-7 through 26-9, inclusive. Each of the Guarantors agrees that it shall have no right of recourse to security for the Guaranteed Obligations, except through the exercise of the rights of subrogation pursuant to Section 3.2. 3.5 Remedies. Each of the Guarantors agrees that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Bank, on the other hand, the Guaranteed Obligations may be declared to be forthwith due and payable as provided in Section 7.2 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 7.2) for purposes of Section 3.1 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Guaranteed Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Guaranteed Obligations being deemed to have become automatically due and payable), the Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of said Section 3.1. 3.6 Continuing Guarantee. The guarantee in this Section 3 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. 3.7 Rights of Contribution. The Guarantors hereby agree, as among themselves, that if any Guarantor shall become an Excess Funding Guarantor (as defined below), each other Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Guarantor to any Excess Funding Guarantor under this Section shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Section 3, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations arising under the other provisions of this Section 3 (hereafter, the "Guarantied Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in respect of any Guarantied Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and (iii) "Pro Rata Share", for the purposes of this Section, shall mean, for any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which the aggregate present fair 11 saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (b) the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section such subsequent Guarantor shall be deemed to have been a Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Guarantor as of the date such Guarantor became a Guarantor shall be deemed true as of the Closing Date). 3.8 Joinder of Additional Guarantors. The Borrower may join additional subsidiaries as Guarantors hereunder by way of execution of a Joinder Agreement, a form of which is attached as Annex B. SECTION 4 CONDITIONS TO CLOSING 4.1 Conditions. The effectiveness of this Agreement and extension of the Loan hereunder are conditioned upon satisfaction of the following: (a) Receipt of multiple executed counterparts of this Agreement and the Note, in form and substance satisfactory to the Bank. (b) Receipt of a legal opinion substantially in the form attached as Annex C hereto. (c) Receipt of corporate documentation for the Credit Parties, including resolutions, bylaws, articles of incorporation, certificates of good standing and certificates of incumbency. SECTION 5 REPRESENTATIONS AND WARRANTIES 5.1 Financial Condition. The consolidated balance sheet of the Borrower and its consolidated subsidiaries dated as of March 31, 2002 together with related consolidated statements of income and cash flows, are complete and correct in all material respects and present fairly the financial condition and results from operations of the entities and for the periods specified, subject in the case of interim company-prepared statements to normal year-end adjustments. 5.2 No Change. Since the date of the financial statements identified above, there have been no developments or events which have had, or are likely to have, a material adverse effect on the Borrower or on the condition (financial or otherwise), operations, business or prospects of the Borrower and its subsidiaries taken as a whole. 5.3 Corporate Organization. Each of the Credit Parties is a corporation or limited partnership duly organized, validly existing and in good standing under the laws of the State of its incorporation, formation or organization, is qualified to do business in each jurisdiction where failure to so qualify would have a material adverse effect on the Borrower and its subsidiaries taken as a whole and is in compliance with all Requirements of Law except to the extent that failure to be in compliance would not have a material adverse effect on the Borrower and its subsidiaries taken as a whole. 5.4 Enforceable Obligation. Each of the Credit Parties has the power and authority and legal right to enter into, deliver and perform under this Agreement and has taken all necessary action to authorize the execution, delivery and performance by them of this Agreement. This Agreement constitutes a legal, valid and binding obligation of each of the Credit Parties enforceable against them in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, 12 reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally or by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 5.5 Legal Proceedings. No claim, litigation or proceeding before any arbitrator or Governmental Authority is pending, or to the knowledge of the Credit Parties, threatened which if adversely determined would reasonably be expected to have a material adverse effect on the Borrower and its subsidiaries taken as a whole. 5.6 No Default. No Event of Default or event or condition which with notice or lapse of time, or both, would constitute an Event of Default, presently exists. 5.7 Federal Regulations. No part of the proceeds of the Loan hereunder will be used, directly or indirectly, for any purpose in violation of Regulation U of the Board of Governors of the Federal Reserve System, as amended, modified or replaced. SECTION 6 COVENANTS The Borrower and the Guarantors covenant and agree to: 6.1 Financial Statements. Furnish, or cause to be furnished, to the Bank: (a) Annual Audited Statements. As soon as available, but in any event within 90 days after the end of each fiscal year, audited consolidated and company-prepared consolidating balance sheets of the Borrower and its subsidiaries and related statements audited consolidated and company-prepared consolidating statements of income, retained earnings and cash flows, audited by Deloitte & Touche LLP, or other independent public accounting firm reasonably acceptable to the Bank, setting forth comparative information for the previous year, and reported without a "going concern" or like qualification or exception, or qualification indicating limitation of the scope of the audit; and (b) Quarterly Statements. As soon as available, and in any event within 45 days after the end of each fiscal quarter, a company-prepared consolidated and consolidating balance sheet of the Borrower and its subsidiaries and related company-prepared consolidated and consolidating statements of income, retained earnings and cash flows for the quarter and for the portion of the year with comparative information for the corresponding periods for the previous year. All such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit adjustments) and to be prepared in reasonable detail and in accordance with GAAP throughout the periods reflected therein (except as approved by such accountants and disclosed therein) and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change in the application of accounting principles from a prior period. (c) Other Information. Promptly upon request, such additional financial and other information as the Bank may reasonably request from time to time. 6.2 Certificates and Notices. Furnish, or cause to be furnished, and give notice to the Bank: (a) Officer's Certificate. Concurrently with the annual and quarterly financial statements referenced above, a certificate of a responsible officer of the Borrower stating that to the best of his knowledge and belief, (i) the financial statements fairly present in all material 13 respects the financial condition of the parties to which such statements relate and (ii) the Borrower and the Guarantors are in compliance with the provisions of this Agreement in all material respects and no Event of Default, or event or condition which with notice or lapse of time, or both, would constitute an Event of Default exists hereunder (together with a financial covenant calculation worksheet demonstrating compliance therewith in reasonable detail). (b) Public and Other Information. Copies of reports and information which the Borrower or its subsidiaries sends to its stockholders or files with the Securities and Exchange Commission, and any other financial or other information as the Bank may reasonably request. (c) Notice of Default. Promptly, upon becoming aware thereof, notice of the occurrence of an Event of Default hereunder. 6.3 Compliance with Laws. Comply will all Requirements of Law applicable to them except to the extent that failure to comply therewith would not have a material adverse effect on the Borrower and its subsidiaries taken as a whole. 6.4 Books and Records. The Credit Parties will keep proper books and records in conformity with GAAP and all Requirements of Law and permit the Bank upon reasonable notice to visit and inspect such books and records. 6.5 Financial Covenants. (a) Consolidated Total Leverage Ratio. As of the last day of each fiscal quarter, the Consolidated Total Leverage Ratio shall not be greater than 3.25:1.0. (b) Consolidated Senior Leverage Ratio. As of the last day of each fiscal quarter, the Consolidated Senior Leverage Ratio shall not be greater than 2.0:1.0. (c) Consolidated Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter, the Consolidated Fixed Charge Coverage Ratio shall be not less than 3.0:1.0. 6.6 [Reserved] 6.7 Restriction on Liens. The Borrower will not, nor will it permit any of its subsidiaries to, create, assume, incur or suffer to exist any Lien on any property or asset of any kind, real or personal, tangible or intangible, now owned or hereafter acquired by it or assign or subordinate any present or future right to receive assets except: (a) Liens securing capital lease obligations and other purchase money Funded Debt; (b) Liens securing taxes, assessments or governmental charges or levies or the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons; provided that (A) with respect to Liens securing state and local taxes, such taxes are not yet payable, (b) with respect to Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and the like, such liens are unfiled and no other action has been taken to enforce the same, or (C) with respect to taxes, assessments or governmental charges or levies or claims or demand secured by such Liens, payment is not at the time required; (c) Liens not securing indebtedness which are incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance, unemployment insurance, social security and other like laws; 14 (d) any Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereto are being contested in good faith by appropriate proceedings; and (e) zoning restrictions, easements, licenses, reservations, covenants, conditions, waivers, restrictions on the use of property or other minor encumbrances or irregularities of title which do not materially impair the use of any property in the operation or business of the Borrower or such subsidiary or the value of such property for the purpose of such business. 6.8 Mergers and Acquisitions. The Borrower will not, nor will it permit any of its subsidiaries to, enter into a transaction of merger or consolidation, nor will it acquire all or substantially all of the capital stock (or other equity interest) or assets of any other Person, except: (a) in the case of transactions of mergers and consolidation, (i) if a Credit Party is a party to the transaction, it shall be the surviving corporation, (ii) if the Borrower is a party to the transaction, it shall be the surviving corporation, and (iii) if the transaction is with a Person other than the Borrower or any of its subsidiaries, the Borrower shall demonstrate compliance with the financial covenants on a Pro Forma Basis; and (b) in all other cases, the Borrower shall demonstrate compliance with the financial covenants on a Pro Forma Basis. 6.9 Investments. The Borrower will not, nor will it permit any of its subsidiaries to, make loans or advances or otherwise make an investment in or capital contribution to (collectively, an "Investment"), any other Person, except: (a) cash and cash equivalents and other publicly traded equity and debt instruments reasonably acceptable to the Bank; (b) loans and advances to officers, directors, employees and shareholders not to exceed $2,000,000; (c) Investments in and to Digital Arts & Science in an aggregate principal amount (on a cost basis) not to exceed $1,500,000 at any time; (d) cash equity investments in and to ADoctorInYourHouse.com in an aggregate principal amount (on a cost basis) not to exceed $5,000,000 at any time; (e) loans and advances to NeoRx in an aggregate principal amount not to exceed $5,000,000 at any time; (f) capital stock of DNA Sciences, Inc. in an amount (on a cost basis) not to exceed $15,000,000; (g) Investments in and to a Credit Party; and (h) Investments of a nature not contemplated in the foregoing subsections in an amount not to exceed (a) $20,000,000 for any single Investment (or any series of related Investments) and (b) $50,000,000 in the aggregate in any fiscal year. 15 For purposes of this Section 6.9, the term "Investment" shall not include any merger, consolidation or acquisition of all or substantially all of the capital stock (or other equity interest) or assets of any other Person which is subject to Section 6.8 of the Loan Agreement. SECTION 7 EVENTS OF DEFAULT 7.1 Event of Default. Each of the following shall constitute an "Event of Default" hereunder: (i) the failure to make any payment of principal, interest, fees or other amounts owing hereunder when due, (ii) any representation or warranty made herein or in connection herewith shall prove to be false or incorrect in any material respect, (iii) failure to observe or comply with any covenants or provisions contained herein, (iv), the occurrence and continuance of an event of default under any other note or agreement relating to indebtedness for borrowed money owing by the Borrower or any Guarantor which results in, or would permit, acceleration of such indebtedness, or would otherwise cause such indebtedness to become due prior to its stated maturity, (v) the filing of an action in bankruptcy or insolvency by the Borrower or any Guarantor, (vi) the filing of an action in bankruptcy or insolvency against the Borrower or any Guarantor and (vii) the Borrower or any Guarantor shall fail within 30 days of the due date to pay bond or otherwise discharge any judgment, settlement or order. 7.2 Remedies. Upon the occurrence of an Event of Default, and at any time thereafter, the Bank may by notice to the Borrower (i) terminate the commitments hereunder and declare the unpaid principal of, and any accrued interest owing on, the Loan and all other indebtedness or obligations owing hereunder or under any of the other Credit Documents or in connection herewith or therewith, immediately due and payable, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, (ii) direct the Borrower to pay cash collateral in the amount of 100% of the maximum amount available to be drawn under letters of credit there outstanding, and (iii) enforce any other rights and interests available under the Credit Documents or at law, including rights of set off. Notwithstanding the foregoing, in the case of an Event of Default described in clauses (v) or (vi) of Section 7.1 relating to bankruptcy and insolvency, the commitments hereunder shall immediately terminate and the Obligations and all accrued interest and all other indebtedness and other amounts owing hereunder or under any of the other Credit Documents owing to the Bank shall become immediately due and payable without presentment, demand, protest or the giving of any notice or other action by the Bank, all of which are hereby waived by the Borrower. SECTION 8 MISCELLANEOUS 8.1 Notices. Notices and other communications shall be effective, and duly given, (i) when received, (ii) when transmitted by telecopy or other facsimile device to the numbers set out below if transmitted before 5:00 p.m. on a Business Day, or otherwise on the next following Business Day, (iii) the day following the day on which delivered prepaid to a reputable national overnight air courier service, or (iv) the third Business Day following the day sent by certified or registered mail postage prepaid, in each case to the parties at the address shown below, or at such other address as may be specified by written notice to the other parties: Borrower: Pharmaceutical Product Development, Inc. 3151 17th Street Extension Wilmington, North Carolina 28412 Attn: Chief Financial Officer Phone: (910) 251-0081 Fax: (910) 772-7056 Bank: BANK OF AMERICA, N.A. 380 Knollwood Street 16 Winston-Salem, North Carolina 27103 Attn: Tom Johnson Phone: (336) 721-4058 Fax: (336) 721-4099 8.2 Right of Set-Off. In addition to other rights now or hereafter available to the Bank under the Credit Documents or under applicable law, the Bank may, after the occurrence of an Event of Default, exercise rights of set-off and may appropriate and apply any and all deposits (general and specific) or other amounts held or owing by the Bank to the Loan and other amounts owing by the Borrower or any Guarantor hereunder or under the other Credit Documents, regardless of whether the Loan or such other amounts are contingent or unmatured, without presentment, demand, protest or notice of any kind (any such rights of presentment, demand, protest or notice being hereby waived). 8.3 Benefit of Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, successors and assigns of the parties hereto; provided that neither the Borrower nor any Guarantor may assign or transfer any its obligations or interests without prior written consent of the Bank. 8.4 No Waiver. No failure or delay on the part of the Bank in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Bank, on the one hand, and the Credit Parties, on the other hand, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Bank would otherwise have. 8.5 Payment of Expenses. The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Bank in connection with (A) negotiation, preparation, execution and delivery of the Credit Documents (including reasonable fees and expenses of Bank counsel, Moore & Van Allen, PLLC) and any amendments, waivers or consents relating to the Credit Documents and (B) enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Bank); (ii) pay and hold the Bank harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to the Bank) to pay such taxes; and (iv) indemnify the Bank, its officers, directors, employees and representatives from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of any investigation, litigation or other proceeding (whether or not the Bank is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of the Loan (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified). 8.6 Amendments. Neither this Agreement nor any of the other Credit Documents may be amended or modified, nor shall consents or waivers be effective except with the written consent of the parties hereto. 8.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the 17 same agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 8.8 Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 8.9 Survival. The indemnities and payment obligations hereunder, including those set out in Sections 2.8, 2.9, 2.10, 2.11, 2.12, 2.13 and 8.5, and the representations and warranties made herein or in connection herewith shall survive the making and repayment of the Loan and termination of commitments hereunder. 8.10 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of North Carolina. 8.11. Arbitration; Consent to Jurisdiction and Service of Process. (a) UPON DEMAND OF ANY PARTY HERETO, WHETHER MADE BEFORE OR AFTER INSTITUTION OF ANY JUDICIAL ACTION, ANY DISPUTE, CLAIM OR CONTROVERSY ARISING OUT OF OR CONNECTED HEREWITH OR WITH THE CREDIT DOCUMENTS ("DISPUTES") SHALL BE RESOLVED BY BINDING ARBITRATION AS PROVIDED HEREIN. DISPUTES MAY INCLUDE, WITHOUT LIMITATION, TORT CLAIMS, COUNTERCLAIMS, CLAIMS BROUGHT AS CLASS ACTIONS AND CLAIMS ARISING HEREFROM OR FROM CREDIT DOCUMENTS EXECUTED IN THE FUTURE. ARBITRATION SHALL BE CONDUCTED UNDER THE COMMERCIAL FINANCIAL DISPUTES ARBITRATION RULES (THE "ARBITRATION RULES") OF THE AMERICAN ARBITRATION ASSOCIATION AND TITLE 9 OF THE U.S. CODE. ALL ARBITRATION HEARINGS SHALL BE CONDUCTED IN CHARLOTTE, MECKLENBURG COUNTY, NORTH CAROLINA, OR SUCH OTHER PLACE AS AGREED TO IN WRITING BY THE PARTIES. A JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION, AND ALL DECISIONS SHALL BE IN WRITING. THE PANEL FROM WHICH ALL ARBITRATORS ARE SELECTED SHALL BE COMPRISED OF LICENSED ATTORNEYS HAVING AT LEAST TEN YEARS' EXPERIENCE REPRESENTING PARTIES IN SECURED LENDING TRANSACTIONS. NOTWITHSTANDING THE FOREGOING, THIS ARBITRATION PROVISION DOES NOT APPLY TO DISPUTES UNDER OR RELATED TO INTEREST PROTECTION AGREEMENTS. (b) Notwithstanding the preceding binding arbitration provision, the Bank preserves certain remedies that may be exercised during a Dispute. The Bank shall have the right to proceed in any court of proper jurisdiction or by self help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Credit Documents or under applicable law, (ii) all rights of self help including peaceful occupation of real property and collection of rents, set-off and peaceful possession of personal property, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment and appointment of receiver, (iv) when applicable, a judgment by confession of judgment and (v) other remedies. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. (c) BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION RELATING TO ANY ARBITRATION PROCEEDINGS CONDUCTED UNDER THE ARBITRATION RULES IN CHARLOTTE, MECKLENBURG COUNTY, NORTH CAROLINA AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH 18 THIS AGREEMENT FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. Each of the parties hereto irrevocably agrees that all process in any such arbitration proceedings or otherwise may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in Section 8.1 or at such other address of which such party shall have been notified pursuant thereto, such service being hereby acknowledged by each party hereto to be effective and binding service in every respect. Each party hereto irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any such arbitration proceeding in any jurisdiction. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any party to bring proceedings against the Borrower or any party hereto in any court or pursuant to arbitration proceedings in any other jurisdiction. [Remainder of Page Intentionally Left Blank] 19 IN WITNESS WHEREOF, this Loan Agreement has been executed this day by duly authorized officers of the undersigned parties. BORROWER: PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation By: /s/ Fred B. Davenport, Jr. --------------------------------------------- Name: Fred B. Davenport, Jr. Title: President GUARANTORS: PPD DEVELOPMENT, LP, a Texas limited partnership By: PPD GP, LLC, a Delaware limited liability company, its General Partner By: /s/ Fred B. Davenport, Jr. --------------------------------- Name: Fred B. Davenport, Jr. Title: Vice President BANK: BANK OF AMERICA, N.A. By: /s/ Jane B. Sherrill --------------------------------------------- Name: Jane B. Sherrill Title: Assistant Vice President Note $50,000,000 July 25, 2002 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation (the "Borrower"), promises to pay to the order of BANK OF AMERICA, N.A., its successor and assigns (the "Bank") on or before the Termination Date the principal sum of FIFTY MILLION DOLLARS ($50,000,000) or, if less, the aggregate unpaid principal amount of all Loans made by the Bank to the Borrower, in lawful money of the United States in immediately available funds at the office of the Bank as provided in the Loan Agreement referenced below or as otherwise directed by the Bank pursuant to the terms of the Loan Agreement, together with interest, in like money and funds, on the unpaid principal amount hereof at the rates and on the dates as set forth in the Loan Agreement. This Note is issued pursuant to, and is entitled to the benefits of, the Loan Agreement dated as of the date hereof (as the same may be amended or modified and in effect from time to time, the "Loan Agreement") among the Borrower, the Guarantors identified therein and the Bank, to which Loan Agreement reference is hereby made for a statement of the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Loan Agreement. In the event payment of amounts due hereunder are accelerated under the terms of the Loan Agreement, all such amounts shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived. Further, in the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorneys' fees. This Note shall be governed by and construed in accordance with the laws of the State of North Carolina. PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation By: /s/ Fred B. Davenport, Jr. ---------------------------------------- Name: Fred B. Davenport, Jr. Title: President EX-10.187 10 dex10187.txt DEFERRED COMPENSATION PLAN Exhibit 10.187 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. - -------------------------------------------------------------------------------- Deferred Compensation Plan for Directors __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ Prepared By Mercer Human Resource Consulting 462 South Fourth Avenue, Suite 1500 Louisville, KY 40202 502/561-4500 11 June 2002 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. TABLE OF CONTENTS -----------------
ARTICLE SECTION PAGE - ------- ------- ---- I Purpose and Effective Date ........................................ 1 -------------------------- 1.01 Title ................................................ 1 1.02 Purpose .............................................. 1 1.03 Effective Date ....................................... 1 II Definitions and Construction of the Plan Document ................. 2 ------------------------------------------------- 2.01 Beneficiary .......................................... 2 2.02 Board ................................................ 2 2.03 Change in Control .................................... 2 2.04 Code ................................................. 3 2.05 Committee ............................................ 3 2.06 Common Stock ......................................... 3 2.07 Company .............................................. 3 2.08 Compensation ......................................... 3 2.09 Consideration Shares ................................. 3 2.10 Crediting Rate ....................................... 3 2.11 Date of Exercise ..................................... 3 2.12 Deferral ............................................. 3 2.13 Deferral Account ..................................... 3 2.14 Deferral Account Balance ............................. 3 2.15 Deferred Compensation ................................ 4 2.16 Director ............................................. 4 2.17 Disabled ............................................. 4 2.18 Election Date ........................................ 4 2.19 Election Form ........................................ 4 2.20 ERISA ................................................ 4 2.21 Exchange Act ......................................... 4 2.22 Fair Market Value .................................... 4 2.23 Gain Shares .......................................... 4 2.24 Gain Share Account ................................... 4 2.25 Participant .......................................... 5 2.26 Plan ................................................. 5 2.27 Plan Year ............................................ 5 2.28 Share Units .......................................... 5 2.29 Stock Option ......................................... 5 2.30 Stock Option Gain Deferral Agreement ................. 5 2.31 Stock Option Plan .................................... 5 2.32 Termination of Service ............................... 5
