10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORT
                    PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

                                   (Mark One)

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

                   For the fiscal year ended December 31, 2003

                                       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: 0-24249

                                    PDI, INC.
             (Exact Name of Registrant as Specified in Its Charter)

               Delaware                                      22-2919486
    (State or Other Jurisdiction of                       (I.R.S. Employer
    Incorporation or Organization)                       Identification No.)

                              10 Mountainview Road
                        Upper Saddle River, NJ 07458-1937
                    (Address of Principal Executive Offices)

Registrant's telephone number, including area code: (201) 258-8450

Securities registered pursuant to Section 12(b) of the Act: None

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

                          Common Stock, $.01 par value
                                (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

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

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 in the Act.) Yes |X| No |_|

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 2003 was approximately $88,875,889.

     The number of shares outstanding of the registrant's common stock, $.01 par
value, as of March 1, 2004 was 14,456,735 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this Report, to the extent not set
forth herein, is incorporated herein by reference from the registrant's
definitive proxy statement relating to the annual meeting of shareholders to be
held in 2004, which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this Report relates.



                                    PDI, INC.

                             Form 10-K Annual Report

                                TABLE OF CONTENTS



                                                                                                    Page
                                                                                                    ----
                                                                                                   
PART I.................................................................................................3
   Item 1.  Business...................................................................................3
   Item 2.  Properties................................................................................19
   Item 3.  Legal Proceedings.........................................................................20
   Item 4.  Submission of Matters to a Vote of Security Holders.......................................21
PART II...............................................................................................22
   Item 5.  Market for our Common Equity and Related Stockholder Matters..............................22
   Item 6.  Selected Financial Data...................................................................22
   Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.....24
   Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................41
   Item 8.  Financial Statements and Supplementary Data...............................................41
   Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.....41
   Item 9A. Controls and Procedures...................................................................42
PART III..............................................................................................43
   Item 10. Directors and Executive Officers..........................................................43
   Item 11. Executive Compensation....................................................................46
   Item 12. Security Ownership of Certain Beneficial Owners and Management............................46
   Item 13. Certain Relationship and Related Transactions.............................................46
   Item 14. Principal Accounting Fees and Services....................................................47
PART IV...............................................................................................48
   Item 15. Exhibits and Financial Statement Schedules................................................48


                      FORWARD LOOKING STATEMENT INFORMATION

     Various statements made in this Annual Report on Form 10-K are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. The
forward-looking statements included in this report are based on current
expectations that involve numerous risks and uncertainties. Our plans and
objectives are based, in part, on assumptions involving judgments about, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that
our assumptions underlying the forward-looking statements are reasonable, any of
these assumptions could prove inaccurate and, therefore, we cannot assure you
that the forward-looking statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this report, the inclusion of these
statements should not be interpreted by anyone that our objectives and plans
will be achieved. Factors that could cause actual results to differ materially
and adversely from those expressed or implied by forward-looking statements
include, but are not limited to, the factors, risks and uncertainties (i)
identified or discussed herein, (ii) set forth under the headings "Business" and
"Risk Factors" in Part I, Item 1; "Legal Proceedings" in Part I, Item 3; and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7, of this Annual Report on Form 10-K, and (iii)
set forth in the Company's periodic reports on Forms 10-Q and 8-K as filed with
the Securities and Exchange Commission since January 1, 2003. We undertake no
obligation to revise or update publicly any forward-looking statements for any
reason.


                                       2



PART 1

ITEM 1.  BUSINESS

Summary of Business

     We are a healthcare sales and marketing company serving the
biopharmaceutical and medical devices and diagnostics (MD&D) industries.

     We create and execute sales and marketing campaigns intended to improve the
profitability of pharmaceutical and MD&D products. We do this by partnering with
companies who own the intellectual property rights to these products and
recognize our ability to commercialize these products and maximize their sales
performance. We have a variety of agreement types that we enter into with our
partner companies. In these agreements, we have leveraged our experience in:

          o    sales,

          o    brand management and product marketing,

          o    marketing research,

          o    medical education,

          o    medical affairs, and

          o    managed markets and to a limited extent, trade relations

to help our partners meet strategic and financial objectives and to provide
incremental value for product sales.

     We have assembled our commercial capabilities through acquisition and
internal expansion and these capabilities can be applied on a stand-alone or
integrated basis. This flexibility enables us to provide a wide range of
marketing and promotional options that can benefit many different products
throughout the various stages of their life cycles. Our capabilities enable us
to take, where appropriate, total sales, marketing and distribution
responsibility for pharmaceutical and MD&D products.

     It is important for us to form strong partnerships with companies within
the biopharmaceutical and MD&D industries. We assign an account executive to
each partner to ensure the partnership is working to the mutual benefit of both
parties. Our focus is to achieve operational excellence that delivers the
desired product sales results.

Reporting Segments and Operating Groups

     We operate under three reporting segments: PDI Sales and Marketing Services
Group, PDI Pharmaceutical Products Group and PDI Medical Devices and Diagnostics
Group.

PDI Sales and Marketing Services Group (SMSG)

     We are among the leaders in outsourced pharmaceutical sales and marketing
services in the U.S. We have designed and implemented programs for many of the
major pharmaceutical companies serving the U.S. market. Our clients include
AstraZeneca, GlaxoSmithKline, Novartis and Aventis as well as small
pharmaceutical companies and more than 20 other specialty pharmaceutical
companies. We have relationships built on consistent performance and program
results.

     Our clients engage us on a contractual basis to design and implement
promotional programs for both prescription and over-the-counter products. The
programs in the PDI Sales and Marketing Services Group are designed to increase
product sales and are tailored to meet the specific needs of the product and the
client. These services are provided predominantly on a fee for service basis.
Occasionally, there is an opportunity for us to earn incentives if we meet or
exceed predetermined performance targets.

     This segment, which includes contract sales, marketing research and medical
education and communications, represents 82.9% of consolidated revenue for 2003.


                                       3



o    Contract Sales

     Product detailing involves a representative meeting face-to-face with
targeted physicians and other healthcare decision makers to provide a technical
review of the product being promoted. Contract sales teams can be deployed on
either a dedicated or shared basis.

     A dedicated contract sales team works exclusively on behalf of one client
and often carries the business cards of the client. The sales team is customized
to meet the specifications of our client with respect to representative profile,
physician targeting, product training, incentive compensation plans, integration
with clients' in-house sales forces, call reporting platform and data
integration. Without adding permanent personnel, the client gets a high quality,
industry-standard sales team comparable to its internal sales force.

     Our shared sales teams sell multiple brands from different pharmaceutical
manufacturers. Through them, we make a face-to-face selling resource available
to those clients that want an alternative to a dedicated team. The PDI Shared
Sales teams are leading providers of these detailing programs in the U.S. Since
costs are shared among various companies, these programs may be less expensive
for the client than programs involving a dedicated sales force. With a shared
sales team, the client still gets targeted coverage of its physician audience
within the representatives' geographic territories.

o    Marketing Research

     Employing leading edge, in some instances proprietary, research
methodologies, we provide qualitative and quantitative marketing research to
pharmaceutical companies with respect to healthcare providers, patients and
managed care customers in the U.S. and globally. We offer a full range of
pharmaceutical marketing research services which includes studies to identify
the most impactful business strategy, profile, positioning, message, execution,
implementation, and post implementation for a product. Correctly implemented,
our marketing research model improves the knowledge clients obtain about how
physicians and other healthcare professionals will likely react to products.