i 2.33 Unforeseeable Financial Emergency ........................................ 5 2.34 Valuation Date ........................................................... 5 2.35 Gender and Number ........................................................ 5 2.36 Titles ................................................................... 5 III Eligibility and Participation ......................................................... 6 ----------------------------- 3.01 Eligibility .............................................................. 6 3.02 Participation ............................................................ 6 IV Participant Deferrals of Compensation ................................................. 7 ------------------------------------- 4.01 Deferred Compensation .................................................... 7 4.02 Duration of Election Form ................................................ 7 4.03 Election to Modify or Terminate Future Contributions ..................... 7 4.04 Vesting 7 V Stock Option Deferrals ................................................................ 8 ---------------------- 5.01 Deferral of Stock Option Gain ............................................ 8 5.02 Timing of Filing Stock Option Gain Deferral Agreement .................... 8 5.03 Contents of Stock Option Gain Deferral Agreement ......................... 8 5.04 Manner of Exercising Option Shares ....................................... 8 5.05 Determination of Gain Shares ............................................. 8 5.06 Changes to the Stock Option Gain Deferral Agreement ...................... 9 5.07 Failure to Properly Exercise ............................................. 9 5.08 Vesting .................................................................. 9 VI Deferral Accounts, Gain Share Accounts and Credit Rating .............................. 10 -------------------------------------------------------- 6.01 Deferral Account ......................................................... 10 6.02 Maintenance of Accounts .................................................. 10 6.03 Interest ................................................................. 10 6.04 Valuation of Gain Share Accounts ......................................... 10 6.05 Common Stock Adjustments ................................................. 10 6.06 Section 16(b) ............................................................ 11 6.07 Statement Accounts ....................................................... 11 VII Distribution .......................................................................... 12 ------------ 7.01 Distribution of Deferral Account ......................................... 12 7.02 Form of Distribution ..................................................... 12 7.03 Timing of Distribution ................................................... 12 7.04 Death or Disability Prior to Commencement of Benefit Payments ....................................................... 12 7.05 Death of a Participant Subsequent to Commencement of Benefit Payments ....................................................... 12 7.06 Redeferral Election ...................................................... 12 7.07 Taxes .................................................................... 12
ii VIII Withdrawals ..................................................................... 13 ----------- 8.01 Withdrawals for Unforeseeable Financial Emergency ..................... 13 8.02 Other Premature Withdrawals ........................................... 13 8.03 Withdrawal Processing ................................................. 13 IX Beneficiary ..................................................................... 15 ----------- 9.01 Beneficiary Designation ............................................... 15 9.02 Proper Beneficiary .................................................... 15 9.03 Minor or Incompetent Beneficiary ...................................... 15 9.04 No Beneficiary Designation ............................................ 15 X Administration of the Plan ...................................................... 16 -------------------------- 10.01 Majority Vote ......................................................... 16 10.02 Finality of Determination ............................................. 16 10.03 Certificates and Reports .............................................. 16 10.04 Indemnification and Exculpation ....................................... 16 10.05 Expenses .............................................................. 16 XI Claims Procedure ................................................................ 17 ---------------- 11.01 Written Claim ......................................................... 17 11.02 Denied Claim .......................................................... 17 11.03 Review Procedure ...................................................... 17 11.04 Committee Review ...................................................... 17 XII Nature of Company's Obligation .................................................. 18 ------------------------------ 12.01 Company's Obligation .................................................. 18 12.02 Creditor Status ....................................................... 18 XIII Amendment and Termination of Plan ............................................... 19 --------------------------------- 13.01 Amendment ............................................................. 19 13.02 Change in Control ..................................................... 19 13.03 Termination ........................................................... 19 XIV Miscellaneous ................................................................... 20 ------------- 14.01 Written Notice ........................................................ 20 14.02 Change of Address ..................................................... 20 14.03 Merger, Consolidation or Acquisition .................................. 20 14.04 Employment ............................................................ 20 14.05 Non-transferability ................................................... 20 14.06 Legal Fees ............................................................ 20 14.07 Tax Withholding ....................................................... 20 14.08 Acceleration of Payment ............................................... 20 14.09 Applicable Law ........................................................ 21 14.10 Invalidity of Certain Provisions
iii ARTICLE I PURPOSE AND EFFECTIVE DATE 1.01 Title. This Plan shall be known as Pharmaceutical Product Development, Inc. Deferred Compensation Plan for Directors (hereinafter referred to as the "Plan"). 1.02 Purpose. The purpose of the Plan is to permit members of the Board of Directors of Pharmaceutical Product Development, Inc. to defer pre-tax compensation. The Plan constitutes an unfunded "top hat" arrangement under Title I of ERISA as well as for income tax purposes. 1.03 Effective Date. The effective date of this Plan shall be June 15, 2002. 1 ARTICLE II DEFINITIONS AND CONSTRUCTION OF THE PLAN DOCUMENT 2.01 Beneficiary. "Beneficiary" shall mean the person or persons designated, pursuant to Article IX, by the Participant to receive such payments as may become payable hereunder after the death of said Participant. 2.02 Board. "Board" shall mean the Board of Directors of the Company. 2.03 Change in Control. "Change in Control" shall be deemed to have occurred if: (a) Any "Person" as defined in Section 3(a)(9) of the Exchange Act, including a "group" (as that term is used in Sections 13(d)(3) and 14(3)(2) of the Exchange Act), but excluding the Company and any employee benefit plan sponsored or maintained by the Company, including any trustee of such plan acting as trustee, who: (i) makes a tender or exchange offer for any shares of the Common Stock pursuant to which any shares of the Common Stock are purchased (an "Offer"); or (ii) together with its "affiliates" and "associates" (as those terms are defined in Rule 12b-2 under the Exchange Act) becomes the "Beneficial Owner" (within the meaning of Rule 13d-3 under the Exchange Act) of at least 20% of the Common Stock (an "Acquisition"); (b) The shareholders of the Company approve a definitive agreement or plan to merge or consolidate the Company with or into another corporation, to sell or otherwise dispose of all or substantially all of its assets, or to liquidate the Company (individually, a "Transaction"); or (c) When, during any period of 24 consecutive months during the existence of the Plan, the individuals who constitute the Board (the "Incumbent Directors") at the beginning of such period cease for any reason other than death to constitute at least a majority thereof; provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement, and be an Incumbent Director, if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualify as Incumbent Directors either actually, because they were directors at the beginning of such 24-month period, or by prior operation of this Section 2.03(c). (d) An Offer, Acquisition or Transaction, as the case may be, is approved by a majority of the Directors serving as members of the Board at the time of the Offer, Acquisition or Transaction. 2 2.04 Code. "Code" shall mean the Internal Revenue Code of 1986, as may be amended from time to time. 2.05 Committee. "Committee" shall mean the Committee established by the Board of Directors designated to administer the Plan. 2.06 Common Stock. "Common Stock" shall mean the Common Stock of Pharmaceutical Product Development, Inc., $0.10 par value per share. 2.07 Company. "Company" shall mean Pharmaceutical Product Development, Inc. and any subsidiary or affiliated companies that adopt the Plan, with the Company's approval, for their Directors. 2.08 Compensation. "Compensation" shall mean the compensation paid to a Director by the Company for services as rendered to the Company as a Director in the form of either annual retainer or meeting fees. 2.09 Consideration Shares. "Consideration Shares" shall mean shares of Common Stock acquired by a Participant (a) on the open market or (b) through the exercise of a nonqualified Stock Option that has been owned by the Participant for at least (6) six months. 2.10 Crediting Rate. "Crediting Rate" shall mean an interest rate equal to the three month London Interbank Offered Rate (or similar index designated by the Committee) plus 1.5%. 2.11 Date of Exercise. "Date of Exercise" shall mean the date on or after which Stock Options designated in a Stock Option Gain Deferral Agreement will be exercised and any gain derived therefrom will be deferred pursuant to Article V of this Plan; provided that such date shall be at least six months from the date of the Stock Option Gain Deferral Agreement. 2.12 Deferral. "Deferral" shall mean that portion of a Participant's Compensation to be paid during a Plan year which a Participant elects to have and is deferred during any one Plan Year. In the event of a Participant's Termination of Service prior to the end of a Plan Year, such year's Deferral shall be the actual amount deferred and withheld prior to such Termination of Service. 2.13 Deferral Account. "Deferral Account" shall mean the record of a Participant's interest in this Plan represented by the Deferrals, with all earnings thereon credited to such Account on behalf of the Participant under this Plan, and all withdrawals and distributions thereon debited from such Account. 2.14 Deferral Account Balance. "Deferral Account Balance" shall mean with respect to a Participant the sum of (i) his or her Deferred Compensation, plus (ii) interest credited in accordance with Article V of this Plan, less (iii) all withdrawals and distributions. This account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. 3 2.15 Deferred Compensation. "Deferred Compensation" shall mean the sum of all of a Participant's Deferrals. 2.16 Director. "Director" shall mean a non-employee member of the Board. 2.17 Disabled. "Disabled" shall mean the total and permanent disability of a Participant, as determined under the terms of the long-term disability plan of the Company, or, in the absence of a long-term disability plan, as determined by the Board, in its sole and absolute discretion. 2.18 Election Date. "Election Date" shall mean the date established by the Committee as the date before which a Director must submit a valid Election Form to the Committee to effect a Deferral hereunder. The applicable Election Dates can be no later than the following: (a) 30 days after the Effective Date of the Plan for Directors who are eligible to participate at the time the Plan is adopted, (b) 30 days after a newly eligible Director is notified of the right to participate in the Plan, or (c) December 15 prior to any following Plan Year if (a) or (b) above do not apply. 2.19 Election Form. "Election Form" shall mean the form established from time to time by the Committee that a Director completes, signs and returns to the Committee to make a Deferral under the Plan. 2.20 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.21 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. 2.22 Fair Market Value. "Fair Market Value," with respect to a share of Common Stock as of any date, shall mean (a) the closing sales price of the Common Stock on the NASDAQ National Market System or on any such other exchange on which the Common Stock is traded on such date, or in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (b) in the event there is no public market for the Common Stock on such date, the Fair Market Value as determined in good faith by the Committee in its sole and absolute discretion. 2.23 Gain Shares. "Gain Shares" shall mean the shares of Common Stock determined in accordance with the provisions of Section 5.05 hereof resulting from the exercise of any Stock Option pursuant to Article V of this Plan. 2.24 Gain Share Account. "Gain Share Account" shall mean the record of a Participant's interest in this Plan represented by the number of the Share Units related to Gain Shares, adjusted for hypothetical gains, earnings dividends, losses, distributions, withdrawals and other similar activities. 4 2.25 Participant. "Participant" shall mean a Director who has Deferred Compensation pursuant to the terms of this Plan, and whose Deferral Account Balance and/or Gain Share Account Balance has not yet been fully distributed. 2.26 Plan. "Plan" shall mean the Pharmaceutical Product Development, Inc. Deferred Compensation Plan for Directors as described in this instrument and as amended from time to time. 2.27 Plan Year. "Plan Year" shall mean a calendar year. 2.28 Share Units. "Share Units" shall mean units of deemed investment in shares of Common Stock in accordance with Article V of the Plan. 2.29 Stock Option. "Stock Option" shall mean an option to purchase Common Stock from the Company that was granted under a Stock Option Plan. 2.30 Stock Option Gain Deferral Agreement. "Stock Option Gain Deferral Agreement" shall mean the form established from time to time by the Committee that a Director completes, executes and returns to the Committee to defer receipt of Gain Shares received from the exercise of a Stock Option pursuant to Article V hereof. 2.31 Stock Option Plan. "Stock Option Plan" shall mean collectively the equity incentive plans adopted by the Company from time to time or under which the Company has Stock Options outstanding, and individually, such equity incentive plan governing any particular Stock Option. 2.32 Termination of Service. "Termination of Service" or similar expression shall mean the termination of the Participant's service as a Director of the Company and of any division, subsidiary or affiliate thereof for any reason. A Disabled Participant shall be deemed to have terminated service for purposes of this Plan. 2.33 Unforeseeable Financial Emergency. "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 2.34 Valuation Date. "Valuation Date" shall mean, for purposes of Deferral Accounts, the last day of each calendar quarter; and for purposes of the valuation of, or distribution or withdrawal from a Gain Share Account, the date of such valuation, distribution, or withdrawal. 2.35 Gender and Number. Wherever the context so requires, masculine pronouns include the feminine and singular words shall include the plural. 2.36 Titles. Titles of the Articles of this Plan are included for ease of reference only and are not to be used for the purpose of construing any portion or provision of this Plan document. 5 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 Eligibility. All Directors are eligible to participate in the Plan. 3.02 Participation. A Director may elect to participate in the Plan by completing, signing and returning to the Committee a duly executed Election Form no later than the applicable Election Date or a Stock Option Gain Deferral Agreement. A Deferral Account and/or a Gain Share Account, as the case may be, will be established for each Director at the time an Election Form and/or Stock Option Gain Deferral Agreement is received by the Committee. 6 ARTICLE IV PARTICIPANT DEFERRALS OF COMPENSATION 4.01 Deferred Compensation. A Director may elect to defer up to 100% of his or her annual Compensation until the earlier to occur of such Director's Termination of Service, death or Disability. A Director who desires to make a Deferral shall file an election Form pursuant to procedures specified by the Committee (a) specifying the applicable Deferral; (b) authorizing such Director's Compensation payable for a Plan Year to be so reduced and deferred hereunder; and (c) indicating the form of payment of amounts deferred hereunder. The amounts deferred, which are the Participant's Deferred Compensation, shall be added to the Participant's Deferral Account. 4.02 Duration of Election Form. If properly received by the Committee on or before the applicable Election Date, a Deferral hereunder will be effective only with respect to Compensation paid in the Plan Year to which the Deferral applies. A Participant's Deferral may be modified or terminated as provided in Section 4.03. Future deferrals will be terminated automatically for any Participant who is deemed (by the Committee) to no longer be eligible for participation in the Plan. 4.03 Election to Modify or Terminate Future Contributions. Subject to the provisions of Sections 8.01 and 8.02 hereof, all Deferrals hereunder are irrevocable. A Participant who desires to modify or terminate the amount of future Compensation being deferred under the Plan or to change the form of payment of Deferrals must notify the Committee in writing on an Election Form provided by the Committee. Elections to decrease or terminate deferrals of future Compensation shall become effective as soon as administratively possible. Elections to increase deferrals of future Compensation shall become effective on January 1 of the next Plan Year. Elections to change the form of payment of Deferrals hereunder must be made at least twelve (12) months prior to the payment or commencement of payment of such Deferrals. 4.04 Vesting. A Participant shall be fully vested at all times in his or her Deferral Account Balance. 7 ARTICLE V STOCK OPTION GAIN DEFERRALS 5.01 Deferral of Stock Option Gain. Subject to provisions of this Article V, Directors may elect to defer the receipt and distribution of the gain related to the exercise of Stock Options until the earlier to occur of Termination of Service, death or Disability, by filing a Stock Option Gain Deferral Agreement with the Committee. A Stock Option Gain Deferral Agreement may be filed at any time with respect to any number of Stock Options. 5.02 Timing of Filing Stock Option Gain Deferral Agreement. A Stock Option Gain Deferral Agreement must be filed at least six months prior to the Date of Exercise and no later than the day immediately preceding the first day of the six-month period ending on the expiration date of the Stock Option. A Stock Option with respect to which a Stock Option Gain Deferral Agreement has been filed may not be exercised prior to the date specified in the Stock Option Gain Deferral Agreement. A Participant must be a Director on the Date of Exercise to effect a Deferral of Gain Shares hereunder. 5.03 Contents of Stock Option Gain Deferral Agreement. Each Stock Option Gain Deferral Agreement shall set forth: (a) the number of Stock Options to be exercised; (b) the date of grant of the Stock Options; (c) the Date of Exercise; (d) the form of payment of the Gain Shares; and (e) any other item determined to be appropriate by the Committee. Gain Shares shall be distributed in the form of Common Stock. 5.04 Manner of Exercising Option Shares. A Participant who desires to exercise a Stock Option and to defer current receipt and distribution of the related Gain Shares must follow the procedures and requirements that are applicable to the Stock Option under the Stock Option Plan, including the procedures and requirements relating to the exercise of an Option; provided, however, that in the case of a deferral of Gain Shares under this Plan, the Participant shall only be permitted to tender Consideration Shares to pay the entire exercise price for any such Stock Option exercised. Notwithstanding the foregoing, the Committee may in its discretion accept documentation that the Participant owns the number of Consideration Shares necessary to pay the exercise price for the Stock Options. 5.05 Determination of Gain Shares. Upon exercise of a Stock Option, the Gain Shares resulting from the exercise of the Stock Option which the Participant has elected to defer hereunder shall be determined as follows: (a) the aggregate exercise price for all Stock Options to be exercised shall be determined by multiplying the exercise price of the Stock Option by the number of Stock Options to be exercised at that price; (b) the number of Consideration Shares needed to pay the exercise price for such Stock Options shall be determined by dividing the aggregate exercise price from (a) above by the Fair Market Value of one share of Common Stock on the Date of Exercise; and (c) the difference between the aggregate Fair Market Value on the Date of Exercise of the shares of Common Stock acquired upon the exercise of the Stock Options and the aggregate exercise price of such Stock Options, divided by the Fair Market Value of one 8 share of Common Stock on the Date of Exercise, shall be the number of Gain Shares resulting from such exercise. 5.06 Changes to the Stock Option Gain Deferral Agreement. Subject to the provisions of Article VIII, all deferrals of Gain Shares hereunder are irrevocable. A Participant may not increase the amount of his Gain Share deferrals occurring under any given Stock Option Gain Deferral Agreement following submission of the Stock Option Gain Deferral Agreement. A Participant may decrease or terminate a Gain Share deferral any time prior to the Date of Exercise by filing, on such forms and subject to such limitations and restrictions as the Committee may prescribe in its discretion, a revised Stock Option Gain Deferral Agreement with the Committee. Under no circumstances may a Participant's Stock Option Gain Deferral Agreement be made, modified or revoked retroactively. Elections to change the form of payment of Gain Shares hereunder must be made at least twelve (12) months prior to the payment or commencement of payment of such Gain Shares. 5.07 Failure to Properly Exercise. If a Participant makes a valid election under this Article V to defer Gain Shares and if the Stock Option expires without a proper exercise of the Stock Option by the Participant, or if the Participant fails to properly tender or attest to the Consideration Shares by the last day of the Stock Option term, the Participant shall forfeit any opportunity to exercise the Stock Option and the Stock Option shall be canceled as of the end of the last business day of the Stock Option term, according to the terms of the Stock Option Plan. 5.08 Vesting. A Participant shall be fully vested at all times in his or her Gain Share Account. 9 ARTICLE VI DEFERRAL ACCOUNTS, GAIN SHARE ACCOUNTS AND CREDITING RATE 6.01 Deferral Account. A Participant's Deferrals hereunder will be credited to the Participant's Deferral Account as of the date on which the Participant's Compensation would otherwise have been paid to the Participant had it not been deferred. All amounts credited to a Participant's Deferral Account shall be treated as a reduction of Compensation otherwise payable to such Participant. Gain Shares deferred hereunder shall be credited by the Committee to the Participant's Gain Share Account as of the Date of Exercise. Distributions and withdrawals pursuant to Articles VII and VIII shall be debited against a Participant's Deferral Account and Gain Share Account, as the case may be. 6.02 Maintenance of Accounts. Separate Deferral Accounts and Gain Share Accounts shall be maintained for each Participant, and more than one Deferral Account and Gain Share Account may be maintained for a Participant, as deemed necessary by the Committee for administrative purposes. A Participant's Deferral Account(s) and Gain Share Account(s) shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan, and shall not constitute or be treated as a trust fund of any kind. The Committee shall determine the balance of each Deferral Account and each Gain Share Account as of each Valuation Date, by adjusting the balance of such Deferral Account and Gain Share Account as of each Valuation Date to reflect changes in the value of the Common Stock (in the case of Gain Share Accounts), interest credits pursuant to this Article VI (in the case of Deferral Accounts), and distributions and withdrawals pursuant to Articles VII and VIII hereof. 6.03 Interest. Prior to any distribution of a Participant's Deferral Account Balance under Article VI herein, the Company shall credit the Deferral Account with interest on each Valuation Date at the Crediting Rate. Interest credits to the Deferral Account Balance in accordance with this Article VI shall continue until the Deferral Account Balance is paid in full to the Participant or the Participant's Beneficiary. 6.04 Valuation of Gain Share Accounts. Gain Share Accounts are bookkeeping accounts, the value of which shall be based upon the performance of the Common Stock. Any and all dividends paid with respect to the Common Stock will be deemed to be immediately reinvested in Common Stock. It is understood and agreed that the Company assumes no risk of any decrease in the value of the Common Stock, and the Company's sole obligations are to maintain the Participant's Gain Share Account and make payments to the Participant as herein provided. 6.05 Common Stock Adjustments. In the event of a stock dividend, split-up or combination of the Common Stock, merger, consolidation, reorganization or recapitalization affecting the Common Stock, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Committee may make appropriate 10 adjustments to the number of Share Units credited to any Gain Share Account. The determination of the Committee as to such adjustments, if any, shall be binding and conclusive. 6.06 Section16(b). Notwithstanding any other provision of this Plan, the Committee shall adopt such procedures as it may determine are necessary to ensure that with respect to any Participant who is actually or potentially subject to Section 16(b) of the Exchange Act, the crediting of deemed shares to such Participant's Gain Share Account is not deemed to be a nonexempt purchase for purposes of such Section 16(b), including without limitation requiring that no shares of Common Stock relating to such deemed shares may be distributed for six months after being credited to such Gain Share Account. 6.07 Statement Accounts. The Committee shall provide periodically to each Participant a statement setting for the balance of such Participant's Deferral Account(s) and Gain Share Account(s) as of the end of the most recently completed accounting period, in such form as the Committee deems desirable. 