     We utilize a systematic approach to pharmaceutical marketing research.
Recognizing that every marketing need, and therefore every marketing research
solution, is unique, we have developed our marketing model to help identify the
work that needs to be done in order to identify critical paths to marketing
goals. At each step of the marketing model we can offer proven research
techniques, proprietary methodologies and customized study designs to address
specific product needs.

     In addition to conducting marketing research, we have trained several
thousand industry professionals at our public seminars. Our professional
development seminars focus on key marketing processes and issues.

o    Medical Education and Communications

     Our medical education and communications group provides medical education
and promotional communications to the biopharmaceutical and MD&D industries.
Using an expert-driven, customized approach, we provide our clients with
integrated advocacy development, accredited continuing medical education (CME),
promotions, publication services and interactive sales initiatives to generate
incremental value for products.

     We create custom designed programs focusing on optimizing the informed use
of our clients' products. Our services are executed through a customized,
integrated plan that can be leveraged across the product's entire life cycle. We
can meet a wide range of objectives, including advocacy during pre-launch,
communicating disease state awareness, supporting a product launch, helping an
under-performing brand, fending off new competition, and expanding market
leadership.

PDI Pharmaceutical Products Group (PPG)

     The goal of our pharmaceutical products group is to source
biopharmaceutical products in the U.S. through licensing, copromotion,
acquisition or integrated commercialization services arrangements. This segment
represents


                                       4



13.3% of consolidated revenue for 2003.

     Licensing, copromotion and acquisition arrangements contain a greater level
of risk when compared to fee for service agreements, however, there is potential
for generating greater revenue at higher margins with longer-term visibility on
revenue. PPG's arrangements may be longer in duration and potentially less prone
to sudden termination than SMSG agreements.

o    Licensing

     Typically, under a licensing arrangement, we undertake the sales, marketing
and distribution responsibility for a product while another company maintains
ownership of the intellectual property and the patent on the product. The
company from which we license the product would typically retain responsibility
for manufacturing the product. In a licensing arrangement, we may make upfront
payments and/or royalty payments to our partner company.

     We conduct the sales, marketing and distribution functions for the product
and we record the product sales in this reporting segment. Typically, we are
also responsible for medical affairs, certain clinical and regulatory affairs as
well as managed care and trade relations. Examples of the licensing agreements
that we have entered into are described in the Contracts section of this report.

o    Copromotion

     Copromotion arrangements, a frequently used strategy within the
biopharmaceutical industry, occur when two companies agree to mutually promote
the same product. Each party contributes expenses and resources toward the sales
and marketing effort, with the financial risks and rewards shared on a
predetermined basis.

     Typically, our partner company will manufacture and distribute the product,
and be responsible for regulatory and medical affairs as well as managed care
and trade relations. We may exercise significant control over the sales and
marketing strategy for the product. Examples of the copromotion agreements that
we have entered into are described in the Contracts section of this report.

o    Acquisition

     To date we have not acquired any products; however, if we were to acquire a
product we would own the product outright and would most likely have total
commercial responsibility, inclusive of manufacturing, sales, marketing,
distribution, intellectual property defense and clinical and regulatory affairs.

o    Integrated Commercialization Services

     Given the broad array of our service offerings, we are able to provide
complete product commercialization capabilities (Integrated Commercialization
Services) to pharmaceutical companies on a fee for service basis. The execution
of these product sales, marketing and commercialization activities would be
substantially similar to those we perform in a copromotion, licensing or product
acquisition transaction; however, our fee structure and risk profile would be
markedly different.

     We believe that Integrated Commercialization Services may be attractive to
pharmaceutical companies for products within their portfolio that they are no
longer actively promoting, but which our analysis indicates would respond to
promotion. Pharmaceutical companies may own products that are not being actively
promoted because resources are being focused on higher revenue generating
products, or because the product is nearing the end of its life cycle and the
company has decided to concentrate its promotional efforts on other products in
its portfolio. The decision not to promote a product often leads to reduced
demand and may also result in lower product revenue. Our Integrated
Commercialization Services enable our clients to continue to promote these
products and generate from them higher levels of revenue, while focusing their
limited internal resources on the higher growth products in their portfolios.

     Our Integrated Commercialization Services can also be used by research
based biotechnology companies that own a product on the verge of coming to
market, or a product that has been on the market but is not performing up


                                       5



to expectations. In this instance, we may be able to utilize our capabilities to
launch or relaunch the product with the objective of increasing the return that
the product delivers to our client. Research based biotechnology companies may
not have a well established sales and marketing infrastructure to deliver their
products to market and therefore may be attracted to our ability to provide such
infrastructure on a fee for service basis.

Medical Devices and Diagnostics (MD&D)

     Our MD&D group provides an array of sales and marketing services to the
MD&D industry. Our core service is the provision of clinical sales teams. Our
clinical sales teams employ nurses, medical technologists, and other clinicians
who train and provide hands-on clinical education and after sales support to the
medical staff of hospitals and clinics that recently purchased our clients'
equipment. Our activities maximize product utilization and customer satisfaction
for the medical practitioners, while simultaneously enabling our clients' sales
forces to continue their selling activities instead of in-servicing the
equipment.

     We also provide contract sales services within the MD&D market. We
leveraged our knowledge from years of providing sales forces to the
pharmaceutical industry and applied it to our MD&D business. As a result, we now
offer the provision of contract sales forces as one of the services that we
market to the MD&D industry to assist our clients in improving product sales.

     In October 2002, we partnered with Xylos Corporation (Xylos) for the
exclusive U.S. commercialization rights to the Xylos XCell(TM) Cellulose Wound
Dressing (XCell) wound care products, by entering into an agreement pursuant to
which we became the exclusive commercialization partner for the sales, marketing
and distribution of the product line in the U.S. On January 2, 2004, we
exercised our contractual right to terminate the agreement on 135 days' notice
to Xylos since sales of XCell were not sufficient enough to sustain our
continued role as commercialization partner for the product. Our promotional
activities in support of the brand concluded in January 2004 and the agreement
will terminate effective May 16, 2004. We do not currently anticipate entering
into similar commercialization agreements in the MD&D market.

     This segment represents 3.8% of consolidated revenue for 2003.

History

     We commenced operations as a contract sales organization in 1987. From 1990
to 1995 contract sales became accepted in the pharmaceutical industry as a
tactical solution for a lower cost, high quality sales team. The representatives
were principally flextime. We were paid per call and there was little, if any,
risk sharing.

     The expansion of pharmaceutical field forces in general and the acceptance
of contract sales by the industry were two main drivers that fueled our high
growth from 1996 to 2000. Our representatives were principally full-time
employees and we provided a compensation package that was competitive with those
of the major pharmaceutical companies in order to attract higher quality
personnel and become a better provider of contract sales services.

     We completed our initial public offering in May 1998. In May 1999, we
acquired TVG, Inc. (TVG) which gave us one of the leading marketing research
groups in the U.S. and a scientifically focused medical education capability.
The addition of TVG provided us with incremental growth potential as a result of
the additional capabilities available to support our service offerings.