11 ARTICLE VII DISTRIBUTION 7.01 Distribution of Deferral Account. Distribution of the value of a Participant's Deferral Account Balance and Gain Share Account Balance shall be in a lump sum or in semi-annual installments over a period of five (5) years, as specified on the Participant's Election Form and/or Stock Option Gain Deferral Agreement. If a payment form is not specified on an Election Form for any particular Plan Year in which the Participant made a Deferral, a Participant's Deferral Account Balance and/or Gain Share Account balance for that Plan Year shall be distributed as a lump sum upon the Participant's Termination of Service. If the Participant has elected to receive payments from a Deferral Account or Gain Share Account in installments, the Company shall make semi-annual payments in cash from such Deferral Account or in Common Stock from such Gain Share Account, each of which shall consist of an amount equal to (i) the balance of such Deferral Account or Gain Share Account as of the Valuation Date preceding the payment date, times (ii) a fraction, the numerator of which is one and the denominator of which is the number of remaining installments (including the installment being made). The first such installment shall be paid on the first to occur of January 1 or July 1 immediately following the Participant's Termination of Service and each subsequent installment shall be paid on or about each January 1 and July 1 thereafter for the five (5) year period. 7.02 Form of Distribution. All distributions of a Participant's Deferral Account shall be made in cash only. All distributions of a Participant's Gain Share Account shall be in the form of shares of Common Stock, based upon the Fair Market Value of the Common Stock on the date of distribution. 7.03 Timing of Distribution. Distributions shall commence, or be paid in a lump sum if so elected, on the first January 1 or July 1 immediately following the earliest to occur of a Participant's Termination of Service, death or Disability. 7.04 Death or Disability Prior to Commencement of Benefit Payments. In the event of a Participant's death or Disability prior to the commencement of benefit payments hereunder, an amount equal to the Participant's Deferral Account Balance and/or Gain Share Account balance shall be paid to the Participant's Beneficiary in a lump sum or in semi-annual installments over a period of five (5) years, as specified on the Participant's Election Form and/or Stock Option Gain Deferral Agreement, on the first January 1 or July 1 immediately following the Participant's death or Disability. 7.05 Death of a Participant Subsequent to Commencement of Benefit Payments. In the event of the death of a Participant subsequent to commencement of benefit installment payments hereunder but prior to completion of such payments, the installments shall continue and shall be paid to the designated Beneficiary as if the Participant had survived. 7.06 Redeferral Election. Notwithstanding the foregoing, a Participant will be permitted to elect to change the form of payments for previous Deferrals, provided that the redeferral election must be made at least one full calendar year prior to the date on which such distribution would be made or commence to be made in the absence of such redeferral. A 12 redeferral election may be made by submitting an amended Deferral Election Form or Stock Option Gain Deferral Agreement, as the case may be, or in such other manner as is provided by the Committee. 7.07 Taxes. Each Participant shall be responsible for the payment of any and all income and employment taxes which are due and payable on amounts distributed hereunder. 13 ARTICLE VIII WITHDRAWALS 8.01 Withdrawals for Unforeseeable Financial Emergency. At the request of a Participant in the event of an Unforeseeable Financial Emergency or at the request of any of the Participant's Beneficiaries after the Participant's death, the Committee may, in its sole discretion, accelerate and pay all or part of the value of a Participant's Deferral Account balance or Gain Share Account balance. An accelerated distribution hereunder for an Unforeseeable Financial Emergency must be limited to only that amount necessary to relieve the Unforeseeable Financial Emergency (plus any appropriate taxes). Amounts to be distributed to a Participant hereunder will be subject to applicable tax withholding. 8.02 Other Premature Withdrawals. A Participant may request the withdrawal of all or part of such Participant's Deferral Account or Gain Share Account (not in excess of the balance of such Deferral Account or Gain Share Account) prior to date of distribution under this Plan, for reasons other than a financial need. The Participant will acknowledge and agree that in consideration for the current payment of the relevant portion of the Participant's Deferral Account or Gain Share Account, the Participant will forfeit ten percent (10%) of the total pre-withdrawal value of such portion of the Participant's Deferral Account or Gain Share Account. In addition, the Participant will be precluded from further participation in the Plan for a period of twelve (12) months following the month during which the Participant's withdrawal request is received by the Committee. 8.03 Withdrawal Processing. (a) Minimum Amount. There is no minimum payment for any type of withdrawal. (b) Application by Participant. To apply for any type of withdrawal, a Participant must submit to the Committee a withdrawal request, in accordance with such uniform and nondiscriminatory procedure as will be established by the Committee. (c) Approval by Committee. The Committee is responsible for determining that a withdrawal request conforms to the requirements described in this Article and notifying the Company of any payments to be made in a timely manner. With respect to any withdrawal request under Section 8.01 hereof, the Committee's decision to allow a Participant to withdraw all or part of such Participant's Deferral Account or Gain Share Account in connection with an Unforeseeable Financial Emergency will be based on the facts and circumstances of each case. However, in no event will the amount withdrawn exceed the lesser of the amount which the Committee deems necessary to satisfy such financial need (plus any appropriate taxes) or the balance of such Participant's Deferral Account or Gain Share Account. Any request to make a withdrawal by a member of the Committee may be approved only by disinterested members of the Committee, or if none, by the Board. 14 (d) Time of Processing. The Company will make payment to the Participant as soon as is administratively feasible following approval of the withdrawal request. (e) Medium and Form of Payment. The medium of payment for withdrawals from Deferral Accounts is cash. The medium of payment for withdrawals from Gain Share Accounts is Common Stock. The form of payment for all withdrawals will be a single-sum payment. 15 ARTICLE IX BENEFICIARY 9.01 Beneficiary Designation. A Participant shall designate a Beneficiary to receive benefits under the Plan on the Election Form provided by the Committee. If more than one Beneficiary is named, the share and/or precedence of each Beneficiary shall be indicated. A Participant shall have the right to change the Beneficiary by submitting to the Committee a new Election Form. 9.02 Proper Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments hereunder, the Committee shall have the right to withhold such payments until the matter is finally adjudicated. However, any payment made by the Committee, in good faith and in accordance with this Plan, shall fully discharge the Company from all further obligations with respect to that payment. 9.03 Minor or Incompetent Beneficiary. In making any payments to or for the benefit of any minor or an incompetent Beneficiary, the Committee, in its sole and absolute discretion, may make a distribution to a legal or natural guardian or other relative of a minor or court appointed committee of such incompetent. Alternatively, it may make a payment to any adult with whom the minor or incompetent temporarily or permanently resides. The receipt by a guardian, committee, relative or other person shall be a complete discharge to the Company. Neither the Company nor the Committee shall have any responsibility to see to the proper application of any payments so made. 9.04 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Section 9.01 above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 16 ARTICLE X ADMINISTRATION OF THE PLAN 10.01 Majority Vote. All resolutions or other actions taken by the Committee shall be by vote of a majority of those present at a meeting at which a majority of the members are present, or in writing by all the members at the time in office if they act without a meeting. Such resolutions or actions shall be confirmed in writing by a Board resolution. 10.02 Finality of Determination. Subject to the Plan, the Committee shall, from time to time, establish rules, forms and procedures for the administration of the Plan. Except as herein otherwise expressly provided, the Committee shall have the exclusive right to interpret the Plan and to decide any and all matters arising thereunder or in connection with the administration of the Plan, and it shall endeavor to act, whether by general rules or by particular decisions, so as not to discriminate in favor of or against any person. The interpretations, decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan, and cannot be overruled by a court of law unless arbitrary or capricious. 10.03 Certificates and Reports. The members of the Committee and the officers and directors of the Company shall be entitled to rely on all certificates and reports made by any duly appointed accountants, and on all opinions given by any duly appointed legal counsel, which legal counsel may be counsel for the Company. 10.04 Indemnification and Exculpation. The Company shall indemnify and hold harmless each current and former member of the Committee and each current and former member of the Board against any and all expenses and liabilities (to the extent not indemnified under any liability insurance contract or other indemnification agreement) which the person incurs on account of any act or failure to act in connection with the good faith administration of the Plan. Expenses against which a member of the Committee shall be indemnified hereunder shall include, without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement thereof. The foregoing right of indemnification shall be in addition to any other rights to which any such member of the Committee may be entitled as a matter of law, but shall be conditioned upon the person's notifying the Company of the claim of liability within 60 days of the notice of that claim and offering the Company the right to participate in and control the settlement and defense of the claim. The foregoing provision will not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 10.05 Expenses. The expenses of administering the Plan shall be borne by the Company. 17 ARTICLE XI CLAIMS PROCEDURE 11.01 Written Claim. Benefits shall be paid in accordance with the provisions of this Plan. The Participant, or a designated Beneficiary or any other person claiming through the Participant shall make a written request for benefits under this Plan. This written claim shall be mailed or delivered to the Committee. Such claim shall be reviewed by the Committee or a delegate. 11.02 Denied Claim. If the claim is denied, in full or in part, the Committee shall provide a written notice within ninety (90) days setting forth the specific reasons for denial, and any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary, and appropriate information and explanation of the steps to be taken if a review of the denial is desired. 11.03 Review Procedure. If the claim is denied and a review is desired, the Participant (or Beneficiary) shall notify the Committee in writing within sixty (60) days after receipt of the written notice of denial. In requesting a review, the Participant or Beneficiary may request a review of pertinent documents with regard to the benefits created under this agreement, may submit any written issues and comments, may request an extension of time for such written submission of issues and comments, and may request that a hearing be held, but the decision to hold a hearing shall be within the sole discretion of the Committee. 11.04 Committee Review. The decision on the review of the denied claim shall be rendered by the Committee within sixty (60) days after the receipt of the request for review (if no hearing is held) or within sixty (60) days after the hearing if one is held. The decision shall be written and shall state the specific reasons for the decision including reference to specific provisions of this Plan on which the decision is based. 18 ARTICLE XII NATURE OF COMPANY'S OBLIGATION 12.01 Company's Obligation. The Company's obligations under this Plan shall be an unfunded and unsecured promise to pay. The Company shall not be obligated under any circumstances to fund its financial obligations under this Plan. 12.02 Creditor Status. Any assets which the Company may acquire or set aside to help cover its financial liabilities hereunder are and must remain general assets of the Company subject to the claims of its general unsecured creditors. Neither the Company nor this Plan gives a Participant or Beneficiary any beneficial ownership interest in any asset of the Company. In the event that the Company elects to invest funds to pay Deferral Account Balances or Gain Share Account Balances under the terms of this Plan, title to and beneficial ownership of such assets shall at all times remain in the Company. All Plan Participants and Beneficiaries shall be unsecured general creditors of the Company. 19 ARTICLE XIII AMENDMENT AND TERMINATION OF PLAN 13.01 Amendment. The Board reserves the right to amend this Plan from time to time in whole or in part; provided, however, that no such amendment may reduce, or relieve the Company of, any obligation with respect to the balance of any Deferral Account(s) and Gain Share Account(s) maintained under this Plan as accrued at the time of such amendment, nor shall any amendment otherwise have a retroactive effect, without the written consent of the affected Participant or Beneficiary as the case may be. 13.02 Change in Control. Upon the occurrence of a Change in Control, the Board may terminate the Plan and distribute Deferral Account Balances and Gain Share Account Balances in a lump sum or in semi-annual installments over a period of five (5) years, as specified on the Participant's Election Form and/or Stock Option Gain Deferral Agreement, in accordance with this Plan. 13.03 Termination. The Company, by action of the Board, reserves the right to prospectively terminate this Plan for any reason, provided the Company pays to each Participant and Beneficiary, the accrued balance of the Participant's Deferral Account and Gain Share Account (determined as of the date of termination) as of the date of termination. Such payment will be paid as soon as administratively possible, but not later than 30 days following the date of termination. 20 ARTICLE XIV MISCELLANEOUS 14.01 Written Notice. Any notice which shall be or may be given under the Plan shall be in writing and shall be mailed by United States mail, postage prepaid. If notice is to be given to the Company, such notice shall be addressed to the Committee at the Company. If notice is to be given to the Participant, such notice shall be sent to the Participant's last known address. 14.02 Change of Address. Any party may, from time to time, change the address to which notices shall be mailed by giving written notice of such new address. 14.03 Merger, Consolidation or Acquisition. The Plan shall be binding upon the Company, its assigns, and any successor to the Company which shall succeed to substantially all of its assets and business through merger, acquisition or consolidation, and upon a Participant, a Beneficiary, assigns, heirs, executors and administrators. 14.04 Employment. Neither the creation of this Plan or anything contained herein shall be construed as giving any Participant hereunder any right to continuous service with the Company as a Director. 14.05 Non-transferability. Except insofar as prohibited by applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Plan shall be valid or recognized by the Company. Neither the Participant, spouse, or designated Beneficiary shall have any power to hypothecate, mortgage, commute, modify, or otherwise encumber in advance of any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony maintenance, owed by the Participant or Beneficiary, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. 14.06 Legal Fees. All reasonable legal fees incurred by any Participant (or former Participant) to successfully enforce valid rights under this Plan shall be paid by the Company in addition to sums due under this Plan. 14.07 Tax Withholding. The Company may withhold from a payment any federal, state, or local taxes required by law to be withheld with respect to such payment and such sum as the Company may reasonably estimate as necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such payment. 14.08 Acceleration of Payment. The Company reserves the right to accelerate the payment of any benefits payable under this Plan at any time without the consent of the Participant, the Participant's estate, a Beneficiary or any other person claiming through the Participant. 21 14.09 Applicable Law. This Plan shall be governed by the laws of the State of North Carolina, without regard to the conflicts-of-law rules of such State, to the extent not preempted by the laws of the United States of America. 14.10 Invalidity of Certain Provisions. If any provision of this Plan is held invalid or unenforceable, such invalidity or unenforceability will not affect any other provisions hereof and this Plan will be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on this 17/th/ day of June, 2002, effective as of the 15/th/ day of June, 2002. PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. By /s/ Fredric N. Eshelman ----------------------------- Chief Executive Officer (Title) ATTEST: By /s/ B. Judd Hartman ----------------------------- Secretary [SEAL] 22 EX-10.188 11 dex10188.txt LEASE AGREEMENT Exhibit 10.188 EVAN A. STEIN, M.D., PH.D. -- MEDICAL RESEARCH LABORATORIES LEASE THIS AGREEMENT OF LEASE entered into on October 12 , 1994 by and between EVAN A. STEIN, M.D., PH.D. ("Lessor") and MEDICAL RESEARCH LABORATORIES, a joint venture, ("Lessee"), is as follows: 1. Leased Premises. Lessor hereby leases to Lessee the premises located at Two Tesseneer Drive, Highland Heights, Kentucky, as more particularly described in Exhibit A attached hereto ("the Leased Premises"). 2. Term. 2.1 The initial term of this Lease shall be the 10 year period commencing January 1, 1995 and ending December 31, 2004. 2.2 Lessee shall have the option to renew this Lease for one additional term of 10 years commencing upon the termination of the initial term by giving Lessor notice of exercise of the option to renew not later than June 30, 2004; provided, however, that Lessee's exercise of such renewal option shall not be effective to renew this Lease if any Event of Default, as defined in Section 14.1, exists at the time of giving the renewal notice or at any time thereafter prior to the commencement of the renewal term. The renewal term shall be upon the same terms and conditions as are applicable to the initial term, except as to rent, which shall be as set forth in Section 3.2. 3. Rent. 3.1 Lessee shall pay Lessor as rent during the initial term the amount of $9 per square foot per year for 65,500 square feet, such annual amount of $589,500 to be paid in equal monthly installments of $49,125, commencing January 1, 1995. 3.2 If Lessee exercises its option to renew this Lease pursuant to Section 2.2, the rent for the renewal term (the "Renewal Rent") shall be the rent for the initial term increased by the percentage by which the "Consumer Price Index" (the "CPI", as hereinafter defined) reported for the month of December, 2004 is higher than the CPI reported for the month of January, 1995. The "CPI" shall mean the Consumer Price Index as compiled and published by the Bureau of Labor Statistics of the United States Department of Labor (All items U.S. - CPI-W. All cities average (1982-1984 = 100)), or the most comparable economic statistics indicator then being published. If the CPI for December, 2004 has not been published by the first day of the renewal term, Lessee shall continue to pay the monthly rent that was in effect during the initial term on a temporary basis until such CPI is published, at the Renewal Rent and the monthly rent that Lessee actually paid for each month during such interim period, and Lessee shall thereafter pay the full amount of the Renewal Rent monthly. 3.3 Each monthly installment of rent shall be payable in advance on the first day of the applicable month. 4. Use of Premises. 4.1 Lessee shall use and occupy the Leased Premises for the purpose of operating medical laboratory facilities for research, testing and experimentation and for all normal purposes related thereto. Lessee will not use the Leased Premises for any other purpose without the prior written consent of Lessor. 4.2 Lessee shall use and occupy the Leased Premises in a proper, lawful and reasonable manner, and shall not permit any use of the Leased Premise that would (i) constitute waste or a nuisance, (ii) increase Lessor's risk of loss or damage to the Leased Premises, (iii) increase the premiums for insurance maintained by Lessor on the Leased Premises over those which would apply to the normal commercial use of the Leased Premises, or (iv) cause a cancellation of any policy of casualty, public liability or other insurance on the Leased Premises with the carrier or carriers then being used. 4.3 Upon the termination of this Lease, Lessee will peacefully and quietly surrender possession of the Leased Premises to Lessor and deliver the Leased Premises, together with all improvements, fixtures and appurtenances, except trade fixtures and equipment installed and removed by Lessee pursuant to Section 5.2, in as good order and condition as when entered upon, reasonable use, ordinary wear and tear and damage by fire or other casualty not caused by Lessee excepted. 4.4 Lessee shall comply promptly with all laws, ordinances, regulations, and orders of all governmental authorities, including, without limitation, those relating to protection of health and the environment and to the treatment, storage, disposal, and discharge of hazardous substances and solid waste (as those terms are defined in the applicable laws, rules, regulations and orders), and the requirements of any insurance company or insurance inspection bureau that are applicable to the Leased Premises or to Lessee's use thereof. 5. Alterations and Liens. 5.1 Except as provided in Section 5.2, Lessee shall not make any alterations, additions or improvements to the building located on the Leased Premises (the "Building") or to any other part of the Leased Premises without the prior written consent of Lessor. Upon termination of this Lease, all additions, alterations or improvements (excluding property which Lessee is entitled to remove under Section 5.2) shall become and be the Lessor's property without any obligation of Lessor for compensation or credit to -2- lessee other than to pay to Lessee the net proceeds from the disposition, if any, of such property, less the expenses of such disposition and less any amounts then due from Lessee to Lessor, but Lessor shall have no obligation to dispose of any of such property. 5.2 Lessee shall have the right to install in and on the Building any trade fixtures, equipment and temporary or non- structural partitions or partition walls which Lessee deems necessary in the operation of its business and to remove the same from time to time during the term of this Lease. If Lessee fails to remove any of its trade fixtures or equipment at the termination of this Lease, Lessee will be deemed to have conveyed such items to Lessor without any obligation of Lessor for compensation or credit to Lessee for the value thereof; provided, however, that if Lessor elects to remove such items from the Leased Premises, Lessee shall be responsible and shall promptly pay or reimburse Lessor for the cost of such removal and for all costs of repairing any damage to the Leased Premises caused by such removal. Upon the termination of this Lease, Lessee will also remove any partitions or partition walls installed by Lessee in the Building which Lessor requests Lessee to remove. The removal by Lessee of trade fixtures, equipment and partitions or partition walls shall be solely at the expense of Lessee and shall be done in a manner satisfactory to Lessor, and Lessee shall be responsible and promptly pay or reimburse Lessor for all costs of repairing any damage to the Leased Premises caused by such removal. 5.3 Lessee shall, at its expense, remove any liens filed against the Leased Premises or Lessor's interest therein in connection with alterations, additions, repairs, maintenance or improvements by Lessee or any other liens filed against the Leased Premises with respect to any obligation or liability of Lessee within 30 days after the filing or other establishment of such lien. In the event Lessee fails to remove any such lien, Lessor, in addition to his remedies under Section 14, may at his sole discretion, remove such lien by paying such amount thereof or by taking such other actions as may be necessary to release such lien, and Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor to remove such lien promptly upon demand by Lessor. 6. Utilities. Lessee shall pay when due all charges for gas, electricity and other power, water, sewage, waste removal, telephone and all other utility services used or consumed by Lessee in connection with its use of the Leased Premises. 7. Maintenance and Repairs. 7.1 Lessor, at his expense, shall maintain the roof, structural walls, foundation and underground plumbing and other underground facilities serving the Building in good operating condition and shall make all necessary repairs and replacements thereto; provided, however, that Lessor's obligations under this Section 7.1 are solely for the normal maintenance of such -3- structural parts and underground facilities and for the correction of structural defects, if any, not caused by the negligence, wilful act or improper use of the Leased Premises by Lessee or its agents, employees, representatives or invitees. 7.2 Lessee, at its expense, shall maintain all interior and exterior parts of the Building and the rest of the Leased Premises not required to be maintained by Lessor pursuant to Section 7.1 in good repair and in clean, orderly operating condition and shall make all necessary repairs and replacements thereto, including, without limitation, all walls, partitions, windows, and all electrical, heating, ventilating, air conditioning and above-ground plumbing and other above-ground facilities, systems and equipment, driveways and parking areas, shall keep all interior and exterior areas of the Leased Premises painted, clean and clear of debris, snow and obstructions and shall mow the lawns and maintain all landscaping in a neat and orderly condition. Lessee shall take such action as is necessary to protect the facilities, systems and equipment of the Leased Premises from damage or premature wear, tear or depreciation caused by its activities so that such systems, facilities and equipment shall function normally throughout their normal useful lives. 7.3 In the event Lessee fails to make any repairs or to perform any maintenance required under Section 7.2 within 10 days after Lessor gives Lessee notice requesting the same, Lessor, in addition to his remedies under Section 14, may, at his sole discretion, make such repairs and perform such maintenance for Lessee's account and at Lessee's expense, and Lessee shall reimburse Lessor for any and all costs and expenses incurred by Lessor in making such repairs and performing such maintenance promptly upon demand by Lessor. 8. Real Estate Taxes and Assessments. Lessee shall reimburse Lessor for or, at Lessor's option, pay directly all real estate taxes and assessments applicable to the Leased Premises during the initial term and, if renewed, the renewal term of this Lease. 