     In August 1999, we added a shared sales capability through the acquisition
of ProtoCall, Inc. (ProtoCall), now PDI Shared Sales. This addition provided us
with a lower cost product offering and increased business opportunities with
existing and new clients. This offering also supplemented our dedicated sales
force capacity.

     In September 2001, we acquired InServe Support Solutions (InServe) which
provides clinical sales support to the MD&D industry. InServe employs nurses,
medical technologists, and other clinicians who train healthcare practitioners
with respect to medical equipment. InServe informs and supports the end users of
medical equipment, with the objective of increasing satisfaction and utilization
of the equipment. The client benefits by reducing the time its sales
representatives spend on training and service, increasing the time available for
sales activity.


                                       6



     In June 2000, we established LifeCycle Ventures, Inc. (LCV) to support our
agreements that require marketing and other commercial capabilities. Our initial
strategy, in response to the market dynamics at the time, was to identify
under-promoted brands within pharmaceutical companies' product portfolios and
put a focused promotional effort behind them, increasing product performance.
This was the case in October 2000, when we entered into a sales, marketing and
distribution agreement with GlaxoSmithKline (GSK) in support of Ceftin(R). The
Ceftin agreement enabled us to add capabilities that we did not then have, such
as distribution, medical affairs, regulatory affairs and managed care and trade
relations.

     The Ceftin agreement was terminated earlier than anticipated because of the
unexpected introduction of a generic equivalent into the market in February
2002. Notwithstanding this event, the Ceftin agreement successfully facilitated
our growth from a pure service provider to a commercial partner with expanded
capabilities and service offerings for the pharmaceutical industry.

     From 2001 through 2003, we continued to identify other late stage
pharmaceutical products that could benefit from focused sales and marketing
efforts. Many companies had products within their portfolios that were
under-promoted and that could potentially benefit from focused sales and
marketing efforts. As the dynamics within the industry changed, affected by
mergers and acquisitions, a slowdown in the approval of new products, and
increased generic availability of once large brands, the willingness of
pharmaceutical companies to relinquish commercial control of products decreased.

     During this period, we entered into a number of copromotion agreements,
including our agreements with Novartis Pharmaceuticals Corporation (Novartis).
Our copromotion agreement with Eli Lilly and Company (Eli Lilly) resulted in
significant operating losses. While copromotion agreements remain a viable
business arrangement with pharmaceutical companies, we now have a more stringent
set of parameters that must be met in order for us to consider an opportunity
favorably.

     In the fourth quarter of 2002, we entered into two licensing arrangements,
one with Xylos and one with Cellegy Corporation (Cellegy). The Xylos arrangement
was for the sales, marketing and distribution rights for the XCell wound care
products. This product line achieved only modest sales during 2003, considerably
below expectations, and on January 2, 2004, we gave Xylos notice of termination
of the Xylos agreement effective May 16, 2004. The Cellegy agreement was for
exclusive North American rights for Fortigel(TM), a testosterone gel product. In
July 2003, Cellegy was notified by the U.S. Food and Drug Administration (FDA)
that Fortigel was not approved. On December 12, 2003, we instituted an action
against Cellegy in the U.S. District Court for the Southern District of New York
seeking to rescind the Cellegy license agreement on the grounds that it was
procured by fraud.

     We believe that there are opportunities for us:

          o    to partner with companies that lack the necessary infrastructure
               to commercialize their brands; and

          o    to take over the promotion of products that are no longer
               receiving sales and marketing support .

Corporate Strategy

     Our strategy is to source biopharmaceutical and MD&D products that we can
sell, market or commercialize. We do this by entering into agreements with
companies that own the rights to the product(s) and require our expertise in
generating product sales. We are compensated either through a fee for service or
by sharing in the product sales we generate. Also, we intend to focus on growing
our existing teams business and to seek acquisition opportunities within SMSG.

Contracts

     Given the customized nature of our business, we utilize a variety of
contract structures.

     Contracts within the sales and marketing services group are almost
exclusively fee for service. These contracts for dedicated teams, shared teams
and marketing research and medical education, contain specific activities that
we provide in return for a fee. They may contain operational benchmarks, such as
a minimum amount of activity or delivery within a specified amount of time.
These contracts can include incentive payments should our activities


                                       7



generate results that meet or exceed predetermined performance targets.

     The majority of our revenue in the sales and marketing services segment is
generated by contracts for dedicated sales teams. These contracts are generally
for terms of one to three years and may be renewed or extended. The majority of
these contracts, however, are terminable by the client for any reason upon 30 to
90 days' notice. These contracts typically, but not always, provide for
termination payments by the client upon termination without cause. While such
termination may result in the imposition of penalties on the client, these
penalties may not act as an adequate deterrent to the termination of any
contract. In addition, these penalties may not offset the revenue we could have
earned under the contract or the costs we may incur as a result of its
termination. The loss or termination of a large contract or the loss of multiple
contracts could have a material adverse effect on our business, financial
condition and results of operations. Contracts may also be terminated for cause
or we may incur specific penalties if we fail to meet stated performance
benchmarks.

     Our marketing research and consulting and medical education and
communications contracts generally are for projects lasting from three to six
months. The contracts are terminable by the client and typically provide for
termination payments in the event they are terminated by the client without
cause. Termination payments include payment for all work completed to date, plus
the cost of any nonrefundable commitments made on behalf of the client. Due to
the typical size of these contracts, it is unlikely the loss or termination of
any individual contract would have a material adverse effect on our business,
financial condition or results of operations.

     The contracts within the pharmaceutical products group can be either
performance based or fee for service and may require sales, marketing and
distribution of product. In performance based contracts, we provide and finance
a portion, if not all, of the commercial activities in support of a brand in
return for a percentage of product sales. An important performance parameter is
normally the level of sales or prescriptions attained by the product during the
period of our marketing or promotional responsibility, and in some cases, for
periods after our promotional activities have ended.

     In the fourth quarter of 2000, we entered into a performance based contract
with GSK. Our agreement with GSK was in support of Ceftin and was an exclusive
sales, marketing and distribution contract. The agreement had a five-year term,
but was cancelable by either party without cause on 120 days' notice. The
agreement was terminated by mutual consent, effective February 28, 2002, due to
the unexpected entry of a competitive generic product.

     In May 2001, we entered into a copromotion agreement with Novartis for the
U.S. sales, marketing and promotion rights for Lotensin(R), Lotensin HCT(R) and
Lotrel(R). That agreement ran through December 31, 2003. On May 20, 2002, that
agreement was replaced by two separate agreements: one for Lotensin and another
one for Lotrel, Diovan(R) and Diovan HCT(R). Both agreements ran through
December 31, 2003; however, the Lotrel-Diovan agreement was renewed on December
24, 2003 for an additional one year period. In February 2004, we were notified
by Novartis of its intent to terminate the Lotrel-Diovan contract without cause,
effective March 16, 2004. We will continue to be compensated under the terms of
the agreement through the effective termination date. The Lotensin agreement
called for us to provide promotion, selling, marketing and brand management for
Lotensin. In exchange, we were entitled to receive a percentage of product
revenue based on certain total prescription (TRx) objectives above specified
contractual baselines. Even though the Lotensin agreement ended December 31,
2003, we are still entitled to receive royalty payments on the sales of Lotensin
through December 31, 2004.