9. Damage or Destruction of Premises. 9.1 Except as provided in Section 9.2, in the event the Building or any other improvements on the Leased Premises are destroyed or so damaged by fire, explosion or other casualty that they are rendered wholly or partially untenantable to the extent that Lessee is unable reasonably to carry on its normal business operations, Lessor will restore the Leased Premises to their former condition and complete such restoration as expeditiously as possible. 9.2 Notwithstanding Section 9.1, Lessor will have no obligation to restore the Building or any other improvements if the damage or destruction constitutes a Termination Event or Lessee Damage as said terms are described in Section 9.3. -4- 9.3 For purposes of Section 9.2: 9.3.1 "Termination Event" means any damage or destruction to the Building or any other improvements on the Leased Premises if (i) the cost of repairing the same exceeds the insurance proceeds available therefor by more than 10%, or (ii) more than 25% of the total square foot floor area of the Building is rendered untenantable; and 9.3.2 "Lessee Damage" means any damage or destruction caused by the negligence, misuse or intentional act of Lessee or any of Lessee's agents, employees, representatives, invitees or customers or any other person on the Leased Premises for Lessee or in connection with Lessee's use thereof. 9.4 In the event of the occurrence of a Termination Event or Lessee Damage, if Lessor elects not to restore the Building or improvements it will give Lessee notice to that effect within 60 days after such occurrence, and this Lease will thereupon terminate, provided, however, that in the event the occurrence was Lessee Damage, such termination shall be without prejudice to any other rights Lessor may have against Lessee by reason of such Lessee Damage or otherwise. 9.5 In the event of the occurrence of any damage or destruction described in Section 9.1, excluding any damage or destruction that constitutes Lessee Damage: 9.5.1 if the Building or other improvements cannot reasonably be expected to be repaired or restored for occupancy within 90 days following such destruction or damage in such manner as to permit Lessee reasonably to carry on its normal business operations, Lessee will have the right to terminate this Lease by giving notice to that effect to Lessor within 60 days after such damage or destruction, and upon giving of such notice this Lease will terminate; and 9.5.2 if neither Lessor nor Lessee exercises any of its respective termination rights under this Section 9, or prior to the exercise of any of such termination rights, as the case may be, rent will be equitably abated during such time as the Leased Premises are wholly or partially untenantable by Lessee because of such damage or destruction on the basis of the portion of the Leased Premises that is untenantable. 10. Insurance. 10.1 Lessee, at its expense, will maintain (i) commercial general liability insurance insuring Lessee and Lessor against liability for injuries to person or property arising out of the ownership, occupancy or control of the Leased Premises with minimum limits of $1,000,000 per occurrence; and (ii) standard "all risk" insurance on the Leased Premises insuring Lessor and Lessee as their interests appear and Lessee's trade fixtures, equipment, inventory and all other personal property of Lessee ("Lessee's -5- Contents") in an amount equal to not less than 100% of the replacement cost of the Leased Premises and Lessee's Contents. 10.2 All policies of insurance required to be maintained by Lessee pursuant to Section 10.1 shall (i) be issued by insurers licensed to issue such policies in the Commonwealth of Kentucky and reasonably acceptable to Lessor, (ii) in the case of liability insurance, be rated at least A by Best's Key Rating Guide for Property Liability; and (iii) provide that they may not be cancelled or materially altered without 30 days prior written notice to Lessor. Prior to occupying the Leased Premises, upon each renewal of insurance, and upon Lessor's reasonable request from time to time, Lessee will furnish Lessor with certificates of such insurance and receipts or other proof of payment of the premiums thereon. 10.3 Lessor will not be liable to Lessee for business interruption or any similar loss or damage occurring on the Leased Premises, whether or not caused by the negligence or other fault of Lessor. 10.4 Except as limited in the next sentence, Lessor and Lessee each hereby waives all rights that each of them has or may have under all policies of insurance maintained by each of them covering any part of the Leased Premises or the contents therein, including Lessee's Contents, to subrogate the insurer to the rights of the insured party to recover from the other party by reason of the payment by the insurer of the insured party's claim. Lessor and Lessee will each obtain and maintain throughout the term of the Lease a waiver of such subrogation rights in all such policies of insurance; provided, however, that such waiver of subrogation will not be required of either party with respect to any policy of insurance if such waiver (i) is prohibited under the terms of such policy or (ii) can only be obtained upon payment of an additional premium or upon other conditions and the party to be benefited by such waiver declines to pay such additional premium or to fulfill such other conditions at the benefiting party's expense. In the event such waiver of subrogation cannot be obtained, the party not able to obtain such waiver shall promptly notify the other party of such event. 11. Indemnity. Except to the extent that Lessee is relieved of liability pursuant to Section 10.4, Lessee will indemnify and defend Lessor and will hold Lessor harmless from and against all claims, demands and damages for injuries to person or property and all other claims, demands, liens, damages, fines or penalties of whatever name, nature or kind arising out of the use or occupancy of the Leased Premises by or any act or omission of any of Lessee or Lessee's agents, employees, representatives, invitees, customers, or any other person in, on, or adjacent to the Leased Premises, except for injury or damage occasioned by Lessor's negligence. 12. Lessor's Right of Entry. Lessor may enter the Leased Premises (i) at any time to attend to sudden or emergency -6- conditions and for purposes related to safety or the maintenance, preservation or protection of the Building, and (ii) at all reasonable times for the purpose of inspecting the Leased Premises, to determine the compliance by Lessee with the terms of this Lease, to exhibit the Leased. Premises to prospective purchasers, and, during the last four months of the initial term or any renewal term of this Lease, to exhibit the Leased Premises to prospective tenants. 13. Restrictions on Assignment and Subletting. Lessee shall not assign this Lease or sublease any part of the Leased Premises without Lessor's prior written consent. Notwithstanding Lessor's consent thereto, (i) no sublease or assignment shall release Lessee from any of its obligations hereunder, and (ii) no sublessee or assignee shall have any right to further assign its rights or sublease any part of the Leased Premises. Any transfer, sale or other disposition of ownership interests in Lessee or reorganization of Lessee which results in the joint venturers who own the ownership interests in Lessee as of the date of this Lease owning less than a majority of the ownership interests in Lessee or any successor to Lessee, whether such change results from a single transaction or multiple transactions, shall be deemed an "assignment" for purposes of this Section 13. 14. Events of Default; Lessor's Remedies. 14.1 Each of the following shall constitute an Event of Default under this Lease: 14.1.1 the rent or any other payment due to Lessor from Lessee hereunder, or any part thereof, remains unpaid for five days after such payment becomes due; 14.1.2 Lessee's interest herein is taken in execution or by other process of law; 14.1.3 Lessee files or has filed against it a petition seeking an order for relief on its behalf as a debtor or seeking reorganization, any receiver or other fiduciary is appointed for the business and property of Lessee, or Lessee makes an assignment for the benefit of Lessee's creditors; 14.1.4 Lessee abandons or vacates the Leased Premises; or 14.1.5 Lessee fails to cure any other default of the terms and conditions hereof within 15 days after being given written notice by Lessor of such default, or, if such default is of a nature that it cannot be cured completely within such 15-day period, Lessee does not commence within such 15-day period and thereafter proceed with reasonable diligence and in good faith to cure such default. 14.2 Upon the occurrence of an Event of Default, Lessor may (i) re-enter and repossess the Leased Premises and, without -7- terminating this Lease, relet the Leased Premises or any part of it for the account of Lessor or Lessee and apply such sums collected to amounts owned by Lessee to Lessor as a result of such Event of Default; or (ii) terminate this Lease by giving notice of termination to Lessee, and re--enter and repossess the Leased Premises, such termination effective upon the giving of notice. In addition to any remedy granted to Lessor pursuant to this Section 14.2, Lessee shall remain liable to Lessor for all damages and injuries suffered by Lessor as a result of such Event of Default. 14.3 Upon termination of this Lease, Lessee shall have no legal or equitable interest in this Lease the Leased Premises and shall immediately peacefully and quietly surrender possession of the Leased Premises and remove its personal property as provided in Sections 4.3 and 5.2. 14.4 In addition to the rights provided in Section 14.2, if Lessee fails to make any payment of rent or any other amount due Lessor hereunder when due, or within five days thereafter, Lessee shall pay Lessor interest on such amount at a rate equal to 3% per annum in excess of prime interest rate in effect from time to time as reported in the Wall Street Journal until paid in full. 15. Lien of Lessor. Lessor shall have the first lien, paramount to all others, upon every right and interest of Lessee to and in the Leased Premises, this Lease, and, subject to the rights of secured parties holding purchase money security interests, on all improvements consented to by Lessor under Section 5.1 which become fixtures erected or placed on or in the Leased Premises by Lessee, as security for the payment of all amounts payable by Lessee hereunder and as security for the performance of all the terms and conditions of this Lease to be performed by Lessee. 16. Waiver. No waiver by Lessor of any breach of any provision of this Lease shall be construed to be a waiver by Lessor of any succeeding breach of the same or any other provision of this Lease, and the acceptance of rent or other payment by Lessor with knowledge of a breach by Lessee of any provision hereof shall not be deemed a waiver of such breach by Lessor. 17. Hold Over. If Lessee should hold over in possession after the expiration of the initial lease term or, if renewed, after the expiration of the renewal term, such holding over shall not extend the term or renew the Lease, but, without impairing Lessor's remedies, shall constitute a month-to-month tenancy upon the same terms and conditions as are set forth hereunder until terminated at the end of any month by either party by giving the other party not less than 10 days prior notice of termination. The rent for such period of holding over shall be 125% of the rent in effect at the expiration of the Lease term. 18. Mortgages and Subordination. Lessor shall have the right from time to time during the term of this Lease to make new and/or additional mortgages covering the Leased Premises which shall be prior in lien to the Lease and the rights and privileges of Lessee -8- hereunder. Any such mortgage shall provide that so long as Lessee keeps and performs the terms and conditions of this Lease to be kept and performed by Lessee no person shall have the power to impair, modify, abrogate, or in any way adversely affect the rights of Lessee under this Lease to the full enjoyment of the entire term hereof by virtue of the existence of said indebtedness or mortgage, by reason of being the holder or owner of said indebtedness or any part thereof or by reason of any proceeding instituted under or pursuant to said mortgage. 19. Condemnation. If (i) any part of the Leased Premises is taken by or sold under threat of condemnation or eminent domain and (ii) such taking or sale materially and adversely impairs Lessee's use of the Leased Premises, either Lessor or Lessee may terminate this Lease as the date of such taking or sale. Lessee shall have no claim or interest in any compensation or award of damages for such taking or sale except to the extent any separate compensation or award of damages is made to Lessee for its relocation. 20. Signs. Lessee will not install any signs on the exterior of the Building or elsewhere on the Leased Premises without the prior written approval of Lessor. The installation, maintenance, repair and replacement of any such sign(s) shall be the responsibility of Lessee, and Lessee shall be responsible for any damage to person or property caused by the erection, existence, maintenance or removal of such sign(s). Upon the termination of this Lease, Lessee shall remove said sign(s) and repair any damage caused by such removal. 21. Quiet Enjoyment. If Lessee pays the rent and keeps and performs the obligations of this Lease on the part of Lessee to be kept and performed, Lessee shall peaceably and quietly occupy the Leased Premises during the term hereof without any hindrance, ejection or molestation by Lessor or any person lawfully claiming under Lessor. 22. Notices. All notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been given (i) when personally delivered to a principal of the party to whom such notice is directed, or (ii) one business day after having been delivered to a national overnight delivery service with delivery charges prepaid, or two business days after having been deposited in a U.S. Mail depository, postage prepaid, for delivery by certified mail, return receipt requested, and addressed as follows until such time as either party notifies the other of a change of address: Lessor: Evan A. Stein, M.D., Ph.D. 1258 Sweetwater Drive Cincinnati, OH 45215 -9- Lessee: Medical Research Laboratories Two Tesseneer Drive Highland Heights, KY 41076 Attn: Evan A. Stein 23. Estoppel Certificates. At the request of Lessor or any mortgagee or secured party of Lessor, Lessee will execute, acknowledge and deliver to the requesting party a certificate in recordable form evidencing whether (i) this Lease is in full force and effect; (ii) this Lease has been amended in any respect, and in such event, attaching a copy of such amendment; and (iii) any default exists under this Lease to Lessee's knowledge, and in such event, specifying the nature of such default. 24. Non-Recourse to Partners. Lessor's sole recourse in the event of a default by Lessee under this Lease shall be against the Lessee and the Lessee's assets; no partner of Lessee shall be personally liable for or have any personal obligation to perform any obligations of Lessee under this Lease; and Lessor will not assert any claim, seek any judgment or seek to enforce any judgment against any partner of Lessee personally or against any property or assets of any partner by reason of any breach of or default by Lessee under this Lease. 25. General. 25.1 This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky. 25.2 This Lease constitutes the entire agreement between the parties and supersedes all prior written and oral negotiations and understandings. 25.3 The captions contained in this Lease are for reference purposes only and shall not affect or relate to or be used for purposes of the interpretation of any provision hereof. 25.4 All of Lessor's rights and remedies are cumulative and may be exercised singularly or concurrently. 25.5 This Lease shall be binding upon and inure to the benefit of the respective successors and assigns of each of the parties hereto; provided, however, that no assignment by Lessee shall vest any rights or interests in the assignee except as provided in Section 13. 25.6 The parties hereto will, at the request of either party, execute a Memorandum of Lease to be recorded at the expense of the requesting party. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease. -10- as of the date set forth at the beginning of this Agreement of Lease. Witnesses: /s/ Jennifer A. Kavouras /s/ Evan A. Stein - ---------------------------------------- --------------------------------- Evan A. Stein, M.D., Ph.D. /s/ Ryan D. Garlitz LESSOR - ------------------------------------ MEDICAL RESEARCH LABORATORIES, a joint venture By: Evan A. Stein and Associates, /s/ Jennifer A. Kavouras an Ohio limited partnership, - ---------------------------------------- joint venture general partner /s/ Ryan D. Garlitz By: /s/ Evan A. Stein - ---------------------------------------- -------------------------- Evan A. Stein, General Partner LESSEE STATE OF OHIO ) COUNTY OF HAMILTON ) SS: The foregoing instrument was acknowledged before me this 17th day of October, 1994, by Evan A. Stein, M.D., Ph.D., Lessor in the foregoing Lease. IN WITNESS WHEREOF I have hereunto set my hand and official seal. /s/ Leonard S. Meranus ---------------------------------- Notary Public LEONARD S. MERANUS, Attorney at Law NOTARY PUBLIC - STATE OF OHIO My commission has no expiration Date. Section 147.03 O.R.C. -11- STATE OF OHIO ) COUNTY OF HAMILTON ) SS: The foregoing instrument was acknowledged before me this 17th day of October, 1994, by Evan A. Stein, M.D., Ph.D., general partner of Evan A. Stein and Associates, an Ohio limited partnership, a joint venture partner of Medical Research Laboratories, the Lessee in the foregoing Lease, on behalf of said limited partnership. IN WITNESS WHEREOF I have hereunto set my hand and official seal. /s/ Leonard S. Meranus ---------------------------------------- Notary Public LEONARD S. MERANUS, Attorney at Law NOTARY PUBLIC - STATE OF OHIO My commission has no expiration Date. Section 147.03 O.R.C. -12- EXHIBIT "A" LEGAL DESCRIPTION KROGER TRACT NORTHERN KENTUCKY UNIVERSITY FOUNDATION CAMPBELL COUNTY, KENTUCKY GROUP NO. 704, 705, 706, 707 Situated in the northeasterly corner of relocated Three Mile Road with relocated Chestnut Road, and being all of Parcel Number 3 as described in Deed Book 411, Page 279, owned by Kentucky Department of Transportation and also being part of a 9.50 acre tract owned by Northern Kentucky University Foundation as shown in Mortgage Book 605, Page 110. said 9.50 acre tract located in Section 7, Highland Baby Farm as shown in Flat Book 3, page 48, at the Campbell County Clerk's records at Newport, Kentucky, and being more particularly described as follows: Beginning at an existing concrete monument at the intersection of the northeasterly right-of-way line of Three Mile Road with the northwesterly right-of-way line of relocated Chestnut Road (formerly McDryer Road); thence North 44 degrees 17'-43" West along the existing northeasterly right-of-way line of Three Mile Road, 400.50 feet to an iron pin set 115 feet right of centerline Station 45+00 for Three Mile Road; thence North 9 degrees 31 `-55" West continuing along the northeasterly right-of-way tine of Three Mile Road, 238.27 feet to an iron pin set 241.29 feet right of centerline Station 47+02.05 for Three Mile Road, said point being an intersection with the southeasterly limited access right-of-way line of eastbound lane of 1-275 Interstate; thence, North 39 degrees 19-22" West along the said limited access right-of-way line of east bound lane of 1-275 Interstate, 98.81 feet to an iron pin set; thence North 30 degrees 00'-42" East continuing along said limited access right-of-way line, 135.12 feet to an existing right-of-way fence post, 114.01 feet right of Station 1213+50 for east bound lane of 1-275 Interstate; thence North 76 degrees 17'-49 East continuing along said limited access right-of-way line, 549.97 feet to an iron pin set in said line; thence South 22 degrees 47'-47" East leaving said right-of-way line and along a new division line, 569.60 feet to an iron pin set in a new right-of-way line of a new access road (formerly Chestnut Road-McDryer Road); thence South 57 degrees 58'-35" West along said new right-of-way line, 249.15 feet to a point; thence southwestwardly continuing along said new right-of-way line and with the arc of a curve to the left having a radius of 332.50 feet for a distance of 44.39 feet to a point in said right-of-way line, the long chord of said arc bearing South 54 degrees 09'-07" West, 44.36 feet to said point; thence South 50 degrees 19'-38" West continuing along said new right-of-way line, 154.20 feet to an existing concrete monument located on the existing right-of-way line of Chestnut Road (formerly McDryer Road); thence South 49 degrees 37'-54" West along the existing right-of-way line of Chestnut Road (McDryer Road), 98.38 feet to a point of beginning, CONTAINING 9.7109 Acres. -13- MEDICAL RESEARCH LABORATORIES INTERNATIONAL, INC. 2 Tesseneer Drive . Highland Heights, Kentucky 41076 . (859) 781-8877 . 800-323-2996 Amendment A This amendment entered into on November 30, 2001 is a modification to the lease entered into on October 12, 1994 between Evan A. Stein, M.D., PH.D. ("Lessor") and Medical Research Laboratories International, Inc. ("Lessee"), is as follows: At the request of the Lessee the Lessor has constructed a new 2nd floor structure approximately 60' x 102' (6120 sq fl) within the existing facility used as Archive Storage. Lessee agrees to pay additional rent at the same rate as per current lease ($9.00 per square foot per year, or $55,080.00, for 2001). As a result in the increase in rental space, the total amount will be 71620 square feet or $644,580.00 (@ $9/sq ft) in equal monthly installments of $53,715, commencing December 1, 2001. The increases to the sq ft rate and all other terms will remain as in the existing lease. In witness whereof, Lessor and Lessee have executed this Amendment A as of November 30, 2001. Witnesses: /s/ Renee Jackson /s/ Evan A. Stein - ------------------------------------- ----------------------------------- Evan A. Stein, M.D., Ph.D. /s/ Linda Foster - ------------------------------------- Medical Research Laboratories, Intl By: Evan A. Stein /s/ Evan A. Stein ----------------------------------- Evan A. Stein, General Partner /s/ Renee Jackson By: Paula M Steiner - ------------------------------------- /s/ Paula M. Steiner ----------------------------------- /s/ Linda Foster Paula M Steiner VP Client Services - ------------------------------------- EX-10.189 12 dex10189.txt DEED OF LEASE VIRGINIA VIRGINIA TRIPLE NET DEED OF LEASE BRANDYWINE GRANDE C, L.P., Landlord and PPD DEVELOPMENT, LLC, Tenant for The Dabney A-1 Building 2240 Dabney Road Richmond, Virginia 23230 The Dabney A-2 Building 2244 Dabney Road Richmond, Virginia 23230 and Suites A-K of The Dabney VII Building 2246 Dabney Road Richmond, Virginia 23230 TABLE OF CONTENTS
Page ---- 1. SUMMARY OF DEFINED TERMS .................................... 1 2. PREMISES .................................................... 3 3. TERM ........................................................ 4 4. CONSTRUCTION BY LANDLORD .................................... 5 5. FIXED RENT; SECURITY DEPOSIT ................................ 5 6. ADDITIONAL RENT ............................................. 6 7. UTILITIES ................................................... 9 8. SIGNS; USE OF PREMISES AND COMMON AREAS ..................... 9 9. ENVIRONMENTAL MATTERS ....................................... 10 10. TENANT'S ALTERATIONS ........................................ 12 11. CONSTRUCTION LIENS .......................................... 13 12. ASSIGNMENT AND SUBLETTING ................................... 13 13. LANDLORD'S RIGHT OF ENTRY ................................... 16 14. REPAIRS AND MAINTENANCE ..................................... 16 15. INSURANCE; SUBROGATION RIGHTS ............................... 17 16. INDEMNIFICATION ............................................. 18 17. QUIET ENJOYMENT ............................................. 19 18. FIRE DAMAGE ................................................. 19 19. SUBORDINATION; RIGHTS OF MORTGAGEE .......................... 19 20. CONDEMNATION ................................................ 20 21. ESTOPPEL CERTIFICATE ........................................ 21 22. DEFAULT ..................................................... 21 23. INTENTIONALLY DELETED ....................................... 24 24. LANDLORD'S REPRESENTATIONS AND WARRANTIES ................... 24 25. SURRENDER ................................................... 24 26. RULES AND REGULATIONS ....................................... 25
27. GOVERNMENTAL REGULATIONS ............................................. 25 28. NOTICES .............................................................. 25 29. BROKERS .............................................................. 26 30. CHANGE OF BUILDING/PROJECT NAMES ..................................... 26 31. LANDLORD'S LIABILITY ................................................. 26 32. AUTHORITY ............................................................ 26 33. NO OFFER ............................................................. 26 34. RIGHT OF EXPANSION ................................................... 26 35. INTENTIONALLY DELETED ................................................ 27 36. MISCELLANEOUS PROVISIONS ............................................. 27 37. WAIVER OF TRIAL BY JURY .............................................. 29 38. CONSENT TO JURISDICTION .............................................. 29
EXHIBITS EXHIBIT "A" - LOCATION PLAN OF THE PREMISES EXHIBIT "B" - CONFIRMATION OF LEASE TERM EXHIBIT "C" - RULES AND REGULATIONS ii LEASE THIS LEASE ("Lease") entered into as of the 1st day of July, 2001, between BRANDYWINE GRANDE C, L.P., a Delaware limited partnership ("Landlord"), and PPD DEVELOPMENT, LLC, a Texas limited liability company with its principal place of business at 3151 South 17th Street, Wilmington, North Carolina 28412 ("Tenant"). WITNESSETH In consideration of the mutual covenants herein set forth, and intending to be legally bound, the parties hereto covenant and agree as follows: 1. SUMMARY OF DEFINED TERMS. The following defined terms, as used in this Lease, shall have the meanings and shall be construed as set forth below: (a) "Buildings": The Dabney A-1 Building located at 2240 Dabney Road, Richmond, Virginia 23230 (the "Dabney A-1 Building"), the Dabney A-2 Building located at 2244 Dabney Road, Richmond, Virginia 23230 (the "Dabney A-2 Building") and the Dabney VII Building located at 2246 Dabney Road, Richmond, Virginia 23230 (the "Dabney VII Building"). (b) "Project": The Buildings, the land and all other improvements located at 2240-2246 Dabney Road, Richmond, Virginia 23230. (c) "Premises": The Dabney A-1 Building, the Dabney A-2 Building, the crosswalk connecting the Dabney A-1 Building and the Dabney A-2 Building, the crosswalk connecting the Dabney A-2 Building and the Dabney VII Building and Suite Nos. A-K of the Dabney VII Building, which the parties stipulate and agree contains 75,133 rentable square feet of area, all as shown on the location plans attached hereto as Exhibit "A" and made a part hereof. (d) "Term": From July 1, 2001 through August 31, 2014; provided, however, the Term shall not commence with respect to (i) Suite C of the Dabney VII Building ("Suite C") until the Suite C Commencement Date as provided in Article 4 and (ii) Suites G and H of the Dabney VII Building ("Suites G&H") until the Suite G&H Commencement Date as provided in Article 4. (e) "Fixed Rent": Applicable to all portions of the Premises except Suite C and Suites G&H (68,012 square feet): Note: See Article 5(a) regarding a potential reduction of Fixed Rent for the month of July, 2001.