     In October 2001, we entered into an agreement with Eli Lilly to copromote
Evista(R) in the U.S. Under this agreement, we were entitled to be compensated
based upon net sales achieved above a predetermined level. In the event these
predetermined net sales levels were not achieved, we would not receive any
revenue to offset expenses incurred. During 2002, it became apparent that the
net sales levels likely to be achieved would not be sufficient to recoup our
expenses. In November 2002, we agreed with Eli Lilly to terminate the Evista
copromotion agreement effective December 31, 2002.

     In October 2002, we entered into an agreement with Xylos for the exclusive
U.S. commercialization rights to the XCell wound care products. On January 2,
2004, we exercised our contractual right to terminate the agreement on 135 days'
notice to Xylos, since sales of XCell were not sufficient to sustain our role as
commercialization partner for the product. Our promotional activities in support
of the brand concluded in January 2004, and the agreement will terminate
effective May 16, 2004.


                                       8



     On December 31, 2002, we entered into an exclusive licensing agreement with
Cellegy for the exclusive North American rights for the testosterone gel
product, Fortigel. The agreement is in effect for the commercial life of the
product. Cellegy submitted a New Drug Application (NDA) for the hypogonadism
indication to the FDA in June 2002. In July 2003, Cellegy received a letter from
the FDA rejecting its NDA for Fortigel. Cellegy has told us that it is in
discussions with the FDA to determine the appropriate course of action needed to
meet deficiencies cited by the FDA in its determination. We cannot predict with
any certainty that the FDA will ultimately approve Fortigel for sale in the U.S.
Under the terms of the agreement, we paid Cellegy a $15.0 million initial
licensing fee on December 31, 2002. This payment was made prior to FDA approval
and since there is no alternative future use of the licensed rights, we expensed
the $15.0 million payment in December 2002, when incurred. This amount was
recorded in other selling, general and administrative expenses in the December
31, 2002 consolidated statements of operations. Pursuant to the terms of the
licensing agreement, we will be required to pay Cellegy a $10.0 million
incremental license fee milestone payment upon Fortigel's receipt of all
approvals required by the FDA (if such approvals are obtained) to promote, sell
and distribute the product in the U.S. This incremental milestone license fee,
if incurred, will be recorded as an intangible asset and amortized over its
estimated useful life, as then determined, which is not expected to exceed the
life of the patent. Royalty payments to Cellegy over the term of the commercial
life of the product will range from 20% to 30% of net sales.

     On December 12, 2003, we instituted an action against Cellegy in the U.S.
District Court for the Southern District of New York seeking to rescind the
license agreement on the grounds that it was procured by fraud. We are seeking
return of the $15.0 million license fee we paid plus additional damages caused
by Cellegy's conduct. See Item 3 - "Legal Proceedings" for additional
information.

Significant Customers

     Our significant customers are discussed in Note 12 to the consolidated
financial statements included elsewhere in this report.

Marketing

     Our marketing efforts target the biopharmaceutical and MD&D industries.
Companies with large product portfolios have been the most likely customers for
the services and solutions we provide, but we have also partnered with smaller,
emerging companies. Our marketing efforts are designed to reach the senior
sales, marketing and business development personnel within these companies, with
the goal of informing them of our full range of services and our reputation as a
high quality sales and marketing organization. Our tactical plan includes
advertising in trade publications, direct mail campaigns, presence at industry
seminars and a direct selling effort. We have a dedicated team of business
development specialists who work across the organization to identify needs
within the biopharmaceutical and MD&D industries which we can address. A
multi-disciplinary team of senior managers reviews possible business
opportunities as identified by the business development team and determines
strategies and negotiation positions to contract for the most attractive
business opportunities.

Competition

     There are relatively few barriers to entry into the businesses in which we
operate and, as the industry continues to evolve, new competitors are likely to
emerge. We compete on the basis of such factors as reputation, service quality,
management experience, performance record, customer satisfaction, ability to
respond to specific client needs, integration skills and price. We believe we
compete effectively with respect to each of these factors. Increased competition
may lead to price and other forms of competition that could have a material
adverse effect on our business, financial condition and results of operations.

     For our service offerings, the competition includes in-house sales and
marketing departments of biopharmaceutical and MD&D companies, emerging
companies within these segments and other contract sales organizations (CSOs).
Companies that compete with us from the perspective of having diversified
service offerings include Innovex (a subsidiary of Quintiles Transnational),
Ventiv Health, Nelson Professional Sales (a division of Publicis) and Cardinal
Health, Inc.


                                       9



     The competition for sourcing products into our PPG is primarily other
companies seeking to sell and market pharmaceutical products. Competing to
copromote, license and/or acquire brands involves risks in identifying,
assessing and contracting effectively for products in addition to the marketing
and distribution risks of the products we obtain.

Government and Industry Regulation

     The healthcare sector is heavily regulated by both government and industry.
Various laws, regulations and guidelines established by government, industry and
professional bodies affect, among other matters, the approval, provision,
licensing, labeling, marketing, promotion, price, sale and reimbursement of
healthcare services and products, including pharmaceutical and MD&D products.
The federal government has extensive enforcement powers over the activities of
pharmaceutical manufacturers, including authority to withdraw product approvals,
commence actions to seize and prohibit the sale of unapproved or non-complying
products, to halt manufacturing operations that are not in compliance with good
manufacturing practices, and to impose or seek injunctions, voluntary recalls,
and civil monetary and criminal penalties. These restrictions or prohibitions on
sales or withdrawal of approval of products marketed by us could have a material
adverse effect on our business, financial condition and results of operations.

     The Food, Drug and Cosmetic Act, as supplemented by various other statutes,
regulates, among other matters, the approval, labeling, advertising, promotion,
sale and distribution of drugs, including the practice of providing product
samples to physicians. Under this statute, the FDA regulates all promotional
activities involving prescription drugs. The distribution of pharmaceutical
products is also governed by the Prescription Drug Marketing Act (PDMA), which
regulates these activities at both the federal and state level. The PDMA imposes
extensive licensing, personnel record keeping, packaging, quantity, labeling,
product handling and facility storage and security requirements intended to
prevent the sale of pharmaceutical product samples or other diversions. Under
the PDMA and its implementing regulations, states are permitted to require
registration of manufacturers and distributors who provide pharmaceutical
products even if such manufacturers or distributors have no place of business
within the state. States are also permitted to adopt regulations limiting the
distribution of product samples to licensed practitioners and require extensive
record keeping and labeling of such samples for tracing purposes. The sale or
distribution of pharmaceutical products is also governed by the Federal Trade
Commission Act.

     Some of the services that we currently perform or that we may provide in
the future may also be affected by various guidelines established by industry
and professional organizations. For example, ethical guidelines established by
the American Medical Association (AMA) govern, among other matters, the receipt
by physicians of gifts from health-related entities. These guidelines govern
honoraria and other items of economic value which AMA member physicians may
receive, directly or indirectly, from pharmaceutical companies. Similar
guidelines and policies have been adopted by other professional and industry
organizations, such as Pharmaceutical Research and Manufacturers of America, an
industry trade group.