----------------------------------------------------------------------------------------- LEASE YEAR RENT PER MONTHLY ANNUAL FIXED ---------- -------- ------- ------------ R.S.F INSTALLMENTS RENT ----- ------------ ---- ----------------------------------------------------------------------------------------- July 1, 2001 through June 30, 2002 $7.71 $43,697.71 $524,372.52 ----------------------------------------------------------------------------------------- July 1, 2002 through June 30, 2003 $7.90 $44,774.57 $537,294.80 ----------------------------------------------------------------------------------------- July 1, 2003 through June 30, 2004 $8.10 $45,908.10 $550,897.20 ----------------------------------------------------------------------------------------- July 1, 2004 through June 30, 2005 $8.30 $47,041.63 $564,499.60 ----------------------------------------------------------------------------------------- July 1, 2005 through June 30, 2006 $8.51 $48,231.84 $578,782.12 ----------------------------------------------------------------------------------------- July 1, 2006 through June 30, 2007 $8.72 $49,422.05 $593,064.64 ----------------------------------------------------------------------------------------- July 1, 2007 through June 30, 2008 $8.94 $50,668.94 $608,027.28 ----------------------------------------------------------------------------------------- July 1, 2008 through June 30, 2009 $9.17 $51,972.50 $623,670.04 -----------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------- July 1, 2009 through June 30, 2010 $ 9.39 $53,219.39 $638,632.68 - --------------------------------------------------------------------------------------------------- July 1, 2010 through June 30, 2011 $ 9.63 $54,579.63 $654,955.56 - --------------------------------------------------------------------------------------------------- July 1, 2011 through June 30, 2012 $ 9.87 $55,939.87 $671,278.44 - --------------------------------------------------------------------------------------------------- July 1, 2012 through June 30, 2013 $10.12 $57,356.79 $688,281.44 - --------------------------------------------------------------------------------------------------- July 1, 2013 through June 30, 2014 $10.37 $58,773.70 $705,284.44 - --------------------------------------------------------------------------------------------------- July 1, 2014 through August 31, 2014 $10.63 $60,247.30 $722,967.56 - ---------------------------------------------------------------------------------------------------
Applicable to Suite C beginning on the Suite C Commencement Date (2,365 square feet):
- --------------------------------------------------------------------------------------------------- LEASE YEAR RENT PER MONTHLY ANNUAL FIXED ---------- -------- ------- ------------ R.S.F INSTALLMENTS RENT ----- ------------ ---- - --------------------------------------------------------------------------------------------------- July 1, 2001 through June 30, 2002 $ 7.71 $1,519.51 $18,234.15 - --------------------------------------------------------------------------------------------------- July 1, 2002 through June 30, 2003 $ 7.90 $1,556.96 $18,683.50 - --------------------------------------------------------------------------------------------------- July 1, 2003 through June 30, 2004 $ 8.10 $1,596.38 $19,156.50 - --------------------------------------------------------------------------------------------------- July 1, 2004 through June 30, 2005 $ 8.30 $1,635.79 $19,629.50 - --------------------------------------------------------------------------------------------------- July 1, 2005 through June 30, 2006 $ 8.51 $1,677.18 $20,126.15 - --------------------------------------------------------------------------------------------------- July 1, 2006 through June 30, 2007 $ 8.72 $1,718.57 $20,622.80 - --------------------------------------------------------------------------------------------------- July 1, 2007 through June 30, 2008 $ 8.94 $1,761.93 $21,142.10 - --------------------------------------------------------------------------------------------------- July 1, 2008 through June 30, 2009 $ 9.17 $1,807.25 $21,687.05 - --------------------------------------------------------------------------------------------------- July 1, 2009 through June 30, 2010 $ 9.39 $1,850.61 $22,207.35 - --------------------------------------------------------------------------------------------------- July 1, 2010 through June 30, 2011 $ 9.63 $1,897.91 $22,774.95 - --------------------------------------------------------------------------------------------------- July 1, 2011 through June 30, 2012 $ 9.87 $1,945.21 $23,342.55 - --------------------------------------------------------------------------------------------------- July 1, 2012 through June 30, 2013 $10.12 $1,994.48 $23,933.80 - --------------------------------------------------------------------------------------------------- July 1, 2013 through June 30, 2014 $10.37 $2,043.75 $24,525.05 - --------------------------------------------------------------------------------------------------- July 1, 2014 through August 31, 2014 $10.63 $2,095.00 $25,139.95 - ---------------------------------------------------------------------------------------------------
Applicable to Suites G&H beginning on the Suites G&H Rent Commencement Date (4,756 square feet):
- --------------------------------------------------------------------------------------------------- LEASE YEAR RENT PER MONTHLY ANNUAL FIXED ---------- -------- ------- ------------ R.S.F INSTALLMENTS RENT ----- ------------ ---- - --------------------------------------------------------------------------------------------------- October 1, 2001 through June 30, 2002 $ 7.71 $3,055.73 $36,668.76 - --------------------------------------------------------------------------------------------------- July 1, 2002 through June 30, 2003 $ 7.90 $3,131.03 $37,572.40 - --------------------------------------------------------------------------------------------------- July 1, 2003 through June 30, 2004 $ 8.10 $3,210.30 $38,523.60 - --------------------------------------------------------------------------------------------------- July 1, 2004 through June 30, 2005 $ 8.30 $3,289.57 $39,474.80 - --------------------------------------------------------------------------------------------------- July 1, 2005 through June 30, 2006 $ 8.51 $3,372.80 $40,473.56 - --------------------------------------------------------------------------------------------------- July 1, 2006 through June 30, 2007 $ 8.72 $3,456.03 $41,472.32 - --------------------------------------------------------------------------------------------------- July 1, 2007 through June 30, 2008 $ 8.94 $3,543.22 $42,518.64 - --------------------------------------------------------------------------------------------------- July 1, 2008 through June 30, 2009 $ 9.17 $3,634.38 $43,612.52 - --------------------------------------------------------------------------------------------------- July 1, 2009 through June 30, 2010 $ 9.39 $3,721.57 $44,658.84 - --------------------------------------------------------------------------------------------------- July 1, 2010 through June 30, 2011 $ 9.63 $3,816.69 $45,800.28 - --------------------------------------------------------------------------------------------------- July 1, 2011 through June 30, 2012 $ 9.87 $3,911.81 $46,941.72 - --------------------------------------------------------------------------------------------------- July 1, 2012 through June 30, 2013 $10.11 $4,006.93 $48,083.16 - --------------------------------------------------------------------------------------------------- July 1, 2013 through June 30, 2014 $10.37 $4,109.98 $49,319.72 - --------------------------------------------------------------------------------------------------- July 1, 2014 through August 31, 2014 $10.63 $4,213.02 $50,556.28 - ---------------------------------------------------------------------------------------------------
(f) "Security Deposit": $7,583.00. 2 (g) "Tenant's Allocated Share": Dabney A-1 Building: 100% Dabney A-2 Building: 100% Dabney VII Building: 77%; (h) "Rentable Area": Premises 75,133 sq. ft. Project 81,710 sq. ft. (i) "Permitted Uses": Tenant's use of the Premises shall be limited to warehouse, laboratory and general office use and storage incidental thereto. Tenant's rights to use the Premises shall be subject to all applicable laws and governmental rules and regulations and to all reasonable requirements of the insurers of the Buildings. (j) "Broker": Maus, Warwick, Matthews & Co. (k) "Notice Address/Contact" Tenant: PPD Development, LLC 3151 South 17th Street Wilmington, North Carolina 28412 Attn: Facilities Administrator with a copy to: PPD Development, LLC 3151 South 17th Street Wilmington, North Carolina 28412 Attn: General Counsel Landlord: Brandywine Grande C, L.P. 300 Arboretum Place, Suite 330 Richmond, Virginia 23236 Attn: H. Leon Shadowen with a copy to: Brandywine Realty Trust 14 Campus Blvd., Suite 100 Newtown Square, Pennsylvania 19073 Attn: Brad A. Molotsky, General Counsel (l) "Tenant's North American Industry Number": 541710 (m) "Additional Rent": All sums of money or charges required to be paid by Tenant under this Lease other than Fixed Rent, whether or not such sums or charges are designated as "Additional Rent". (n) "Rent": All Annual Fixed Rent, monthly installments of Annual Fixed Rent, Fixed Rent and Additional Rent payable by Tenant to Landlord under this Lease. 2. PREMISES. Landlord does hereby lease, demise and let unto Tenant and Tenant does hereby hire and lease from Landlord the Premises for the Term, upon the provisions, conditions and limitations set forth herein 3 including the provisions of Article 3 regarding the Suite C Commencement Date and the Suites G&H Commencement Date. 3. TERM. (a) The Term of this Lease shall commence (the "Commencement Date") on July 1, 2001 except with respect to Suite C, Suites G&H and the 2,400 rentable square feet of space designated as Suite F of the Dabney VII Building ("Suite F") and shall expire on August 31, 2014. (b) The Term of this Lease shall commence with respect to Suite C on the date which Landlord is able to deliver possession of Suite C to Tenant (the "Suite C Commencement Date"). Tenant acknowledges that Suite C is subject to an existing lease with Texel Corporation which does not expire until July 7, 2003 (the "Texel Lease") and that Landlord is attempting to arrange an early termination of the Texel Lease to allow occupancy of Suite C by Tenant. Tenant agrees to pay all costs and expenses incurred by Landlord in connection with the early termination of the Texel Lease including but not limited to (i) the cost of relocating Texel from Suite C into other space owned by Landlord or its affiliates (the "Substitute Texel Space"), (ii) the cost of improving the Substitute Texel Space to a condition required to obtain the agreement of Texel to vacate Suite C, (iii) the difference between the market rent for the Substitute Texel Space and the rent to be paid by Texel for such space (which Tenant acknowledges will be based on the rent under the Texel Lease without regard to differences in size and quality) and (iv) any termination payment required by Texel (the "Suite C Termination Costs"); provided, however, Landlord agrees the Suite C Termination Costs shall not exceed a total of $48,000.00 without the prior approval of Tenant. Landlord agrees to allow Tenant's contractors to submit bids to provide construction and relocation services in connection with the relocation of Texel to the Substitute Texel Space, provided Landlord shall have the right to determine in its reasonable discretion whether to accept any such bid. (c) The Term of this Lease shall commence with respect to Suites G&H on the date which Landlord is able to deliver possession of Suites G&H to Tenant (the "Suites G&H Commencement Date") which Landlord estimates will be no earlier than September 1, 2001 or later than November 1, 2001. Tenant acknowledges that Suites G&H are subject to an existing lease with Suitable for Framing which does not expire until August 31, 2001 and that Landlord will relocate Suitable for Framing to other space owned by Landlord or its affiliates which will require a holdover estimated at approximately thirty (30) days beyond the expiration date of August 31, 2001. Landlord agrees to use commercially reasonable efforts to deliver possession of Suites G&H to Tenant not later than November 1, 2001 and Landlord agrees that Tenant's obligation for payment of Fixed Rent applicable to Suites G&H shall not commence until the thirty-first (31st) day following the Suites G&H Commencement Date. (d) The Term of this Lease shall commence with respect to Suite F on the date which Landlord is able to deliver possession of Suite F to Tenant (the "Suite F Commencement Date") which Landlord estimates will be no earlier than July 1, 2001 or later than August 1, 2001. Tenant acknowledges that Suite F is presently occupied under a license agreement which will terminate no later than July 31, 2001. Landlord agrees to use commercially reasonable efforts to deliver possession of Suite F to Tenant not later than August 1, 2001 and Landlord agrees that Tenant's obligation for payment of Fixed Rent applicable to Suite F shall not commence until the Suite F Commencement Date as provided in Article 5(a). (e) Each of the Commencement Date, the Suite C Commencement Date, the Suites G&H Commitment Date and the Suite F Commencement Date shall be confirmed by Landlord and Tenant by the execution of a Confirmation of Lease Term substantially in the form attached hereto as Exhibit "B". If Tenant fails to execute or object to the Confirmation of Lease Term within ten (10) business days of its delivery, Landlord's determination of such dates shall be deemed accepted. (f) For good and valuable consideration, Landlord and Tenant acknowledge and agree that (i) they are parties to three (3) existing leases of portions of the Premises, one dated September 3, 1993, as amended, one dated June 3, 1997, as amended, and one dated May 4, 1999 (the "Prior Leases"), (ii) they have independently determined to enter into this Lease to establish a new landlord/tenant relationship rather than to extend or renew the 4 Prior Leases and (iii) the Prior Leases shall terminate as of the Commencement Date and shall thereafter be of no further force or effect. 4. CONSTRUCTION BY LANDLORD. Tenant agrees to accept the Premises in "AS-IS" condition and Landlord shall have no responsibility for improvements to the Premises other than to fund the construction allowance as provided in Article 10 of this Lease 5. FIXED RENT; SECURITY DEPOSIT. (a) Tenant shall pay to Landlord without notice or demand, and without set-off, the annual Fixed Rent payable in the monthly installments of Fixed Rent as set forth in Article 1(e), in advance on the first day of each calendar month during the Term either (i) by wire transfer of immediately available funds to the account at PNC Bank, account no. 8610818762, with ABA routing number 031000053; such transfer to be confirmed to Brandywine Realty Services Corporation's accounting department (610-325-5622 - fax) by written facsimile or (ii) by check mailed to Landlord c/o Brandywine Realty Services, Post Office Box 828117, Philadelphia, PA 19182-8117. Landlord agrees that, notwithstanding anything to the contrary contained in this Lease, until the Suite F Commencement Date, the Fixed Rent due and payable as provided in Article 1(e) shall be reduced at the rate of $1,542.00 per month due to the unavailability of Suite F prior to the Suite F Commencement Date. (b) In the event any Fixed Rent or Additional Rent, charge, fee or other amount due from Tenant under the terms of this Lease are not paid to Landlord when due, Tenant shall also pay as Additional Rent a service and handling charge equal to ten (10%) percent of the total payment then due. The aforesaid late fee shall begin to accrue on the initial date of a payment due date, irrespective of any grace period granted hereunder. This provision shall not prevent Landlord from exercising any other remedy herein provided or otherwise available at law or in equity in the event of any default by Tenant. (c) Tenant shall be required to pay a Security Deposit of $7,583.00 under this Lease (the "Collateral"), as security for the prompt, full and faithful performance by Tenant of each and every provision of this Lease and of all obligations of Tenant hereunder, which shall be paid by Landlord's retention of the security deposits under the Prior Leases. No interest shall be paid to Tenant on the Collateral, and Landlord shall have the right to commingle the Collateral with other Security Deposits held by Landlord. If Tenant fails to perform any of its obligations hereunder, Landlord may use, apply or retain the whole or any part of the Collateral for the payment of (i) any rent or other sums of money which Tenant may not have paid when due, (ii) any sum expended by Landlord on Tenant's behalf in accordance with the provisions of this Lease, and/or (iii) any sum which Landlord may expend or be required to expend by reason of Tenant's default, including, without limitation, any damage or deficiency in or from the reletting of the Premises as provided in this Lease. The use, application or retention of the Collateral, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law (it being intended that Landlord shall not first be required to proceed against the Collateral) and shall not operate as either liquidated damages or as a limitation on any recovery to which Landlord may otherwise be entitled. If any portion of the Collateral is used, applied or retained by Landlord for the purposes set forth above, Tenant agrees, within ten (10) days after the written demand therefor is made by Landlord, to deposit cash with the Landlord in an amount sufficient to restore the Collateral to its original amount. In addition to the foregoing, if Tenant defaults in its performance under this Lease, irrespective of whether such default is cured, more than once during the Term, Landlord may require Tenant to increase the Collateral to the greater of twice the (i) Basic Rent paid monthly, and (ii) the initial amount of the Collateral. If Tenant shall fully and faithfully comply with all of the provisions of this Lease, the Collateral, or any balance thereof, shall be returned to Tenant without interest after the expiration of the Term or upon any later date after which Tenant has vacated the Premises. In the absence of evidence satisfactory to Landlord of any permitted assignment of the right to receive the Collateral, Landlord may return the same to the original Tenant, regardless of one or more assignments of Tenant's interest in this Lease or the Collateral. Upon the return of the Collateral, or the remaining balance thereof to the original Tenant or any successor to the original Tenant, Landlord shall be completely relieved of liability with respect to the Collateral. 5 In the event of a transfer of the Project, Landlord shall have the right to transfer the Collateral to the vendee or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such Collateral. Upon the assumption of such Collateral by the transferee, Tenant agrees to look solely to the new landlord for the return of said Collateral, and the provisions hereof apply to every transfer or assignment made of the Collateral to a new landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the Collateral and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. The Collateral shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. 6. ADDITIONAL RENT. (a) Commencing on the Commencement Date, and in each calendar year thereafter during the Term (as same may be extended), Tenant shall pay to Landlord, as additional rent, within thirty (30) days after Landlord certifies to Tenant the amount thereof, the following charges ("Recognized Expenses"), without deduction or set off, such charges to be based upon Tenant's Allocated Share of such charges, as stated in Article 1(h) herein. (1) Insurance Premiums. All premiums paid or payable by Landlord for insurance with respect to the Project as follows: (a) fire and extended coverage insurance (including demolition and debris removal); (b) insurance against Landlord's rental loss or abatement (but not including business interruption coverage on behalf of Tenant), from damage or destruction from fire or other casualty; (c) Landlord's comprehensive liability insurance (including bodily injury and property damage) and boiler insurance; and (d) such other insurance as Landlord or any reputable mortgage lending institution holding a mortgage on the Premises may require. If the coverage period of any of such insurance obtained by Landlord commences before or extends beyond the Term, the premium therefore shall be prorated to the Term. If any such insurance is provided by blanket coverage, the part of the premium allocated to the Project shall be equitably determined by Landlord but shall not exceed the amount of premium due if insurance was provided by a policy only insuring the Project. Should Tenant's occupancy or use of the Premises at any time change and thereby cause an increase in such insurance premiums on the Premises, any of the Buildings or the Project, Tenant shall pay to Landlord the entire amount of such increase. (2) Operating Expenses. All costs and expenses related to the Project incurred and paid by Landlord during the Term, including, but not limited to: (a) All costs and expenses related to the operation of the Buildings, the Project and the common areas for the Buildings and the Project, including, but not limited to, common area lighting, cleaning the Building exteriors and common areas of the Buildings and Project, trash removal and recycling, pest control, repairs and maintenance of the roof and storm water management system, fire suppression and alarm systems, utilities benefiting the common areas, removing snow, ice and debris and maintaining all landscape areas, (including replacing and replanting flowers, shrubbery and trees), maintaining and repairing all other exterior improvements on the Project, all repairs and compliance costs necessitated by laws enacted or which become effective after the date hereof (including, without limitation, any additional regulations or requirements enacted after the date hereof regarding the Americans With Disabilities Act (as such applies to the Project or common areas but not to any individual tenant's space), if applicable) required of Landlord under applicable laws, rules and regulations and policing and regulating traffic to and from the Project. Landlord's obligation to provide snow removal services shall be limited to the parking areas and the sidewalk entrances. (b) All costs and expenses incurred by Landlord for ordinary compliance type environmental testing, sampling or monitoring required by statute, regulation or order of governmental authority, necessary except any costs or expenses incurred in conjunction with the spilling or depositing of any hazardous substance for which any person or other tenant is legally liable. 6 (c) Any other expense or charge which would typically be considered an expense of maintaining, operating or repairing the Project under generally accepted accounting principles. (d) Management fee not to exceed five (5%) percent of Fixed Rent which is applicable to the overall operation of the Project. It is expressly understood that legal fees incurred in an action against an individual tenant shall not be deemed includable as an operating expense pursuant to this provision. Notwithstanding the foregoing, the term "Recognized Expenses" shall not include any of the following: (a) Repairs or other work occasioned by fire, windstorm or other insured casualty plus any "deductibles" or by the exercise of the right of eminent domain; (b) Leasing commissions, accountants', consultants', auditors or attorneys' fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with other tenants or prospective tenants or other occupants, or associated with the enforcement of any other leases or the defense of Landlord's title to or interest in the real property or any part thereof; (c) Costs incurred by Landlord in connection with construction of the Buildings and related facilities, the correction of latent defects in construction of the Buildings or the discharge of Landlord's Work; (d) Costs (including permit, licenses and inspection fees) incurred in renovating or otherwise improving or decorating, painting, or redecorating space for other tenants or other occupants or vacant space; (e) Costs of any items or services sold or provided to tenants (including Tenant) for which Landlord is reimbursed by such tenants; (f) Depreciation and amortization; (g) Costs incurred due to a breach by Landlord or any other tenant of the terms and conditions of any lease; (h) Overhead and profit increment paid to subsidiaries or affiliates of Landlord for management or other services on or to the Buildings or for supplies, utilities or other materials, to the extent that the costs of such services, supplies, utilities or materials exceed the reasonable costs that would have been paid had the services, supplies or materials been provided by unaffiliated parties on a reasonable basis without taking into effect volume discounts or rebates offered to Landlord as a portfolio purchaser; (i) Interest on debt or amortization payments on any mortgage or deeds of trust or any other borrowings and any ground rent; (j) Ground rents or rentals payable by Landlord pursuant to any over-lease; (k) Any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord; (l) All items and services for which Tenant reimburses Landlord or which Landlord provides selectively to one or more tenants or occupants of the Buildings (other than Tenant) without reimbursement; 7 (m) Costs incurred in managing or operating any "pay for" parking facilities within the Project; (n) Any fines or fees for Landlord's failure to comply with governmental, quasi- governmental, or regulatory agencies' rules and regulations; and (o) Legal, accounting and other expenses related to Landlord's financing, re-financing, mortgaging or selling the Buildings or the Project. (3) Taxes. Taxes shall be defined as all taxes, assessments and other governmental charges ("Taxes"), including special assessments for public improvements or traffic districts which are levied or assessed against the Project during the Term or, if levied or assessed prior to the Term, which properly are allocable to the Term, and real estate tax appeal expenditures incurred by Landlord to the extent of any reduction resulting thereby. Nothing herein contained shall be construed to include as Taxes: (A) any inheritance, estate, succession, transfer, gift, franchise, corporation, net income or profit tax or capital levy that is or may be imposed upon Landlord or (B) any transfer tax or recording charge resulting from a transfer of the Buildings or the Project; provided, however, that if at any time during the Term the method of taxation prevailing at the commencement of the Term shall be altered so that in lieu of or as a substitute for the whole or any part of the taxes now levied, assessed or imposed on real estate as such there shall be levied, assessed or imposed (i) a tax on the rents received from such real estate, or (ii) a license fee measured by the rents receivable by Landlord from the Premises or any portion thereof, or (iii) a tax or license fee imposed upon Premises or any portion thereof, then the same shall be included in the computation of Taxes hereunder. (b) Commencing on the first day of the month following the Commencement Date, Tenant shall pay, in monthly installments in advance, on account of Tenant's Allocated Share of Recognized Expenses and Taxes, the estimated amount of such Recognized Expenses and Taxes for such year as determined by Landlord in its reasonable discretion and as set forth in a notice to Tenant, such notice to include the basis for such calculation. Prior to the end of the calendar year in which the Lease commences and thereafter for each successive calendar year (each, a "Lease Year"), or part thereof, Landlord shall send to Tenant a statement of projected increases in Recognized Expenses and Taxes and shall indicate what Tenant's projected share of Recognized Expenses and Taxes shall be. Said amount shall be paid in equal monthly installments in advance by Tenant as Additional Rent commencing January 1 of the applicable Lease Year. (c) If during the course of any Lease Year, Landlord shall have reason to believe that the Recognized Expenses and Taxes shall be different than that upon which the aforesaid projections were originally based, then Landlord shall be entitled to adjust the amount by reallocating the remaining payments for such year, for the months of the Lease Year which remain for the revised projections, and to advise Tenant of an adjustment in future monthly amounts to the end result that the Recognized Expenses and Taxes shall be collected on a reasonably current basis each Lease Year. (d) In calculating the Recognized Expenses as hereinbefore described, if for thirty (30) or more days during the preceding Lease Year less than ninety-five (95%) percent of the rentable area of the Buildings shall have been occupied by tenants, then the Recognized Expenses attributable to the Property shall be deemed for such Lease Year to be amounts equal to the Recognized Expenses which would normally be expected to be incurred had such occupancy of the Buildings been at least ninety-five (95%) percent throughout such year, as reasonably determined by Landlord (i.e., taking into account that certain expenses depend on occupancy and certain expenses do not (e.g., landscaping)). Furthermore, if Landlord shall not furnish any item or items of Recognized Expenses to any portions of the Buildings because such portions are not occupied or because such item is not required by the tenant of such portion of the Buildings, for the purposes of computing Recognized Expenses, an equitable adjustment shall be made so that the item of Operating Expense in question shall be shared only by tenants actually receiving the benefits thereof. (e) By April 30 of each Lease Year or as soon thereafter as administratively available, Landlord shall send to Tenant a statement of actual expenses incurred for Recognized Expenses and Taxes for the 8 prior Lease Year showing the Allocated Share due from Tenant. Landlord shall use its reasonable efforts to provide Tenant with the aforesaid statements on or before April 30 of each Lease Year; provided, however, if Landlord is unable to provide such statements by April 30, Landlord shall not have been deemed to waive its right to collect any such amounts as Additional Rent. In the event the amount prepaid by Tenant exceeds the amount that was actually due then Landlord shall issue a credit to Tenant in an amount equal to the over charge, which credit Tenant may apply to future payments on account of Recognized Expenses and Taxes until Tenant has been fully credited with the over charge. If the credit due to Tenant is more than the aggregate total of future rental payments, Landlord shall pay to Tenant the difference between the credit in such aggregate total. In the event Landlord has undercharged Tenant then Landlord shall send Tenant an invoice with the additional amount due, which amount shall be paid in full by Tenant within thirty (30) days of receipt. (f) Each of the Recognized Expense and Tax amounts, whether requiring lump sum payment or constituting projected monthly amounts added to the Fixed Rent, shall for all purposes be treated and considered as Additional Rent and the failure of Tenant to pay the same as and when due in advance and without demand shall have the same effect as failure to pay any installment of the Fixed Rent and shall afford Landlord all the remedies in the Lease therefor as well as at law or in equity. (g) If this Lease terminates other than at the end of a calendar year, Landlord's annual estimate of Recognized Expenses and Taxes shall be accepted by the parties as the actual Recognized Expenses and Taxes for the year the Lease ends unless Landlord provides Tenant with actual statements in accordance with subsection 6(e) above. 7. UTILITIES. From and after the Commencement Date, Tenant shall make arrangements with each utility company and public body to provide, in Tenant's name, gas, electricity, water, sewer, telephone, heat, and air conditioning necessary for Tenant's use of the Premises, and Tenant shall cause all such utilities to be separately metered, to the extent possible. Tenant shall pay directly to the companies furnishing utility service the cost of all service connection fees and the cost of all utilities consumed throughout the Term. If the water service is not separately metered, Landlord shall pay water bills for the Buildings, and Tenant shall pay to Landlord prior to the time when each bill becomes due an amount determined by Landlord based on past bills. In the event that Tenant fails to pay in a timely manner any sum required under this Section, Landlord shall have the right, but not the obligation, to pay any such sum. Any sum so paid by Landlord shall be deemed to be owing by Tenant to Landlord and due and payable as Additional Rent within five (5) days after demand therefor. In addition, if the water service is not separately metered and Tenant's water usage exceeds an average of $0.15 per square foot of rentable area of the Premises per year, as reasonably determined by Landlord, Landlord shall have the option to install a sub-meter, at Tenant's cost and expense, and to charge Tenant for water and sewer service based on the sub-meter readings. Landlord shall not be liable for any interruption or delay in electric or any other utility service for any reason unless caused by the gross negligence or willful misconduct of Landlord or its agents. Landlord shall have the right to change the electric and any other utility provider to the Project or to any of the Buildings at any time. Tenant's obligations for the payment of the costs incurred for utilities that serve the Premises prior to the termination of this Lease shall survive termination hereof. 8. SIGNS; USE OF PREMISES AND COMMON AREAS. (a) Tenant shall continue to enjoy the same identification signage as was provided pursuant to the Prior Leases. Tenant may at its option and at its expense, relocate the existing signage in connection with any relocation of its business offices within the Premises. No other signs shall be placed, erected or maintained by Tenant at any place upon the Premises, Buildings or Project. (b) Tenant may use and occupy the Premises only for the express and limited purposes stated in Article 1(j) above; and the Premises shall not be used or occupied, in whole or in part, for any other purpose without the prior written consent of Landlord; provided that Tenant's right to so use and occupy the Premises shall remain expressly subject to the provisions of "Governmental Regulations", Article 27 herein. No machinery or equipment shall be permitted that shall cause vibration, noise or disturbance beyond the Premises. 9 (c) Tenant shall not overload any floor or part thereof in the Premises or the Buildings, including any public corridors or elevators therein, bringing in, placing, storing, installing or removing any large or heavy articles, and Landlord may prohibit, or may direct and control the location and size of, safes and all other heavy articles, and may require, at Tenant's sole cost and expense, supplementary supports of such material and dimensions as Landlord may deem necessary to properly distribute the weight. (d) Tenant shall not install in or for the Premises, without Landlord's prior written approval, any equipment which requires more electric current than Landlord is required to provide under this Lease, and Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of electrical current which can safely be permitted in and for the Premises, taking into account the capacity of electric wiring in the Buildings and the Premises and the needs of common areas (interior and exterior) and the requirements of other tenants of the Buildings, and Tenant shall not in any event connect a greater load than such safe capacity. (e) Tenant shall not commit or suffer any waste upon the Premises, Buildings or Project or any nuisance, or any other act or thing which may disturb the quiet enjoyment of any other tenant in the Buildings or Project. (f) Tenant shall have the right, non-exclusive and in common with others, to use the exterior paved driveways and walkways of the Buildings for vehicular and pedestrian access to the Buildings. Tenant shall also have the right, in common with other tenants of the Buildings and Landlord, to use the designated parking areas of the Project for the parking of automobiles of Tenant and its employees and business visitors, incident to Tenant's permitted use of the Premises; provided that Landlord shall have the right to restrict or limit Tenant's utilization of the parking areas in the event the same become overburdened and in such case to equitably allocate on proportionate basis or assign parking spaces among Tenant and the other tenants of the Buildings. Landlord agrees to maintain non-exclusive parking areas serving the Project with an average of 2.7 spaces per 1,000 square feet of building area within the Project. Landlord shall have the right to establish reasonable regulations, applicable to all tenants, governing the use of or access to any interior or exterior common areas; and such regulations, when communicated by written notification from Landlord to Tenant, shall be deemed incorporated by reference hereinafter and part of this Lease. 9. ENVIRONMENTAL MATTERS. (a) Hazardous Substances. (i) Tenant shall not, except as provided in subparagraph (ii) below, bring or otherwise cause to be brought or permit any of its agents, employees, contractors or invitees to bring in, on or about any part of the Premises, Buildings or Project, any hazardous substance or hazardous waste, as such terms are or may be defined in (x) the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. 9601-11050, as the same may from time to time be amended, and the regulations promulgated pursuant thereto ("CERCLA"); the United States Department of Transportation Hazardous Materials Table (49 CFR 172.102); by the Environmental Protection Agency as hazardous substances (40 CFR Part 302); the Clean Air Act; and the Clean Water Act, and all amendments, modifications or supplements thereto; and/or (y) any other rule, regulation, ordinance, statute or requirements of any governmental or administrative agency regarding the environment (collectively, (x) and (y) shall be referred to as an "Applicable Environmental Laws"). (ii) Tenant may bring to and use at the Premises hazardous substances incidental to its normal business operations under the NAI Code referenced in article 1(m) above in the quantities reasonably required for Tenant's normal business consistent with its occupancy pursuant to the Prior Leases and in accordance with Applicable Environmental Laws. Tenant shall store and handle such substances in strict accordance with Applicable Environmental Laws. From time to time promptly following a request by Landlord, which shall not be made more frequently than quarterly, Tenant shall provide Landlord with documents identifying the hazardous substances stored or used by Tenant on the Premises and describing the chemical properties of such substances and such other information reasonably requested by Landlord or Tenant. Prior to the expiration or sooner termination of 10 this Lease, Tenant shall remove all hazardous substances from the Premises and shall provide Landlord with an inspection report from an independent environmental engineer certifying that the Premises and the land surrounding the Premises are free of contamination from hazardous substances and hazardous wastes. The provisions of this paragraph shall be personal to Tenant and, in the event Tenant ceases to occupy the Premises, Landlord's approval to store and use hazardous substances shall automatically terminate. (iii) Tenant shall defend, indemnify and hold harmless Landlord, Brandywine Realty Services Corp. and Brandywine Realty Trust and their respective employees and agents from and against any and all third-party claims, actions, damages, liability and expense (including all attorney's, consultant's and expert's fees, expenses and liabilities incurred in defense of any such claim or any action or proceeding brought thereon) arising from Tenant's storage and use of hazardous substances on the Premises including, without limitation, any and all costs incurred by Landlord because of any investigation of the Project or any cleanup, removal or restoration of the Project to remove or remediate hazardous substances or hazardous wastes deposited by Tenant. Without limitation of the foregoing, if Tenant, its officers, employees, agents, contractors, licensees or invitees, cause contamination of the Premises by any hazardous substances, Tenant shall promptly at its sole expense, take any and all necessary actions to return the Premises to the condition existing prior to such contamination, or in the alternative take such other remedial steps as may be required by law. (b) NAI Numbers. (i) Tenant represents and warrants that Tenant's NAI number as designated in the North American Industry Classification System Manual prepared by the Office of Management and Budget, and as set forth in Article 1(m) hereof, is correct. Tenant represents that the specific activities intended to be carried on in the Premises are in accordance with Article 1(j). (ii) Except as provided in Article 9(a)(ii), Tenant shall not engage in operations at the Premises which involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of "hazardous substances" or "hazardous waste" as such terms are defined under any Applicable Environmental Law. Tenant further covenants that it will not cause or permit to exist any "release" or "discharge" (as such term is defined under Applicable Environmental Laws) on or about the Premises. (iii) Tenant shall, at its expense, comply with all requirements of Applicable Environmental Laws pertaining thereto. (iv) In addition, upon written request of Landlord, Tenant shall cooperate with Landlord in obtaining Applicable Environmental Laws approval of any transfer of the Buildings. Specifically in that regard, Tenant agrees that it shall (1) execute and deliver all affidavits, reports, responses to questions, applications or other filings required by Landlord and related to Tenant's activities at the Premises, (2) allow inspections and testing of the Premises during normal business hours, and (3) as respects the Premises, perform any requirement reasonably requested by Landlord necessary for the receipt of approvals under Applicable Environmental Laws, provided the foregoing shall be at no out-of-pocket cost or expense to Tenant except for clean-up and remediation costs arising from Tenant's violation of this Article 9. (c) Additional Terms. (i) In the event of Tenant's failure to comply in full with this Article, Landlord may, after written notice to Tenant and Tenant's failure to cure within thirty (30) days of its receipt of such notice, at Landlord's option, perform any and all of Tenant's obligations as aforesaid and all costs and expenses incurred by Landlord in the exercise of this right shall be deemed to be Additional Rent payable on demand and with interest at the Default Rate. (ii) The parties acknowledge and agree that Tenant shall not be held responsible for any environmental issue at the Premises unless such issue was caused by an action or omission of Tenant or its agents, employees, consultants or invitees. 11 (iii) This Article 9 shall survive the expiration or sooner termination of this Lease. 10. TENANT'S ALTERATIONS. (a) Tenant will not cut or drill into or secure any fixture, apparatus or equipment or make alterations, improvements or physical additions (collectively, "Alterations") of any kind to any part of the Premises without first obtaining the written consent of Landlord, such consent not to be unreasonably withheld. Alterations shall, at Landlord's option, be done by Landlord at Tenant's sole cost and expense. Landlord's consent shall not be required for the installation of any office equipment or fixtures including internal partitions which do not require disturbance of any structural elements or systems (other than attachment thereto) within the Buildings. If Landlord approves Tenant's Alterations and agrees to permit Tenant's contractors to do the work, Tenant, prior to the commencement of labor or supply of any materials, must furnish to Landlord (i) a duplicate or original policy or certificates of insurance evidencing (a) general public liability insurance for personal injury and property damage in the minimum amount of $1,000,000.00 combined single limit, (b) statutory workman's compensation insurance, and (c) employer's liability insurance from each contractor to be employed (all such policies shall be non-cancelable without thirty (30) days prior written notice to Landlord and shall be in amounts and with companies satisfactory to Landlord); (ii) construction documents prepared and sealed by a registered Virginia architect if such alteration is in excess of $25,000; (iii) all applicable building permits required by law; and (iv) an executed, effective Waiver of Mechanics Liens from such contractors and all sub-contractors. Any consent by Landlord permitting Tenant to do any or cause any work to be done in or about the Premises shall be and hereby is conditioned upon Tenant's work being performed by workmen and mechanics without interference with labor employed by Landlord, Landlord's mechanics or their contractors or by any other tenant or their contractors. If at any time any of the workmen or mechanics performing any of Tenant's work shall interfere with any labor employed by Landlord, other tenants or their respective mechanics and contractors, then the permission granted by Landlord to Tenant permitting Tenant to do or cause any work to be done in or about the Premises, may be withdrawn by Landlord upon forty-eight (48) hours written notice to Tenant. Landlord shall be entitled to charge Tenant a reasonable Construction Management Fee of three percent (3.0%) of the cost of all Alterations supervised by Landlord, (b) All Alterations (whether temporary or permanent in character) made in or upon the Premises (other than the Landlord Work which will remain on the Premises), either by Landlord or Tenant, shall be Landlord's property upon installation and shall remain on the Premises without compensation to Tenant unless Landlord provides written notice to Tenant to remove same at the expiration of the Lease, in which event Tenant shall promptly remove such Alterations and restore the Premises to good order and condition. All furniture, movable trade fixtures and equipment (including telephone and communication equipment system wiring and cabling) installed by Tenant, its assignees and sublessees) shall be removed by Tenant at the termination of this Lease. All such installations, removals and restoration shall be accomplished in a good and workmanlike manner so as not to damage the Premises or Buildings and in such manner so as not to disturb other tenants in the Buildings. If Tenant fails to remove any items required to be removed pursuant to this Article, Landlord may do so and the costs and expenses thereof shall be deemed Additional Rent hereunder and shall be reimbursed by Tenant to Landlord within fifteen (15) business days of Tenant's receipt of an invoice therefor from Landlord. (c) Tenant acknowledges that modifications have been made to the Dabney A-1 Building and the Dabney A-2 Building in connection with Tenant's occupancy of such portion of the Premises pursuant to the Prior Leases, including installation of modified HVAC systems in the Dabney A-1 Building and the Dabney A-2 Building, material penetrations of the roofs of the Dabney A-1 Building and the Dabney A-2 Building to accommodate Tenant's facilities and, in the Dabney A-1 Building, construction of laboratory facilities. Tenant agrees that, upon the expiration or sooner termination of this Lease, Tenant shall (i) remove all excess HVAC facilities within the Dabney A-1 Building and the Dabney A-2 Building which Landlord determines will not be beneficial to subsequent tenants, (ii) put all remaining HVAC units in the Dabney A-1 Building and the Dabney A-2 Building in good working order and condition or, as necessary, replace such units, (iii) repair the roofs on the Dabney A-1 Building and the Dabney A-2 Building in accordance with the recommendations of an independent roof consultant selected by Landlord and reasonably acceptable to Tenant, which Landlord and Tenant agree shall include replacement of all panels of the metal roof on the Dabney A-2 Building which have been penetrated; 12 provided, however, if either or both of the roofs cannot be so repaired, Tenant shall replace the roof or roofs which cannot be repaired and (iv) otherwise restore the Dabney A-1 Building to the condition which existed prior to Tenant's occupancy of the Dabney A-1 Building. The work to be performed by Tenant pursuant to this Article 10(c) shall be in addition to the repairs and restorations required pursuant to other provisions of this Lease including, without limitation Article 10(b), Article 14 and Article 25. (d) Landlord shall provide Tenant an allowance of up to Forty Seven Thousand Six Hundred Ninety Four Dollars ($47,694.00) (the "Tenant's Improvement Allowance") to be applied against Tenant's costs in performing Alterations to the Premises which are made within twelve (12) months from the Commencement Date (collectively, the "Reimbursable Costs"). Tenant shall notify Landlord upon the completion of the Alterations and shall provide Landlord with any back up information reasonably requested by Landlord. The Reimbursable Costs shall be disbursed by Landlord to Tenant upon completion of the applicable Alterations and upon Landlord's satisfactory inspection of the work and confirmation of the amount expended by Tenant. All out-of-pocket costs actually incurred by Landlord in connection with the review of plans and specifications for the applicable Alterations and Landlord's Construction Management Fee shall be deducted from Tenant's Improvement Allowance. (e) Tenant acknowledges that there is no demising wall dividing Suites K and L of the Dabney VII Building and that Tenant shall be responsible to construct a demising wall between Suites K and L pursuant to plans to be approved by Landlord. Tenant covenants to complete the design, approval and construction of such wall within thirty (30) days after the Commencement Date. 11. CONSTRUCTION LIENS. (a) Tenant will not suffer or permit any contractor's, subcontractor's or supplier's lien (a "Construction Lien") to be filed against the Premises or any part thereof by reason of work, labor services or materials supplied or claimed to have been supplied to Tenant; and if any Construction Lien shall at any time be filed against the Premises or any part thereof, Tenant, within thirty (30) days after notice of the filing thereof, shall cause it to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise. If Tenant shall fail to cause such Construction Lien to be discharged within the period aforesaid, then in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge it either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings. Any amount so paid by Landlord, plus all of Landlord's costs and expenses associated therewith (including, without limitation, reasonable legal fees), shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand with interest from the date of advance by Landlord at the Default Rate. (b) Nothing in this Lease, or in any consent to the making of alterations or improvements shall be deemed or construed in any way as constituting authorization by Landlord for the making of any alterations or additions by Tenant within the meaning of Section 43-3 of the Code of Virginia or any amendment thereof, or constituting a request by Landlord, express or implied, to any contractor, subcontractor or supplier for the performance of any labor or the furnishing of any materials for the use or benefit of Landlord. 12. ASSIGNMENT AND SUBLETTING. (a) Subject to the remaining subsections of Article 12, except as expressly permitted pursuant to this section, Tenant shall not, without the prior written consent of Landlord, such consent not to be unreasonably withheld, assign, transfer or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. Subject to subparagraph 12(i) below, this Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant by operation of law or by merger, consolidation or asset sale, without the written consent of Landlord. (b) If at any time or from time to time during the term of this Lease Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord of such desire, including the 13 name, address and contact party for the proposed assignee or subtenant, a description of such party's business history, the effective date of the proposed assignment or sublease (including the proposed occupancy date by the proposed assignee or sublessee), and in the instance of a proposed sublease, the square footage to be subleased, a floor plan professionally drawn to scale, depicting the proposed sublease area, and a statement of the duration of the proposed sublease (which shall in any and all events expire by its terms prior to the scheduled expiration of this Lease, and immediately upon the sooner termination hereof). Landlord may, at its option, and in its sole and absolute discretion, exercisable by notice given to Tenant within sixty (60) days next following Landlord's receipt of Tenant's notice (which notice from Tenant shall, as a condition of its effectiveness, include all of the above-enumerated information), elect to recapture the Premises or such portion as is proposed by Tenant to be sublet (and in each case, the designated and non-designated parking spaces included in this demise, or a pro-rata portion thereof in the instance of the recapture of less than all of the Premises), and terminate this Lease with respect to the space being recaptured. (c) If Landlord elects to recapture the Premises or a portion thereof as aforesaid, then from and after the effective date thereof as approved by Landlord, after Tenant shall have fully performed such obligations as are enumerated herein to be performed by Tenant in connection with such recapture, and except as to obligations and liabilities accrued and unperformed (and any other obligations expressly stated in this Lease to survive the expiration or sooner termination of this Lease), Tenant shall be released of and from all lease obligations thereafter otherwise accruing with respect to the Premises (or such lesser portion as shall have been recaptured by Landlord). The Premises, or such portion thereof as Landlord shall have elected to recapture, shall be delivered by Tenant to Landlord free and clear of all furniture, furnishings, personal property and removable fixtures, with Tenant repairing and restoring any and all damage to the Premises resulting from the installation, handling or removal thereof, and otherwise in the same condition as Tenant is, by the terms of this Lease, required to redeliver the Premises to Landlord upon the expiration or sooner termination of this Lease. In the event of a sublease of less than all the Premises, the cost of erecting any required demising walls, entrances and entrance corridors, and any other or further improvements required in connection therewith, including without limitation, modifications to HVAC, electrical, plumbing, fire, life safety and security systems (if any), painting, wallpapering and other finish items as may be acceptable to or specified by Landlord, all of which improvements shall be made in accordance with applicable legal requirements and Landlord's then-standard base building specifications, shall be performed by Landlord's contractors, and shall be split 50% to Landlord and 50% to Tenant. Upon the completion of any recapture and termination as provided herein, Tenant's Fixed Rent, Recognized Expenses, Taxes, and any other monetary obligations hereunder shall be adjusted pro-rated based upon the reduced rentable square footage then comprising the Premises. (d) If Landlord provides written notification to Tenant electing not to recapture the Premises (or so much thereof as Tenant had proposed to sublease), then Tenant may proceed to market the designated space and may complete such transaction and execute an assignment of this Lease or a sublease agreement (in each case in form acceptable to Landlord) within a period of five (5) months next following Landlord's notice to Tenant that it declines to recapture such space, provided that Tenant shall have first obtained in any such case the prior written consent of Landlord to such transaction, which consent shall not be unreasonably withheld. If, however, Tenant shall not have assigned this Lease or sublet the Premises with Landlord's prior written consent as aforesaid within five (5) months next following Landlord's notice to Tenant that Landlord declines to recapture the Premises (or such portion thereof as Tenant initially sought to sublease), then in such event, Tenant shall again be required to request Landlord's consent to the proposed transaction, whereupon Landlord's right to recapture the Premises (or such portion as Tenant shall desire to sublease) shall be renewed upon the same terms and as otherwise provided in subsection (b) above. For purposes of this Section 12(d), and without limiting the basis upon which Landlord may withhold its consent to any proposed assignment or sublease, the parties agree that it shall not be unreasonable for Landlord to withhold its consent to such assignment or sublease if: (i) the proposed assignee or sublessee shall have a net worth which is not acceptable to Landlord in Landlord's reasonable discretion; (ii) the proposed assignee or sublessee shall have no reliable credit history or an unfavorable credit history, or other reasonable evidence exists that the proposed assignee or sublessee will experience difficulty in satisfying its financial or other obligations under this Lease; (iii) the proposed assignee of sublessee, in Landlord's reasonable opinion, is not reputable and of 14 good character; (iv) the portion of the Premises requested to be subleased renders the balance of the Premises unleasable as a separate area; (v) Tenant is proposing a sublease at a rental or subrental rate which is less than the then fair market rental rate for the portion of the Premises being subleased or assigned, or Tenant is proposing to assign or sublease to an existing tenant of the Buildings or another property owned by Landlord or by its partners, or to another prospect with whom Landlord or its partners, or their affiliates are then negotiating; (vi) the proposed assignee or sublessee will cause Landlord's existing parking facilities to be reasonably inadequate, or in violation of code requirements, or require Landlord to increase the parking area or the number of parking spaces to meet code requirements, or the nature of such party's business shall reasonably require more than the then existing ratio of parking spaces per 1,000 rentable square feet of floor space for the Buildings, or (vii) the nature of such party's proposed business operation would or might reasonably permit or require the use of the Premises in a manner inconsistent with the "Permitted Use " specified herein, would or might reasonably otherwise be in conflict with express provisions of this Lease, would or might reasonably violate the terms of any other lease for the Buildings, or would, in Landlord's reasonable judgement, otherwise be incompatible with other tenancies in the Buildings. (e) Any sums or other economic consideration received by Tenant as a result of any subletting, assignment or license (except rental or other payments received which are attributable to the amortization of the cost of leasehold improvements made to the sublet or assigned portion of the premises by Tenant for subtenant or assignee, and other reasonable expenses incident to the subletting or assignment, including standard leasing commissions) whether denominated rentals under the sublease or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to that portion of the premises subject to such sublease or assignment) shall be divided evenly between Landlord and Tenant, with Landlord's portion being payable to Landlord as Additional Rent under this Lease, without affecting or reducing any other obligation of Tenant hereunder. (f) Regardless of Landlord's consent, no subletting or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of rental by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. (g) In the event that (i) the Premises or any part thereof are sublet and Tenant is in default under this Lease, or (ii) this Lease is assigned by Tenant, then, Landlord may collect Rent from the assignee or subtenant and apply the net amount collected to the rent herein reserved; but no such collection shall be deemed a waiver of the provisions of this Article 12 with respect to assignment and subletting, or the acceptance of such assignee or subtenant as Tenant hereunder, or a release of Tenant from further performance of the covenants herein contained. (h) In connection with each proposed assignment or subletting of the Premises by Tenant, Tenant shall pay to Landlord (i) an administrative fee of $250 per request (including requests for Landlord Waivers) in order to defer Landlord's administrative expenses arising from such request, plus (ii) Landlord's reasonable attorneys' fees. (i) Tenant may, after notice to but without the consent of Landlord, assign this Lease to an affiliated (i.e., a corporation 50% or more of whose capital stock is owned by the same stockholders owning 50% or more of Tenant's capital stock), parent or subsidiary corporation of Tenant or to a corporation to which it sells or assigns all or substantially all of its assets or stock or with which it may be consolidated or merged, provided such purchasing, consolidated, merged, affiliated or subsidiary corporation shall, in writing, assume and agree to perform all of the obligations of Tenant under this Lease, shall have a net worth at least equal to the net worth of Tenant as of the date of this Lease, and it shall deliver such assumption with a copy of such assignment to Landlord within ten (10) days thereafter, and provided further that Tenant shall not be released or discharged from any liability under this Lease by reason of such assignment. 