     There are also numerous federal and state laws pertaining to healthcare
fraud and abuse. In particular, certain federal and state laws prohibit
manufacturers, suppliers and providers from offering, giving or receiving
kickbacks or other remuneration in connection with ordering or recommending the
purchase or rental of healthcare items and services. The federal anti-kickback
statute imposes both civil and criminal penalties for, among other things,
offering or paying any remuneration to induce someone to refer patients to, or
to purchase, lease or order (or arrange for or recommend the purchase, lease or
order of) any item or service for which payment may be made by Medicare or other
federally-funded state healthcare programs (e.g., Medicaid). This statute also
prohibits soliciting or receiving any remuneration in exchange for engaging in
any of these activities. The prohibition applies whether the remuneration is
provided directly or indirectly, overtly or covertly, in cash or in kind.
Violations of the statute can result in numerous sanctions, including criminal
fines, imprisonment and exclusion from participation in the Medicare and
Medicaid programs.

     Several states also have referral, fee splitting and other similar laws
that may restrict the payment or receipt of remuneration in connection with the
purchase or rental of medical equipment and supplies. State laws vary in scope
and have been infrequently interpreted by courts and regulatory agencies, but
may apply to all healthcare items or services, regardless of whether Medicare or
Medicaid funds are involved.


                                       10



     The FDA regulates the drug development process in the U.S. This impacts
products we may develop, license or acquire, including, for example, the Cellegy
licensed product. These regulations affect all aspects of the research programs
conducted on unapproved products in the U.S., including manufacturing of the
drug substance and drug product, preliminary pharmacology and toxicology
evaluation, and all exposure of human subjects or patients. This human testing
is performed under an Investigational New Drug Exemption (IND). When sufficient
evidence of efficacy and safety is available to enable unrestricted commercial
distribution, an NDA is submitted under the regulations. The NDA is a
comprehensive filing that includes, among other things, the results of all
Chemistry, Manufacturing and Controls (CMC) preclinical and clinical studies.
The FDA's review of this application results in a decision on the approval or
non-approval of the drug. Approved drugs may be marketed in the U.S.
post-approval, however, the NDA regulations require continuing monitoring and
reporting on the safety of the approved product in the general patient
population.

     We cannot determine what effect changes in regulations or statutes or legal
interpretations, when and if established or enacted, may have on our business in
the future. Changes could require, among other things, changes to manufacturing
methods, expanded or different labeling, the recall, replacement or
discontinuance of certain products, additional record keeping or expanded
documentation of the properties of certain products and scientific
substantiation. Further, we may experience delays in the regulatory approval of
products we license or acquire. Such changes, or new legislation, or delays
could have a material adverse effect on our business, financial condition and
results of operations. Our failure, or the failure of our clients and/or the
partners, to comply with, or any change in, the applicable regulatory
requirements or professional organization or industry guidelines or regulatory
delays could, among other things, limit or prohibit us or our clients from
conducting business activities as presently conducted or proposed to be
conducted, result in adverse publicity, increase the costs of regulatory
compliance or result in monetary fines or other penalties. Any of these
occurrences could have a material adverse effect on our business, financial
condition and results of operations.

                                  RISK FACTORS

     In addition to the other information provided in our reports, you should
carefully consider the following factors in evaluating our business, operations
and financial condition. Additional risks and uncertainties not presently known
to us, that we currently deem immaterial or that are similar to those faced by
other companies in our industry or business in general, such as competitive
conditions, may also impair our business operations. The occurrence of any of
the following risks could have a material adverse effect on our business,
financial condition and results of operations.

     We continue to look for opportunities to develop the pharmaceutical
products group segment of our business, which may include copromotion and
exclusive distribution arrangements, as well as licensing and brand ownership of
products, and most recently, Integrated Commercialization Services (ICS). We
cannot assure you that we can successfully develop this business.

     Notwithstanding the fact that we had no product revenue from the
pharmaceutical products group segment of our business in 2003, we believe that
one area for our future growth is potentially to acquire copromotion and
distribution rights to pharmaceutical products and potentially to license or
acquire these products. These types of arrangements can significantly increase
our operating expenditures in the short-term. Typically, these agreements
require significant "upfront" payments, minimum purchase requirements, minimum
royalty payments, payments to third parties for production, inventory
maintenance and control, distribution services and accounts receivable
administration, as well as sales and marketing expenditures. In addition,
particularly where we license or acquire products before they are approved for
commercial use, we may be required to incur significant expense to gain the
required regulatory approvals. As a result, our working capital balance and cash
flow position could be materially and adversely affected until the products in
question become commercially viable, if ever. The risks that we face in
developing the pharmaceutical product segment of our business may increase in
proportion with:

          o    the number and types of products covered by these types of
               agreements;

          o    the applicable stage of the drug regulatory process of the
               products at the time we enter into these agreements; and

          o    our control over the manufacturing, distribution and marketing
               processes.


                                       11



     In December 2002, we acquired from Cellegy the exclusive right to market
and sell Fortigel, a transdermal testosterone gel for the treatment of male
hypogonadism in the U.S., Puerto Rico, Mexico and Canada. While we have entered
into copromotion and exclusive distribution arrangements in the past, the
Cellegy agreement is our first licensing arrangement. We paid an initial $15.0
million license fee and another $10.0 million incremental license fee milestone
payment is due after the product has all FDA approvals (if such approvals are
obtained) required to promote, sell and distribute the product in the U.S. If
the drug is approved, in addition to paying Cellegy a royalty based on net
sales, all of the costs associated with manufacturing the drug, distributing it,
as well as sales and marketing expenditures would be our obligation. If
additional testing is required after the drug is approved for sale in the U.S.,
the costs associated with those tests are our obligation as well. Furthermore,
if we want to sell the drug in Mexico and Canada, we must fund the regulatory
process in those countries.

     In July 2003, Cellegy received a letter from the FDA rejecting its NDA for
Fortigel. In December 2003, we filed a lawsuit against Cellegy for fraudulently
inducing us to enter the Cellegy License Agreement and for breaching certain
obligations under the License Agreement. (See Item 3 - Legal Proceedings, Note
19 - Commitments and Contingencies, and the Risk Factor describing the Cellegy
litigation in this section, below.) Since we filed the lawsuit, Cellegy is no
longer in regular contact with us regarding Fortigel. Thus, for example, we are
unaware of the FDA status regarding Fortigel (as of December 31, 2003, it had
not been approved) and are unaware of what steps Cellegy is taking to develop
Fortigel, to obtain FDA approval for Fortigel, and/or to arrange for a party to
manufacture Fortigel. We have requested this information from Cellegy but have
not received it. Accordingly, we may not possess the most current and reliable
information concerning the current status of, or future prospects relating to,
Fortigel. The issuance of the non-approvable letter by the FDA concerning
Fortigel, however, casts significant doubt upon Fortigel's prospects and whether
it will ever be approved. There can thus be no assurances that we will recover
the $15.0 million license fee or that we will ever receive any revenue in
connection with the Cellegy license agreement.

We are involved in lawsuits with Cellegy concerning the Cellegy License
Agreement.

     On December 12, 2003, we filed a complaint against Cellegy in the United
States District Court for the Southern District of New York. The complaint
alleges that Cellegy fraudulently induced us to enter into the Cellegy license
agreement. The complaint also sets forth claims for misrepresentation and breach
of contract related to the license agreement. In the complaint, we seek, among
other remedies, rescission of the license agreement and return of the $15.0
million license fee we paid Cellegy. After we filed this lawsuit, also on
December 12, 2003, Cellegy filed a complaint against us in the United States
District Court for the Northern District of California. Cellegy's complaint
seeks a declaration that Cellegy did not fraudulently induce us to enter into
the license agreement and that Cellegy has not breached its obligations under
the agreement. Cellegy has sought to stay, dismiss or transfer our suit in favor
of its action in the California courts. We have sought to stay, transfer or
dismiss Cellegy's lawsuit in favor of its action in the New York courts. We are
unable to predict the ultimate outcome of these lawsuits.

We rely on third parties to manufacture all of our products and supply raw
materials. Our dependence on these third parties may result in unforeseen delays
or other problems beyond our control, which could have a material adverse effect
on our business, financial condition and results of operations and our
reputation.

     We do not manufacture any products and expect to continue to depend on
third parties to provide us with sufficient quantities of products to meet
demand. As a result, we cannot assure you that we will always have a sufficient
supply of products on hand to satisfy demand or that the products we do have
will meet our specifications. This risk is more acute in those situations where
we have no control over the manufacturers. For example, our agreement with
Cellegy obligates us to purchase all quantities of the product from PanGeo
Pharma Inc. (PanGeo), a third-party manufacturer with which we have no
contractual relationship and to which Cellegy has granted exclusive
manufacturing rights. If there are any problems with this contract manufacturer,
the supply of product could be temporarily halted until either PanGeo is able to
get their facilities back on-line or we are able to source another supplier for
the product. Since we filed a lawsuit against Cellegy as described above,
Cellegy is no longer in regular contact with us regarding its manufacturing
capabilities to produce Fortigel. Accordingly, we may not possess the most
current and reliable information concerning PanGeo or other manufacturing
arrangements for Fortigel that may have been established by Cellegy. This
manufacturing shutdown could have a material impact on the future demand for the
product and thus could have a material adverse effect on our business, financial
condition and results of operations. Even if third-party manufacturers comply
with the terms of their supply arrangements, we cannot be


                                       12



certain that supply interruptions will not occur or that our inventory will
always be adequate. Numerous factors could cause interruptions in the supply of
our finished products, including shortages in raw materials, strikes and
transportation difficulties. Any disruption in the supply of raw materials or an
increase in the cost of raw materials to our supplier could have a significant
effect on its ability to supply us with products.

     In addition, manufacturers of products requiring FDA approval are required
to comply with FDA mandated standards, referred to as good manufacturing
practices, relating not only to the manufacturing process but to record-keeping
and quality control activities as well. Furthermore, they must pass a
pre-approval inspection of manufacturing facilities by the FDA and foreign
authorities before obtaining marketing approval, and are subject to periodic
inspection by the FDA and corresponding foreign regulatory authorities under
reciprocal agreements with the FDA. These inspections may result in compliance
issues that could prevent or delay marketing approval or require significant
expenditures on corrective measures.

     If for any reason we are unable to obtain or retain our relationships with
third-party manufacturers on commercially acceptable terms, or if we encounter
delays or difficulties with contract manufacturers in producing or packaging our
products, the distribution, marketing and subsequent sales of these products
would be adversely affected, and we may have to seek alternative sources of
supply. We cannot assure you that we will be able to maintain our existing
manufacturing relationships or enter into new ones on commercially acceptable
terms, if at all.

Our license agreements may require us to make minimum payments to the licensor,
regardless of the revenue derived under the license, which could further strain
our working capital and cash flow position. In addition, these agreements may be
nonexclusive or may condition exclusivity on minimum sales levels.

     Under our license agreement with Cellegy, we are required to make certain
minimum royalty payments to Cellegy once the product is approved, assuming such
an approval occurs. If the Cellegy product fails to gain market acceptance, we
would still be required to make these minimum royalty payments. This would
likely have a material adverse effect on our business, financial condition and
results of operations. In addition, the Cellegy License Agreement requires us to
satisfy certain minimum net sales requirements. If we fail to satisfy these
minimum net sales requirements, under certain circumstances Cellegy may, at its
option, convert our exclusive license to a nonexclusive license. This could mean
that we would face increased competition from third parties with respect to the
marketing and sale of the product.

The regulatory approval process is expensive, time consuming and uncertain and
may prevent us from obtaining required approvals for the commercialization of
drugs and products that we license or acquire.

     In those potential situations where we license or acquire ownership of
drugs or other medical or diagnostic equipment, the product in question may not
yet be approved for sale to the public, in which case we may have the obligation
to obtain the required regulatory approvals. The research, testing,
manufacturing and marketing of drugs and other medical and diagnostic devices is
heavily regulated in the U.S. and other countries. The regulatory clearance
process typically takes many years and is extremely expensive. Despite the time
and expense expended, regulatory clearance is never guaranteed. The FDA can
delay, limit or deny approval of a drug for many reasons, including:

          o    safety or efficacy;

          o    inconsistent or inconclusive data or test results;

          o    failure to demonstrate compliance with the FDA's good

               manufacturing practices; or

          o    changes in the approval process or new regulations.

The FDA continues to regulate the sale and marketing of drugs and medical and
diagnostic devices even after they have been approved for sale to the public.
Complying with these regulations may be costly and our failure to comply could
limit our ability to continue marketing and distributing these products.

     Even after drugs have been approved for sale, the FDA continues to regulate
their sale. These post-approval regulatory requirements may require further
testing and/or clinical studies, and may limit our ability to market and
distribute the product or may limit the use of the product. Under our agreement
with Cellegy, we are responsible for


                                       13



all post-approval regulatory compliance. If we fail to comply with the
regulatory requirements of the FDA, we may be subject to one or more of the
following administrative or judicially imposed sanctions:

          o    warning letters;

          o    civil penalties;

          o    criminal penalties;

          o    injunctions;

          o    product seizure or detention;

          o    product recalls;

          o    total or partial suspension of production; and

          o    FDA refusal to approve pending NDAs, or supplements to approved
               NDAs.

FDA approval does not guarantee commercial success. If we fail to successfully
commercialize our products, our business, financial condition and results of
operations could be materially and adversely affected.

     Even if a product is approved for sale to the general public, its
commercial success will depend on our marketing efforts and acceptance by the
general public. The commercial success of any drug or medical or diagnostic
device depends on a number of factors, including:

          o    demonstration of clinical efficacy and safety;

          o    cost;

          o    reimbursement policies of large third-party payors;

          o    competitive products;

          o    convenience and ease of administration;

          o    potential advantages over alternative treatment methods;

          o    marketing and distribution support; and

          o    successfully creating and sustaining demand.

     We cannot assure you that any of our products will achieve commercial
success, regardless of how effective they may be.

Failure to obtain adequate reimbursement could limit our ability to market
products.