15 (j) Anything in this Article 12 to the contrary notwithstanding, no assignment or sublease shall be permitted under this Lease if, Tenant is in default of or has previously defaulted (even if such breach has been cured) in connection with any of its monetary obligations under this Lease. 13. LANDLORD'S RIGHT OF ENTRY. Landlord and persons authorized by Landlord may enter the Premises at all reasonable times upon reasonable advance notice (except in the case of an emergency in which case no prior notice is necessary) for the purpose of inspections, repairs, alterations to adjoining space, appraisals, or other reasonable purposes; including enforcement of Landlord's rights under this Lease. Landlord shall not be liable for inconvenience to or disturbance of Tenant by reason of any such entry; provided, however, that in the case of repairs or work, such shall be done, so far as practicable, so as to not unreasonably interfere with Tenant's use of the Premises. Provided, however, that such efforts shall not require Landlord to use overtime labor unless Tenant shall pay for the increased costs to be incurred by Landlord for such overtime labor. Landlord also shall have the right to enter the Premises at all reasonable times after giving prior verbal notice to Tenant, to exhibit the Premises to any prospective purchaser, tenant and/or mortgagee. 14. REPAIRS AND MAINTENANCE. (a) Except as specifically otherwise provided in this Article, Tenant, at its sole cost and expense and throughout the Term of this Lease, shall keep and maintain the Premises in good order and condition, free of accumulation of dirt and rubbish, and shall promptly make all non-structural repairs or replacements necessary to keep and maintain such good order and condition, which shall include, but not be limited to the following: interior windows, glass and plate glass, doors, interior walls and finish work, floors and floor coverings, lighting and electrical systems, dock boards, dock area, truck doors, dock bumpers, dock area stairways, HVAC and mechanical systems (including fixtures and equipment), plumbing work and fixtures, termite and pest prevention and extermination and regular trash removal. Tenant shall have the option of replacing lights, ballast, tubes, ceiling tiles, outlets and similar equipment itself or it shall have the ability to advise Landlord of Tenant's desire to have Landlord make such repairs. If requested by Tenant, Landlord shall make such repairs to the Premises within a reasonable time of notice to Landlord and shall charge Tenant for such services at Landlord's standard rate (such rate to be competitive with the market rate for such services). Tenant shall not use or permit the use of any portion of the Premises for outdoor storage except as approved in advance by Landlord. When used in this Article 14, the term "repairs" shall include replacements and renewals when necessary. All repairs made by Tenant shall utilize materials and equipment which are at least equal in quality and usefulness to those originally used in constructing the Buildings and the Premises. (b) Landlord, throughout the Term of this Lease and at Landlord's sole cost and expenses, shall make all necessary repairs to the footings and foundations and the structural steel columns and girders forming a part of the Premises. (c) Tenant shall, at its expense, enter into a contract with a certified pest control company to provide termite and pest prevention and extermination services to the Premises and shall provide Landlord with a copy of the fully executed contract within thirty (30) days after the Commencement Date. Tenant shall retain copies of all prevention and extermination services provided pursuant to such contract or otherwise and shall provide copies of all such records to Landlord upon request. (d) Landlord, throughout the Term of this Lease, shall make all necessary repairs to the Buildings outside of the Premises and the common areas, including the roof, walls, exterior portions of the Premises and the Buildings, utility lines, equipment and other utility facilities in the Buildings, which serve more than one tenant of the Buildings, and to any driveways, sidewalks, curbs, parking and landscaped areas, and other exterior improvements for the Buildings; provided, however, that Landlord shall have no responsibility to make any repairs unless and until Landlord receives written notice of the need for such repair or Landlord has actual knowledge of the need to make such repair. Tenant shall pay (i) one hundred percent (100%) of the cost of all repairs to the roofs of the Buildings to be performed by Landlord pursuant to this Article 14(d) and (ii) Tenant's Allocated Share of the cost of all other repairs to be performed by Landlord pursuant to this Article 14(d) as Additional Rent as provided in Article 6 hereof. 16 (e) Landlord shall keep and maintain all common areas appurtenant to the Buildings and any sidewalks, parking areas, curbs and access ways adjoining the Property in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice, and shall keep and maintain all landscaped areas in a neat and orderly condition. Tenant shall pay its Allocated Share of the cost of all work to be performed by Landlord pursuant to this Article 14(e) as Additional Rent as provided in Article 6 hereof. (f) Notwithstanding anything herein to the contrary, repairs to the Premises, Buildings or Project and its appurtenant common areas made necessary by a negligent or willful act or omission of Tenant or any employee, agent, contractor, or invitee of Tenant shall be made at the sole cost and expense of Tenant, except to the extent of Landlord's insurance proceeds received by Landlord therefor. (g) If, within ten (10) business days following written notice to Tenant, Tenant fails to (i) pay any amount to be paid by Tenant pursuant to this Article 14 or (ii) commence any maintenance, repair or replacement to be performed by Tenant pursuant to this Article 14 and to diligently pursue timely completion of such maintenance, repair or replacement, Landlord may, at its option, make such payments or cause such maintenance, repair or replacement to be performed and, in any such event, Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord, including reasonable attorneys' fees and other legal expenses, together with interest at the rate of 10% per annum from the dates of Landlord's incurring of costs or expenses. 15. INSURANCE; SUBROGATION RIGHTS. (a) Tenant shall obtain and keep in force at all times during the term hereof, at its own expense, comprehensive general liability insurance including contractual liability and personal injury liability and all similar coverage, with combined single limits of $3,000,000.00 on account of bodily injury to or death of one or more persons as the result of any one accident or disaster and on account of damage to property, or in such other amounts as Landlord may from time to time require. Tenant shall also require its movers to procure and deliver to Landlord a certificate of insurance naming landlord as an additional insured. (b) Tenant shall, at its sole cost and expense, maintain in full force and effect on all Tenant's trade fixtures, equipment and personal property on the Premises, a policy of all risk property insurance covering the full replacement value of such property. Tenant shall also provide and keep in force, business interruption insurance in an amount equivalent to twelve (12) months' Rent and Additional Rent which shall not contain a deductible greater than seventy-two (72) hours. (c) All insurance required hereunder shall not be subject to cancellation without at least thirty (30) days prior notice to all insureds, and shall name Landlord, Brandywine Realty Trust, Landlord's Agent and Tenant as insureds, as their interests may appear, and, if requested by Landlord, shall also name as an additional insured any mortgagee or holder of any mortgage which may be or become a lien upon any part of the Premises. Prior to the commencement of the Term, Tenant shall provide Landlord with certificates which evidences that the coverage required have been obtained and that premiums have been paid in full for the policy periods. Tenant shall also furnish to Landlord throughout the term hereof replacement certificates, together with evidence of like paid premiums at least thirty (30) days prior to the expiration dates of the then current policy or policies. All the insurance required under this Lease shall be issued by insurance companies authorized to do business in the Commonwealth of Virginia with a financial rating of at least an A-X as rated in the most recent edition of Best's Insurance Reports and in business for the past five years. The limit of any such insurance shall not limit the liability of Tenant hereunder. If Tenant fails to procure and maintain such insurance, Landlord may, but shall not be required to, procure and maintain the same, at Tenant's expense to be reimbursed by Tenant as Additional Rent within ten (10) days of written demand. Any deductible under such insurance policy or self-insured retention under such insurance policy in excess of Twenty Thousand ($20,000) must be approved by Landlord in writing prior to issuance of such policy. Tenant shall not self-insure without Landlord's prior written consent. The policy limits set forth herein shall be subject to periodic review, and Landlord reserves the right to require that Tenant increase the 17 liability coverage limits if, in the reasonable opinion of Landlord, the coverage becomes inadequate and is less than commonly maintained by tenants of similar buildings in the area making similar uses. (d) Landlord shall obtain and maintain the following insurance during the Term of this Lease: (i) replacement cost insurance including all risk perils on the Buildings and on the Project, (ii) builder's risk insurance for the Landlord Work to be constructed by Landlord in the Project, and (iii) comprehensive liability insurance (including bodily injury and property damage) covering Landlord's operations at the Project in amounts reasonably required by the Landlord's lender or Landlord. (e) Each party hereto, and anyone claiming through or under them by way of subrogation, waives and releases any cause of action it might have against the other party and Brandywine Realty Trust and their respective employees, officers, members, partners, trustees and agents, on account of any loss or damage that is insured against under any insurance policy required to be obtained hereunder (to the extent that such loss or damage is recoverable under such insurance policy) that covers the Project, Buildings or Premises, Landlord's or Tenant's fixtures, personal property, leasehold improvements or business and which names Landlord and Brandywine Realty Trust or Tenant, as the case may be, as a party insured. Each party hereto agrees that it will cause its insurance carrier to endorse all applicable policies waiving the carrier's right of recovery under subrogation or otherwise against the other party. During any period while such waiver of right of recovery is in effect, each party shall look solely to the proceeds of such policies for compensation for loss, to the extent such proceeds are paid under such policies. 16. INDEMNIFICATION. (a) Tenant shall defend, indemnify and hold harmless Landlord, Brandywine Realty Services Corp. and Brandywine Realty Trust and their respective employees and agents from and against any and all third-party claims, actions, damages, liability and expense (including all attorney's fees, expenses and liabilities incurred in defense of any such claim or any action or proceeding brought thereon) arising from (i) Tenant's improper use of the Premises, (ii) the improper conduct of Tenant's business, (iii) any activity, work or things done, permitted or suffered by Tenant or its agent, licensees or invitees in or about the Premises or elsewhere contrary to the requirements of the Lease, (iv) any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, and (v) any negligence or willful act of Tenant or any of Tenant's agents, contractors, employees or invitees and, without limiting the generality of the foregoing, Tenant's obligations shall include any case in which Landlord, Brandywine Realty Services Corp. or Brandywine Realty Trust shall be made a party to any litigation commenced by or against Tenant, its agents, subtenants, licensees, concessionaires, contractors, customers or employees, and Tenant shall defend, indemnify and hold harmless Landlord, Brandywine Realty Services Corp. and Brandywine Realty Trust and shall pay all costs, expenses and reasonable attorney's fees incurred or paid by Landlord, Brandywine Realty Services Corp. and Brandywine Realty Trust in connection with such litigation, after notice to Tenant and Tenant's refusal to defend such litigation, and upon notice from Landlord shall defend the same at Tenant's expense by counsel satisfactory to Landlord. (b) Landlord shall defend, indemnify and hold harmless Tenant and its respective employees and agents from and against any and all third-party claims, actions, damages, liability and expense (including all attorney's fees, expenses and liabilities incurred in defense of any such claim or any action or proceeding brought thereon) arising from (i) Landlord's improper use of the Premises, (ii) the improper conduct of Landlord's business, (iii) any activity, work or things done, permitted or suffered by Landlord in or about the Premises or elsewhere contrary to the requirements of the Lease, (iv) any breach or default in the performance of any obligation of Landlord's part to be performed under the terms of this Lease, and (v) any negligence or willful act of Landlord or any of Landlord's agents, contractors, employees or invitees without limiting the generality of the foregoing, Landlord's obligations shall include any case in which Tenant shall be made a party to any litigation commenced by or against Landlord, its agents, subtenants, licensees, concessionaires, contractors, customers or employees, then Landlord shall defend, indemnify and hold harmless Tenant and shall pay all costs, expenses and reasonable attorney's fees incurred or paid by Tenant in connection with such litigation, after notice to Landlord and Landlord's refusal to defend such litigation, and upon notice from Tenant shall defend the same at Landlord's expense by counsel satisfactory to Tenant. 18 17. QUIET ENJOYMENT. Provided Tenant has performed all of the terms and conditions of this Lease, including the payment of Fixed Rent and Additional Rent, to be performed by Tenant, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term, without hindrance from Landlord, or anyone claiming by through or under Landlord under and subject to the terms and conditions of this Lease and of any mortgages now or hereafter affecting all of or any portion of the Premises. 18. FIRE DAMAGE. (a) Except as provided below, in case of damage to the Premises by fire or other insured casualty, Landlord shall repair the damage. Such repair work shall be commenced promptly following notice of the damage and completed with due diligence, taking into account the time required for Landlord to effect a settlement with and procure insurance proceeds from the insurer, except for delays due to governmental regulation, scarcity of or inability to obtain labor or materials, intervening acts of God or other causes beyond Landlord's reasonable control. (b) Notwithstanding the foregoing, if (i) the damage is of a nature or extent that, in Landlord's reasonable judgment (to be communicated to Tenant within sixty (60) days from the date of the casualty), the repair and restoration work would require more than one hundred eighty (180) consecutive days to complete after the casualty and, assuming normal work crews not engaged in overtime, or (ii) if more than thirty (30%) percent of the total area of the Buildings is extensively damaged, either party shall have the right to terminate this Lease and all the unaccrued obligations of the parties hereto, by sending written notice of such termination to the other within ten (10) days of Tenant's receipt of the notice from Landlord described above. Such notice is to specify a termination date no less than fifteen (15) days after its transmission. (c) If the insurance proceeds received by Landlord as dictated by the terms and conditions of any financing then existing on the Buildings, (excluding any rent insurance proceeds) would not be sufficient to pay for repairing the damage or are required to be applied on account of any mortgage which encumbers any part of the Premises or Buildings, or if the nature of loss is not covered by Landlord's fire insurance coverage, Landlord may elect either to (i) repair the damage as above provided notwithstanding such fact or (ii) terminate this Lease by giving Tenant notice of Landlord's election as aforesaid. (d) In the event Landlord has not completed restoration of the Premises within one hundred eighty (180) days from the date of casualty (subject to delay due to weather conditions, shortages of labor or materials or other reasons beyond Landlord's control which delay in any event will not exceed an additional thirty (30) business days), Tenant may terminate this Lease by written notice to Landlord within thirty (30) business days following the expiration of such 210 day period (as extended for reasons beyond Landlord's control as provided above) unless, within thirty (30) business days following receipt of such notice, Landlord has substantially completed such restoration and delivered the Premises to Tenant for occupancy. Notwithstanding the foregoing, in the event Tenant is responsible for the aforesaid casualty, Tenant shall not have the right to terminate this Lease if Landlord is willing to rebuild and restore the Premises. (e) In the event of damage or destruction to the Premises or any part thereof, Tenant's obligation to pay Fixed Rent and Additional Rent shall be equitably adjusted or abated. 19. SUBORDINATION; RIGHTS OF MORTGAGEE. (a) This Lease shall be subject and subordinate at all times to the lien of any mortgages now or hereafter placed upon the Premises, Buildings and/or Project and land of which they are a part without the necessity of any further instrument or act on the part of Tenant to effectuate such subordination. Tenant further agrees to execute and deliver upon demand such further instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage and such further instrument or instruments of attornment as shall be desired by any mortgagee or proposed mortgagee or by any other person. Notwithstanding the foregoing, any mortgagee may at any time subordinate its mortgage to this Lease, without Tenant's consent, by notice in writing to 19 Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery and in that event such mortgagee shall have the same rights with respect to this Lease as though it had been executed prior to the execution and delivery of the mortgage. (b) In the event Landlord shall be or is alleged to be in default of any of its obligations owing to Tenant under this Lease, Tenant agrees to give to the holder of any mortgage (collectively the "Mortgagee") now or hereafter placed upon the Premises, Buildings and/or Project, notice by registered mail of any such default which Tenant shall have served upon Landlord, provided that prior thereto Tenant has been notified in writing (by way of Notice of Assignment of Rents and/or Leases or otherwise in writing to Tenant) of the name and addresses of any such Mortgagee. Tenant shall not be entitled to exercise any right or remedy as there may be because of any default by Landlord without having given such notice to the Mortgagee; and Tenant further agrees that if Landlord shall fail to cure such default the Mortgagee shall have thirty (30) additional days (measured from the later of the date on which the default should have been cured by Landlord or the Mortgagee's receipt of such notice from Tenant), within which to cure such default, provided that if such default be such that the same could not be cured within such period and Mortgagee is diligently pursuing the remedies necessary to effectuate the cure (including but not limited to foreclosure proceedings if necessary to effectuate the cure); then Tenant shall not exercise any right or remedy as there may be arising because of Landlord's default, including but not limited to, termination of this Lease as may be expressly provided for herein or available to Tenant as a matter of law, if the Mortgagee either has cured the default within such time periods, or as the case may be, has initiated the cure of same within such period and is diligently pursuing the cure of same as aforesaid. Landlord shall use its reasonable efforts to deliver a subordination, attornment and non-disturbance agreement ("Non-disturbance Agreement") from each future Landlord's Mortgagee, on each such mortgagee's standard form, which shall provide, inter alia, that the leasehold estate granted to Tenant under this Lease will not be terminated or disturbed by reason of the foreclosure of the mortgage held by Landlord's Mortgagee, so long as Tenant shall not be in default under this Lease and shall pay all sums due under this Lease without offsets or defenses thereto and shall fully perform and comply with all of the terms, covenants and conditions of this Lease on the part of Tenant to be performed and/or complied with, and in the event a future mortgagee or its respective successor or assigns shall enter into and lawfully become possessed of the Premises covered by this Lease and shall succeed to the rights of Landlord hereunder, Tenant will attorn to the successor as its landlord under this Lease and, upon the request of such successor landlord, Tenant will execute and deliver an attornment agreement in favor of the successor landlord. In the event a future mortgagee shall be unwilling to enter into a Non-disturbance Agreement as aforesaid, this Lease shall remain in full force and effect and the obligations of Tenant shall not in any manner be affected except that, anything to the contrary contained in this Lease notwithstanding, this Lease shall not be subject and subordinate to such future mortgage. 20. CONDEMNATION. (a) If more than twenty (20%) percent of the floor area of the Premises is taken or condemned for a public or quasi-public use (a sale in lieu of condemnation to be deemed a taking or condemnation for purposes of this Lease), this Lease shall, at either party's option, terminate as of the date title to the condemned real estate vests in the condemnor, and the Fixed Rent and Additional Rent herein reserved shall be apportioned and paid in full by Tenant to Landlord to that date and all rent prepaid for period beyond that date shall forthwith be repaid by Landlord to Tenant and neither party shall thereafter have any liability hereunder. (b) If less than twenty (20%) percent of the floor area of the Premises is taken or if neither Landlord nor Tenant have elected to terminate this Lease pursuant to the preceding sentence, Landlord shall do such work as may be reasonably necessary to restore the portion of the Premises not taken to tenantable condition for Tenant's uses, but shall not be required to expend more than the net award Landlord reasonably expects to be available for restoration of the Premises. If Landlord determines that the damages available for restoration of the Buildings and/or Project will not be sufficient to pay the cost of restoration, or if the condemnation damage award is required to be applied on account of any mortgage which encumbers any part of the Premises, Buildings and/or Project, Landlord may terminate this Lease by giving Tenant thirty (30) days prior notice specifying the termination date. 20 (c) If this Lease is not terminated after any such taking or condemnation, the Fixed Rent and the Additional Rent shall be equitably reduced in proportion to the area of the Premises which has been taken for the balance of the Term. (d) If a part or all of the Premises shall be taken or condemned, all compensation awarded upon such condemnation or taking shall go to Landlord and Tenant shall have no claim thereto other than Tenant's damages associated with moving, storage and relocation; and Tenant hereby expressly waives, relinquishes and releases to Landlord any claim for damages or other compensation to which Tenant might otherwise be entitled because of any such taking or limitation of the leasehold estate hereby created, and irrevocably assigns and transfers to Landlord any right to compensation of all or a part of the Premises or the leasehold estate. 21. ESTOPPEL CERTIFICATE. Each party agrees at any time and from time to time, within ten (10) business days after the other party's written request, to execute, acknowledge and deliver to the other party a written instrument in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that it is in full force and effect as modified and stating the modifications), and the dates to which Rent, Additional Rent, and other charges have been paid in advance, if any, and stating whether or not to the best knowledge of the party signing such certificate, the requesting party is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the signer may have knowledge. It is intended that any such certification and statement delivered pursuant to this Article may be relied upon by any prospective purchaser of the Project or any mortgagee thereof or any assignee of Landlord's interest in this Lease or of any mortgage upon the fee of the Premises or any part thereof. 22. DEFAULT. If: (i) Tenant fails to pay any installment of Fixed Rent or any amount of Additional Rent when due; provided, however, Landlord shall provide written notice of the failure to pay such Rent and Tenant shall have a five (5) business day grace period from its receipt of such Landlord's notice (facsimile receipt being deemed to be notice hereunder) within which to pay such Rent without creating a default hereunder. The late fee set forth in Article 5 hereof shall be due on the first day after such payment is due irrespective of the foregoing notice and grace period. No additional notice shall be required thereafter and Landlord shall be entitled to immediately exercise its remedies hereunder if payment is not received during the grace period, (ii) Intentionally Deleted, (iii) Tenant fails to observe or perform any of Tenant's other non-monetary agreements or obligations herein contained within thirty (30) days after written notice specifying the default, or the expiration of such additional time period as is reasonably necessary to cure such default, provided Tenant immediately commences and thereafter proceeds with all due diligence and in good faith to cure such default, (iv) Tenant makes any assignment for the benefit of creditors, (v) a petition is filed or any proceeding is commenced against Tenant or by Tenant under any federal or state bankruptcy or insolvency law and such petition or proceeding is not dismissed within thirty (30) days, (vi) a receiver or other official is appointed for Tenant or for a substantial part of Tenant's assets or for Tenant's interests in this Lease, (vii) any attachment or execution against a substantial part of Tenant's assets or of Tenant's interests in this Lease remains unstayed or undismissed for a period of more than ten (10) days, or 21 (viii) a substantial part of Tenant's assets or of Tenant's interest in this Lease is taken by legal process in any action against Tenant, then, in any such event, an Event of Default shall be deemed to exist and Tenant shall be in default hereunder. If an Event of Default shall occur, the following provisions shall apply and Landlord shall have, in addition to all other rights and remedies available at law or in equity, the rights and remedies set forth therein, which rights and remedies may be exercised upon or at any time following the occurrence of an Event of Default unless, prior to such exercise, Landlord shall agree in writing with Tenant that the Event(s) of Default has been cured by Tenant in all respects. (a) Acceleration of Rent. By notice to Tenant, Landlord shall have the right to accelerate all Fixed Rent and all expense installments due hereunder and otherwise payable in installments over the remainder of the Term, and, at Landlord's option, any other Additional Rent to the extent that such Additional Rent can be determined and calculated to a fixed sum; and the amount of accelerated rent to the termination date, without further notice or demand for payment, shall be due and payable by Tenant within five (5) days after Landlord has so notified Tenant, such amount collected from Tenant shall be discounted to present value using an interest rate of six percent (6%) per annum. Additional Rent which has not been included, in whole or in part, in accelerated rent, shall be due and payable by Tenant during the remainder of the Term, in the amounts and at the times otherwise provided for in this Lease. Notwithstanding the foregoing or the application of any rule of law based on election of remedies or otherwise, if Tenant fails to pay the accelerated rent in full when due, Landlord thereafter shall have the right by notice to Tenant, (i) to terminate Tenant's further right to possession of the Premises and (ii) to terminate this Lease under subparagraph (b) below; and if Tenant shall have paid part but not all of the accelerated rent, the portion thereof attributable to the period equivalent to the part of the Term remaining after Landlord's termination of possession or termination of this Lease shall be applied by Landlord against Tenant's obligations owing to Landlord, as determined by the applicable provisions of subparagraphs (c) and (d) below. (b) Termination of Lease. By notice to Tenant, Landlord shall have the right to terminate this Lease as of a date specified in the notice of termination and in such case, Tenant's rights, including any based on any option to renew, to the possession and use of the Premises shall end absolutely as of the termination date; and this Lease shall also terminate in all respects except for the provisions hereof regarding Landlord's damages and Tenant's liabilities arising prior to, out of and following the Event of Default and the ensuing termination. Following such termination and the notice of same provided above (as well as upon any other termination of this Lease by expiration of the Term or otherwise) Landlord immediately shall have the right to recover possession of the Premises; and to that end, Landlord may enter the Premises and take possession, without the necessity of giving Tenant any notice to quit or any other further notice, with or without legal process or proceedings, and in so doing Landlord may remove Tenant's property (including any improvements or additions to the Premises which Tenant made, unless made with Landlord's consent which expressly permitted Tenant to not remove the same upon expiration of the Term), as well as the property of others as may be in the Premises, and make disposition thereof in such manner as Landlord may deem to be commercially reasonable and necessary under the circumstances. (c) Tenant's Continuing Obligations/Landlord's Duty to Mitigate. (1) Unless and until Landlord shall have terminated this Lease under subparagraph (b) above, Tenant shall remain fully liable and responsible to perform all of the covenants and to observe all the conditions of this Lease throughout the remainder of the Term to the early termination date; and, in addition, Tenant shall pay to Landlord, upon demand and as Additional Rent, the total sum of all costs, losses, damages and expenses, including reasonable attorneys' fees, as Landlord incurs, directly or indirectly, because of any Event of Default having occurred. 