     Our ability to commercialize products, including licensed or acquired
products, will depend in part on the reimbursements, if any, obtained from
third-party payors such as government health administration authorities, private
health insurers, managed care programs and other organizations. Third-party
payors are increasingly attempting to contain healthcare costs by limiting both
coverage and the level of reimbursement for pharmaceutical products and medical
devices. Cost control initiatives could decrease the price that we would receive
for products and affect our ability to commercialize any product. Third-party
payors also tend to discourage use of branded products when generic substitutes
are available. As a result, reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our
investment in product acquisition and development. If adequate reimbursement
levels for either newly approved or branded products are not provided, our
business, financial condition and results of operations could be materially and
adversely affected.

We may require additional funds in order to implement our evolving business
model.

     We may require additional funds in order to:

          o    license or acquire additional pharmaceutical or medical device
               products or technologies;

          o    pursue regulatory approvals;

          o    develop incremental marketing and sales capabilities;

          o    pursue other business opportunities or meet future operating
               requirements; and

          o    acquire other services businesses.


                                       14



     We may seek additional funding through public or private equity or debt
financing or other arrangements with collaborative partners. If we raise
additional funds by issuing equity securities, further dilution to existing
stockholders may result. In addition, as a condition to providing us with
additional funds, future investors may demand, and may be granted, rights
superior to those of existing stockholders. We cannot be sure, however, that
additional financing will be available from any of these sources or, if
available, will be available on acceptable or affordable terms. If adequate
additional funds are not available, we may be required to delay, reduce the
scope of, or eliminate one or more of our growth strategies.

Our contract sales business depends on expenditures by companies in the life
sciences industries.

     Our service revenues depend on promotional, marketing and sales
expenditures by companies in the life sciences industries, including the
pharmaceutical, MD&D and biotechnology industries. Promotional, marketing and
sales expenditures by pharmaceutical manufacturers have in the past been, and
could in the future be, negatively impacted by, among other things, governmental
reform or private market initiatives intended to reduce the cost of
pharmaceutical products or by governmental, medical association or
pharmaceutical industry initiatives designed to regulate the manner in which
pharmaceutical manufacturers promote their products. Furthermore, the trend in
the life sciences industries toward consolidation may result in a reduction in
overall sales and marketing expenditures and, potentially, a reduction in the
use of contract sales and marketing services providers.

Changes in outsourcing trends in the pharmaceutical and biotechnology industries
could materially adversely affect our business, financial condition, results of
operations and growth rate.

     Our business and growth depend in large part on demand from the
pharmaceutical and life sciences industries for outsourced marketing and sales
services. The practice of many companies in these industries has been to hire
outside organizations like us to conduct large sales and marketing projects.
However, companies may elect to perform these services internally for a variety
of reasons, including the rate of new product development and FDA approval of
those products, number of sales representatives employed internally in relation
to demand for or the need to promote new and existing products, and competition
from other suppliers. If these industries reduce their tendency to outsource
these projects, our business, financial condition, results of operations and
growth rate could be materially adversely affected.

Product liability claims could harm our business.

     We could face substantial product liability claims in the event users of
any of the pharmaceutical and medical device products we market now or in the
future are alleged to cause negative reactions or adverse side effects or in the
event any of these products causes injury, is alleged to be unsuitable for its
intended purpose or is alleged to be otherwise defective. For example, we have
been named in numerous lawsuits as a result of our detailing of Baycol(R) on
behalf of Bayer Corporation (Bayer). Product liability claims, regardless of
their merits, could be costly and divert management's attention, or adversely
affect our reputation and the demand for our products. Although we currently
have product liability insurance in the aggregate amount of $10.0 million, we
cannot assure you that our insurance will be sufficient to cover fully all
potential claims. Also, adequate insurance coverage might not be available in
the future at acceptable costs, if at all.

We may be unable to secure or enforce adequate intellectual property rights to
protect the products or technologies we acquire, license or develop.

     Our ability to successfully commercialize newly branded products or
technologies depends on our ability to secure and enforce intellectual property
rights, generally patents, and we may be unable to do so. To obtain patent
protection, we must be able to successfully persuade the U.S. Patent and
Trademark Office and its foreign counterparts to issue patents on a timely basis
and possibly in the face of third-party challenges. Even if we are granted a
patent, our rights may later be challenged or circumvented by third parties.
Likewise, a third-party may challenge our trademarks or, alternatively, use a
confusingly similar trademark. The issuance of a patent is not conclusive as to
its validity or enforceability and the patent life is limited. In addition, from
time to time, we might receive notices from third parties regarding patent
claims against us. These type claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources, and cause us to incur significant expenses. As a result
of litigation over intellectual property rights, we may be required to stop


                                       15



selling a product, obtain a license from the owner to sell the product in
question or use the relevant intellectual property, which we may not be able to
obtain on favorable terms, if at all, or modify a product to avoid using the
relevant intellectual property. A successful claim of infringement against us
could have a material adverse effect on our business, financial condition and
results of operations.

If we do not meet performance goals set in our incentive-based and revenue
sharing arrangements, our profits could suffer.

     We have the opportunity to analyze and sometimes enter into incentive-based
and revenue sharing arrangements with pharmaceutical companies. Under
incentive-based arrangements, we are typically paid a fixed fee and, in
addition, have an opportunity to increase our earnings based on the market
performance of the products being detailed in relation to targeted sales
volumes, sales force performance metrics or a combination thereof. Under revenue
sharing arrangements, our compensation is based on the market performance of the
products being detailed, usually expressed as a percentage of product sales.
These types of arrangements transfer some market risk from our clients to us. In
addition, these arrangements can result in variability in revenue and earnings
due to seasonality of product usage, changes in market share, new product
introductions, overall promotional efforts and other market related factors. As
an example, in October 2001, we entered into an agreement with Eli Lilly to
copromote Evista in the U.S. under which we were to receive payments once
product net sales exceeded a pre-determined baseline. Our net sales of Evista
were insufficient for us to achieve our revenue and profit goals and as a result
we incurred an operating loss for 2002 of $35.1 million on this contract, $28.9
million from operating activities and $6.2 million in unused sales force
capacity. This contract was terminated effective December 31, 2002.

Most of our service revenue is derived from a limited number of clients, the
loss of any one of which could adversely affect our business.

     Our revenue and profitability depend to a great extent on our relationships
with a limited number of large pharmaceutical companies. In 2003, we had two
major clients that accounted for approximately 35.3% and 32.4%, respectively, or
a total of 67.7%, of our service revenue. We are likely to continue to
experience a high degree of client concentration, particularly if there is
further consolidation within the pharmaceutical industry. The loss or a
significant reduction of business from any of our major clients could have a
material adverse effect on our business, financial condition and results of
operations. For example, in February 2004, we announced the early termination of
our fee for service contract arrangement with Novartis for the promotion of
Diovan and Lotrel. As a result, $28.9 million of anticipated revenue associated
with the Novartis contract in 2004 will not be realized. In February 2002, we
announced the termination of our fee for service contract arrangement with Bayer
and as a result, our 2002 revenues were reduced by approximately $20.0 million.

Our service contracts are generally short-term agreements and are cancelable at
any time, which may result in lost revenue and additional costs and expenses.