22 (2) If Landlord either terminates Tenant's right to possession without terminating this Lease or terminates this Lease and Tenant's leasehold estate as above provided, then, subject to the provisions below, Landlord shall have the duty to mitigate its damages by using commercially reasonable efforts to relet the Premises or any part(s) thereof to such tenant(s) on such provisions and for such period(s) as are commercially reasonable under the particular circumstances. Landlord shall not be liable to Tenant for its inability to mitigate damages if it shall endeavor to relet the Premises in like manner as it offers other comparable vacant space or property available for leasing to others in the Project of which the Buildings are a part. If Landlord relets the Premises after such a default, the costs recovered from Tenant shall be reallocated to take into consideration any additional rent which Landlord receives from the new tenant which is in excess to that which was owed by Tenant. (d) Landlord's Damages. (1) The damages which Landlord shall be entitled to recover from Tenant shall be the sum of: (A) all Fixed Rent and Additional Rent accrued and unpaid as of the termination date; and (B) (i) all costs and expenses incurred by Landlord in recovering possession of the Premises, including removal and storage of Tenant's property, (ii) the costs and expenses of restoring the Premises to the condition in which the same were to have been surrendered by Tenant as of the expiration of the Term, and (iii) the costs of reletting commissions; and (C) all Fixed Rent and Additional Rent (to the extent that the amount(s) of Additional Rent has been then determined) otherwise payable by Tenant over the remainder of the Term as reduced to present value. Provided Landlord shall deduct from the total determined under subparagraphs (A), (B) and (C) all Rent and all other Additional Rent to the extent determinable as aforesaid, (to the extent that like charges would have been payable by Tenant) which Landlord receives from other tenant(s) by reason of the leasing of the Premises or part during or attributable to any period falling within the otherwise remainder of the Term. (2) The damage sums payable by Tenant under the preceding provisions of this paragraph (d) shall be payable on demand from time to time as the amounts are determined; and if from Landlord's subsequent receipt of rent as aforesaid from reletting, there be any excess payment(s) by Tenant by reason of the crediting of such rent thereafter received, the excess payment(s) shall be refunded by Landlord to Tenant, without interest. (3) Landlord may distrain for rent, and enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, and for the enforcement of any other appropriate legal or equitable remedy, including, without limitation, injunctive relief, and for recovery of all moneys due or to become due from Tenant under any of the provisions of this Lease. (e) Landlord's Right to Cure. Without limiting the generality of the foregoing, if Tenant shall be in default in the performance of any of its obligations hereunder, Landlord, without being required to give Tenant any notice or opportunity to cure, may (but shall not be obligated to do so), in addition to any other rights it may have in law or in equity, cure such default on behalf of Tenant, and Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including reasonable attorneys' fees and other legal expenses, together with interest at 10% per annum Rate from the dates of Landlord's incurring of costs or expenses. Tenant further waives the right to any notices to quit as may be specified by law, and agrees that five (5) days notice shall be sufficient in any case where a longer period may be statutorily specified. 23 (f) Interest on Damage Amounts. Any sums payable by Tenant hereunder, which are not paid after the same shall be due, shall bear interest from that day until paid at the rate of four (4%) percent over the then Prime Rate as published daily under the heading "Money Rates" in The Wall Street Journal, unless such rate be usurious as applied to Tenant, in which case the highest permitted legal rate shall apply (the "Default Rate"). (g) Landlord's Statutory Rights. Landlord shall have all rights and remedies now or hereafter existing at law or in equity with respect to the enforcement of Tenant's obligations hereunder and the recovery of the Premises. No right or remedy herein conferred upon or reserved to Landlord shall be exclusive of any other right or remedy, but shall be cumulative and in addition to all other rights and remedies given hereunder or now or hereafter existing at law. Landlord shall be entitled to injunctive relief in case of the violation, or attempted or threatened violation, of any covenant, agreement, condition or provision of this Lease, or to a decree compelling performance of any covenant, agreement, condition or provision of this Lease. (h) Remedies Not Limited. Nothing herein contained shall limit or prejudice the right of Landlord to exercise any or all rights and remedies available to Landlord by reason of default or to prove for and obtain in proceedings under any bankruptcy or insolvency laws, an amount equal to the maximum allowed by any law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damage referred to above. (i) No Waiver by Landlord. No delay or forbearance by Landlord in exercising any right or remedy hereunder, or Landlord's undertaking or performing any act or matter which is not expressly required to be undertaken by Landlord shall be construed, respectively, to be a waiver of Landlord's rights or to represent any agreement by Landlord to undertake or perform such act or matter thereafter. Waiver by Landlord of any breach by Tenant of any covenant or condition herein contained (which waiver shall be effective only if so expressed in writing by Landlord) or failure by Landlord to exercise any right or remedy in respect of any such breach shall not constitute a waiver or relinquishment for the future of Landlord's right to have any such covenant or condition duly performed or observed by Tenant, or of Landlord's rights arising because of any subsequent breach of any such covenant or condition nor bar any right or remedy of Landlord in respect of such breach or any subsequent breach. Landlord's receipt and acceptance of any payment from Tenant which is tendered not in conformity with the provisions of this Lease or following an Event of Default (regardless of any endorsement or notation on any check or any statement in any letter accompanying any payment) shall not operate as an accord and satisfaction or a waiver of the right of Landlord to recover any payments then owing by Tenant which are not paid in full, or act as a bar to the termination of this Lease and the recovery of the Premises because of Tenant's previous default. 23. INTENTIONALLY DELETED 24. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents and warrants to Tenant that: (a) Landlord is the fee owner of the Buildings and the Project; and (b) Landlord has the authority to enter into this Lease. 25. SURRENDER. Tenant shall, at the expiration of the Term, promptly quit and surrender the Premises in good order and condition and in conformity with the applicable provisions of this Lease including, without limitation the provisions of Article 10 regarding restoration of the Premises, excepting only reasonable wear and tear and damage by fire or other insured casualty. Tenant shall have no right to hold over beyond the expiration of the Term and in the event Tenant shall fail to deliver possession of the Premises as herein provided, such occupancy shall not be construed to effect or constitute other than a tenancy at sufferance. During any period of occupancy beyond the expiration of the Term the amount of rent owed to Landlord by Tenant shall automatically become one hundred fifty percent (150%) the sum of the Rent as those sums are at that time calculated under the provisions of the Lease. If Tenant fails to surrender the space within thirty (30) days of the termination date, Landlord may elect to automatically extend the Term for an additional month or additional year, at Landlord's option, with a Rent of one hundred fifty percent (150%) the sum of the Rent as those sums are at that time calculated under the provisions of the Lease. The acceptance of rent by Landlord or the failure or delay of Landlord in notifying or evicting Tenant following the expiration or sooner termination of the Term shall not create any tenancy 24 rights in Tenant and any such payments by Tenant may be applied by Landlord against its costs and expenses, including attorney's fees incurred by Landlord as a result of such holdover. 26. RULES AND REGULATIONS. Tenant agrees that at all times during the terms of this Lease (as same may be extended) it, its employees, agents, invitees and licenses shall comply with all rules and regulations specified on Exhibit "C" attached hereto and made a part hereof, together with all reasonable Rules and Regulations as Landlord may from time to time promulgate provided they do not increase the financial burdens of Tenant or unreasonably restrict Tenant's rights under this Lease. Tenant's right to dispute the reasonableness of any changes in or additions to the Rules and Regulations shall be deemed waived unless asserted to Landlord within ten (10) business days after Landlord shall have given Tenant written notice of any such adoption or change. In case of any conflict or inconsistency between the provisions of this Lease and any Rules and Regulations, the provisions of this Lease shall control. Landlord shall have no duty or obligation to enforce any Rule and Regulation, or any term, covenant or condition of any other lease, against any other tenant, and Landlord's failure or refusal to enforce any Rule or Regulation or any term, covenant of condition of any other lease against any other tenant shall be without liability of Landlord to Tenant. However, if Landlord does enforce Rules or Regulations, Landlord shall endeavor to enforce same equally in a non-discriminatory manner. 27. GOVERNMENTAL REGULATIONS. (a) Tenant shall, in the use and occupancy of the Premises and the conduct of Tenant's business or profession therein, at all times comply with all applicable laws, ordinances, orders, notices, rules and regulations of the federal, state and municipal governments, or any of their departments and the regulations of the insurers of the Premises, Buildings and/or Project. (b) Without limiting the generality of the foregoing, Tenant shall (i) obtain, at Tenant's expense, before engaging in Tenant's business or profession within the Premises, all necessary licenses and permits including (but not limited to) state and local business licenses or permits, and (ii) remain in compliance with and keep in full force and effect at all times all licenses, consents and permits necessary for the lawful conduct of Tenant's business or profession at the Premises. Tenant shall pay all personal property taxes, income taxes and other taxes, assessments, duties, impositions and similar charges which are or may be assessed, levied or imposed upon Tenant and which, if not paid, could be liened against the Premises or against Tenant's property therein or against Tenant's leasehold estate. (c) Landlord shall be responsible for compliance with Title III of the Americans with Disabilities Act of l990, 42 U.S.C. (S)12181 et seq. and its regulations, (collectively, the "ADA") (i) as to the design and construction of exterior common areas (e.g. sidewalks and parking areas) and (ii) with respect to the initial design and construction by Landlord of Landlord's Work (as defined in Article 4 hereof). Except as set forth above in the initial sentence hereto, Tenant shall be responsible for compliance with the ADA in all other respects concerning the use and occupancy of the Premises, which compliance shall include, without limitation (i) provision for full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of the Premises as contemplated by and to the extent required by the ADA, (ii) compliance relating to requirements under the ADA or amendments thereto arising after the date of this Lease and (iii) compliance relating to the design, layout, renovation, redecorating, refurbishment, alteration, or improvement to the Premises made or requested by Tenant at any time following completion of the Landlord's Work. 28. NOTICES. Wherever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease to or on the other party, such notice or demand shall be deemed to have been duly given or served if in writing and either: (i) personally served; (ii) delivered by pre-paid nationally recognized overnight courier service (e.g. Federal Express) with evidence of receipt required for delivery; or (iii) forwarded by Registered or Certified mail, return receipt requested, postage prepaid; in all such cases addressed to the parties at the addresses set forth in Article 1(l) hereof. Each such notice shall be deemed to have been given to or served upon the party to which addressed on the date the same is delivered or delivery is refused. Either party hereto may change its address to which said notice shall be delivered or mailed by giving written notice of such change to the other party hereto, as herein provided. 25 29. BROKERS. Tenant represents and warrants to Landlord that Tenant has had no dealings, negotiations or consultations with respect to the Premises or this transaction with any broker or finder other than the Broker identified in Article 1(k); and that otherwise no broker or finder called the Premises to Tenant's attention for lease or took any part in any dealings, negotiations or consultations with respect to the Premises or this Lease. Tenant shall be responsible for all commissions or other compensation due to the Broker identified in Article 1(k) in connection with this Lease. Tenant agrees to indemnify and hold Landlord harmless from and against all liability, cost and expense, including attorney's fees and court costs, arising out of any misrepresentation or breach of warranty or covenant under this Article. 30. CHANGE OF BUILDING/PROJECT NAMES. Landlord reserves the right at any time and from time to time to change the name by which the Buildings and/or Project are designated. Landlord agrees to pay for the reasonably documented costs of stationery charges (including letterhead and cards) necessitated by any such name change, such cost not to exceed $2,500. 31. LANDLORD'S LIABILITY. Landlord's obligations hereunder shall be binding upon Landlord only for the period of time that Landlord is in ownership of the Buildings; and, upon termination of that ownership, Tenant, except as to any obligations which are then due and owing, shall look solely to Landlord's successor in interest in the Buildings for the satisfaction of each and every obligation of Landlord hereunder. Landlord shall have no personal liability under any of the terms, conditions or covenants of this Lease and Tenant shall look solely to the equity of Landlord in the Buildings of which the Premises form a part for the satisfaction of any claim, remedy or cause of action accruing to Tenant as a result of the breach of any section of this Lease by Landlord. In addition to the foregoing, no recourse shall be had for an obligation of Landlord hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, member, partner, shareholder, officer, director, partner, agent or employee of Landlord, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by Tenant with respect to the above-named individuals and entities. 32. AUTHORITY. Tenant represents and warrants that (a) Tenant is duly organized, validly existing and legally authorized to do business in the Commonwealth of Virginia, and (b) the persons executing this Lease are duly authorized to execute and deliver this Lease on behalf of Tenant. 33. NO OFFER. The submission of the Lease by Landlord to Tenant for examination does not constitute a reservation of or option for the Premises or of any other space within the Buildings or in other buildings owned or managed by Landlord or its affiliates. This Lease shall become effective as a Lease only upon the execution and legal delivery thereof by both parties hereto. 34. RIGHT OF EXPANSION. Landlord shall notify Tenant from time to time of changes in the availability of Suites L, M and N of the Dabney VII Building and, subject to (a) Tenant not being in default now nor Tenant ever having been in default under this Lease; and (b) the rights of other tenants within the Dabney VII Building from time to time, and subject to such limitations as are imposed by other tenant leases, if requested by Tenant, Landlord shall propose to Tenant the basic economic terms upon which Landlord would be prepared to entertain the negotiation of a new lease for such space (on all of the same terms and conditions as are set forth in this Lease, except as otherwise specified by Landlord) or an amendment to this Lease with which the parties would add such space to the description of the "Premises" in either case for a term which would be coterminous with this Lease unless otherwise specified by Landlord. The economic terms of any such proposal shall include the estimated date that the space shall be available for delivery, the Base Rent and the tenant allowance (if any) to be furnished to Tenant, whereupon Tenant shall have thirty (30) days next following Landlord's delivery of such notice within which to accept such terms, time being of the essence. Should Tenant accept such terms as are specified by Landlord, the parties shall negotiate the terms of a new lease, or an amendment to this Lease, to memorialize their agreement. In the absence of any further agreement by the parties, such additional space shall be delivered in "AS -IS" condition, and Rent for such additional space shall commence on that date which is the earlier of: (x) Tenant's occupancy thereof, and (y) five (5) days after Landlord delivers such additional space to Tenant free of other tenants and occupants. If Tenant shall not accept Landlord's terms within such thirty (30) day period, or if the parties shall 26 not have executed and delivered a mutually satisfactory new lease or lease amendment within forty-five (45) days next following Landlord's original notice under this Article 36, then Tenant's rights to lease such space shall lapse and terminate, and Landlord may, at its discretion, lease such space on such terms and conditions as Landlord shall determine. Tenant's rights hereunder shall not include the right to lease less than all of the space identified in Landlord's notice. Anything herein contained to the contrary notwithstanding, Landlord may at any time modify or extend any existing or future tenant lease, or choose to use any space that is or about to become vacant within the Dabney VII Building for marketing or property management purposes, without in any such case notifying or offering such space to Tenant, or giving rise to any right of Tenant hereunder. Nothing contained in this Article 36 is intended nor may anything herein be relied upon by Tenant as a representation by Landlord as to the availability of expansion space within the Dabney VII Building at any time. Tenant's rights hereunder shall continue throughout the term hereof provided and for so long as Tenant shall be free from default hereunder, and provided, further, that the Tenant first-above named (or its assignee under Article 12 (e) or (f ) above) shall continuously remain in occupancy of not less than seventy five (75%) of the Premises originally demised hereunder. 35. INTENTIONALLY DELETED. 36. MISCELLANEOUS PROVISIONS. A. Successors. The respective rights and obligations provided in this Lease shall bind and inure to the benefit of the parties hereto, their successors and assigns; provided, however, that no rights shall inure to the benefit of any successors of Tenant unless Landlord's written consent for the transfer to such successor and/or assignee has first been obtained as provided in Article 12 hereof. B. Governing Law. This Lease shall be construed, governed and enforced in accordance with the laws of the Commonwealth of Virginia, without regard to principles relating to conflicts of law. C. Severability. If any provisions of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall in no way be affected or impaired and such remaining provisions shall remain in full force and effect. D. Captions. Marginal captions, titles or exhibits and riders and the table of contents in this Lease are for convenience and reference only, and are in no way to be construed as defining, limiting or modifying the scope or intent of the various provisions of this Lease. E. Gender. As used in this Lease, the word "person" shall mean and include, where appropriate, an individual, corporation, partnership or other entity; the plural shall be substituted for the singular, and the singular for the plural, where appropriate; and the words of any gender shall mean to include any other gender. F. Entire Agreement. This Lease, including the Exhibits and any Riders hereto (which are hereby incorporated by this reference, except that in the event of any conflict between the printed portions of this Lease and any Exhibits or Riders, the term of such Exhibits or Riders shall control), supersedes any prior discussions, proposals, negotiations and discussions between the parties and the Lease contains all the agreements, conditions, understandings, representations and warranties made between the parties hereto with respect to the subject matter hereof, and may not be modified orally or in any manner other than by an agreement in writing signed by both parties hereto or their respective successors in interest. Without in any way limiting the generality of the foregoing, this Lease can only be extended pursuant to the terms hereof, and in Tenant's case, with the terms hereof, and in Tenant's case, with the due exercise of an option (if any) contained herein or a formal agreement signed by both Landlord and Tenant specifically extending the term. No negotiations, correspondence by Landlord or offers to extend the term shall be deemed an extension of the termination date for any period whatsoever. 27 G. Counterparts. This Lease may be executed in any number of counterparts, each of which when taken together shall be deemed to be one and the same instrument. H. Telefax Signatures. The parties acknowledge and agree that notwithstanding any law or presumption to the contrary a telefaxed signature of either party whether upon this Lease or any related document shall be deemed valid and binding and admissible by either party against the other as if same were an original ink signature. I. Calculation of Time. In computing any period of time prescribed or allowed by any provision of this Lease, the day of the act, event or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Saturday, Sunday or a legal holiday, in which event the period runs until the end of the next day which is not a Saturday, Sunday, or legal holiday. Unless otherwise provided herein, all Notices and other periods expire as of 5:00 p.m. (local time in Newtown Square, Pennsylvania) on the last day of the Notice or other period. J. No Merger. There shall be no merger of this Lease or of the leasehold estate hereby created with the fee estate in the Premises or any part thereof by reason of the fact that the same person, firm, corporation, or other legal entity may acquire or hold, directly or indirectly, this Lease of the leasehold estate and the fee estate in the Premises or any interest in such fee estate, without the prior written consent of Landlord's mortgagee. K. Time of the Essence. TIME IS OF THE ESSENCE IN ALL PROVISIONS OF THIS LEASE, INCLUDING ALL NOTICE PROVISIONS TO BE PERFORMED BY OR ON BEHALF OF TENANT. L. Recordation of Lease. At the request of either Landlord or Tenant, Landlord and Tenant shall execute and record a short form memorandum pursuant to Section 55-57.1 of the Code of Virginia in form sufficient for recordation in the public land records to give notice of the rights of Landlord and Tenant under this Lease (the "Memorandum of Lease"). The cost of preparation, review and recording of the Memorandum of Lease shall be paid by the requesting party, including reasonable attorney's fees. In connection with the execution of the Memorandum of Lease, Landlord and Tenant shall simultaneously execute a release of the Memorandum of Lease which shall be held in escrow by Landlord and which Landlord shall be authorized to record upon the expiration or termination of this Lease. M. Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser amount than any payment of Fixed Rent or Additional Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Fixed Rent or Additional Rent due and payable hereunder, nor shall any endorsement or statement or any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other right or remedy provided for in this Lease, at law or in equity. N. No Partnership. Landlord does not, in any way or for any purpose, become a partner of Tenant in the conduct of its business, or otherwise, or joint venturer or a member of a joint enterprise with Tenant. This Lease establishes a relationship solely of that of a landlord and tenant. O. Intentionally Deleted. P. No Presumption Against Drafter. Landlord and Tenant understand, agree, and acknowledge that: (i) this Lease has been freely negotiated by both parties; and (ii) that, in the event of any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease, or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof. 28 Q. Force Majeure. If by reason of strikes or other labor disputes, fire or other casualty (or reasonable delays in adjustment of insurance), accidents, orders or regulations of any Federal, State, County or Municipal authority, or any other cause beyond Landlord's reasonable control, Landlord is unable to furnish or is delayed in furnishing any utility or service required to be furnished by Landlord under the provisions of this Lease or is unable to perform or make or is delayed in performing or making any installations, decorations, repairs, alterations, additions or improvements, or is unable to fulfill or is delayed in fulfilling any of Landlord's other obligations under this Lease, no such inability or delay shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Fixed Rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise. R. Agreement to Execute Separate Leases. If Landlord determines that it is necessary or desirable for the lease of the Premises located in any of the Dabney A-1 Building or the Dabney A-2 Building or the Dabney VII Building to be addressed in separate lease agreements, Tenant agrees to amend and restate this Lease in one or more separate lease agreements provided that such amended and restated lease agreements do not modify the substantive provisions of this Lease. 37. WAIVER OF TRIAL BY JURY. LANDLORD AND TENANT WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION AND AS EVIDENCE OF SAME HAS EXECUTED THIS LEASE. 38. CONSENT TO JURISDICTION. Tenant hereby consents to the exclusive jurisdiction of the state courts located in the jurisdiction where the Premises are located and to the federal courts located in the Eastern District of Virginia. [SIGNATURES ON FOLLOWING PAGE] 29 IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the day and year first above written. WITNESS: LANDLORD: BRANDYWINE GRANDE C, L.P. By: Brandywine Grande C Corp., its general partner /s/ Rick Miller By: /s/ H. Leon Shadowen - --------------------------- ---------------------- Name: H. Leon Shadowen ---------------- Title: Vice President --------------- WITNESS: TENANT: PPD DEVELOPMENT, LLC /s/ Linda Baddour By: /s/ Fredric N. Eshelman - --------------------------- -------------------------- Name: Fredric N. Eshelman --------------------- Title: President and CEO ----------------- 30 -----END PRIVACY-ENHANCED MESSAGE-----