     Our service contracts are generally for a term of one to three years and
many may be terminated by the client at any time for any reason. For example, as
discussed above, as a result of the early termination of our fee for service
contract arrangements with Bayer and Novartis, our 2002 revenues were reduced by
approximately $20.0 million due to the Bayer contract termination, and $28.9
million of anticipated revenue associated with the Novartis contract in 2004
will not be realized. The termination of a contract by one of our major clients
not only results in lost revenue, but also may cause us to incur additional
costs and expenses. All of our sales representatives are employees rather than
independent contractors. Accordingly, when a contract is terminated, unless we
can immediately transfer the related sales force to a new program, we either
must continue to compensate those employees, without realizing any related
revenue, or terminate their employment. If we terminate their employment, we may
incur significant expenses relating to their termination.

We and two of our officers are defendants in a class action shareholder lawsuit
which could divert our time and attention from more productive activities.

     Beginning on January 24, 2002, several purported class action complaints
were filed in the U.S. District Court for the District of New Jersey, against us
and certain of our officers on behalf of persons who purchased our common stock
during the period between May 22, 2001 and August 12, 2002. We believe that
meritorious defenses


                                       16



exist to the allegations asserted in these lawsuits and we intend to vigorously
defend these actions. Although we currently maintain director and officer
liability insurance coverage, there is no assurance that we will continue to
maintain such coverage or that any such coverage will be adequate to offset
potential damages.

Our failure, or that of our clients, to comply with applicable healthcare
regulations could limit, prohibit or otherwise adversely impact our business
activities.

     Various laws, regulations and guidelines established by government,
industry and professional bodies affect, among other matters, the provision of,
licensing, labeling, marketing, promotion, sale and distribution of healthcare
services and products, including pharmaceutical and MD&D products. In
particular, the healthcare industry is governed by various federal and state
laws pertaining to healthcare fraud and abuse, including prohibitions on the
payment or acceptance of kickbacks or other remuneration in return for the
purchase or lease of products that are paid for by Medicare or Medicaid.
Sanctions for violating these laws include civil and criminal fines and
penalties and possible exclusion from Medicare, Medicaid and other federal or
state healthcare programs. Although we believe our current business arrangements
do not violate these federal and state fraud and abuse laws, we cannot be
certain that our business practices will not be challenged under these laws in
the future or that a challenge would not have a material adverse effect on our
business, financial condition and results of operations. Our failure, or the
failure of our clients, to comply with these laws, regulations and guidelines,
or any change in these laws, regulations and guidelines may, among other things,
limit or prohibit our business activities or those of our clients, subject us or
our clients to adverse publicity, increase the cost of regulatory compliance and
insurance coverage or subject us or our clients to monetary fines or other
penalties.

Our industry is highly competitive and our failure to address competitive
developments promptly will limit our ability to retain and increase our market
share.

     Our primary competitors for sales services include in-house sales and
marketing departments of pharmaceutical companies, other CSOs and drug
wholesalers. We also compete for the licensing and acquisition of pharmaceutical
and MD&D products with other larger pharmaceutical and MD&D companies. There are
relatively few barriers to entry in the businesses in which we compete and, as
the industry continues to evolve, new competitors are likely to emerge. Many of
our current and potential competitors are larger than we are and have
substantially greater capital, personnel and other resources than we have.
Increased competition may lead to price and other forms of competition that
could have a material adverse effect on our market share, our ability to source
new business opportunities, our business, financial condition and results of
operations.

Consolidation of the wholesale distribution network for pharmaceutical products
could adversely impact the terms and conditions of our product sales.

     The distribution network for pharmaceutical products has recently
experienced significant consolidation among wholesalers and chain stores. As a
result, a few large wholesale distributors control a significant share of the
market and we have less ability to negotiate price, return policies and other
terms and related provisions of the sale. As our distribution of products
expands, some of these wholesalers and distributors may account for a
significant portion of our product sales. Our inability to negotiate favorable
terms and conditions for product sales to those wholesalers could have a
material adverse effect on our business, financial condition and results of
operations.

If we are unable to attract key employees and consultants, we may be unable to
develop our emerging business model.

     Successful execution of our business strategy depends, in large part, on
our ability to attract and retain qualified management, marketing and other
personnel with the skills and qualifications necessary to fully execute our
programs and strategy. Competition for personnel among companies in the
pharmaceutical industry is intense and we cannot assure you that we will be able
to continue to attract or retain the personnel necessary to support the growth
of our business.


                                       17



Our business will suffer if we fail to attract and retain qualified sales
representatives.

     The success and growth of our business depends on our ability to attract
and retain qualified pharmaceutical sales representatives. There is intense
competition for pharmaceutical sales representatives from CSOs and
pharmaceutical companies. On occasion, our clients have hired the sales
representatives that we trained to detail their products. We cannot be certain
that we can continue to attract and retain qualified personnel. If we cannot
attract and retain qualified sales personnel, we will not be able to expand our
teams business and our ability to perform under our existing contracts will be
impaired.

Our business will suffer if we lose certain key management personnel.

     The success of our business also depends on our ability to attract and
retain qualified senior management, and financial and administrative personnel
who are in high demand and who often have multiple employment options.
Currently, we depend on a number of our senior executives, including Charles T.
Saldarini, our chief executive officer, Steven K. Budd, our president, global
sales and marketing services, and Bernard C. Boyle, our chief financial officer.
The loss of the services of any one or more of these executives could have a
material adverse effect on our business, financial condition and results of
operations. Except for a $5 million key-man life insurance policy on the life of
Mr. Saldarini and a $3 million policy on the life of Mr. Budd, we do not
maintain and do not contemplate obtaining insurance policies on any of our
employees.

Our controlling stockholder continues to have effective control of us, which
could delay or prevent a change in corporate control that may otherwise be
beneficial to our stockholders.

     John P. Dugan, our chairman, beneficially owns approximately 34% of our
outstanding common stock. As a result, Mr. Dugan will be able to exercise
substantial control over the election of all of our directors, and to determine
the outcome of most corporate actions requiring stockholder approval, including
a merger with or into another company, the sale of all or substantially all of
our assets and amendments to our certificate of incorporation.

We have anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock.

     Our certificate of incorporation and bylaws include provisions, such as
providing for three classes of directors, which are intended to enhance the
likelihood of continuity and stability in the composition of our board of
directors. These provisions may make it more difficult to remove our directors
and management and may adversely affect the price of our common stock. In
addition, our certificate of incorporation authorizes the issuance of "blank
check" preferred stock. This provision could have the effect of delaying,
deterring or preventing a future takeover or a change in control, unless the
takeover or change in control is approved by our board of directors, even though
the transaction might offer our stockholders an opportunity to sell their shares
at a price above the current market price.

Our quarterly revenues and operating results may vary, which may cause the price
of our common stock to fluctuate.

     Our quarterly operating results may vary as a result of a number of
factors, including:

          o    the commencement, delay, cancellation or completion of programs;

          o    regulatory developments;

          o    uncertainty related to compensation based on achieving
               performance benchmarks;

          o    the mix of services provided;

          o    the mix of programs -- i.e., contract sales, copromotion,
               exclusive marketing, licenses;

          o    the timing and amount of expenses for implementing new programs
               and services and acquiring license rights for products;

          o    the accuracy of estimates of resources required for ongoing
               programs;

          o    the timing and integration of acquisitions;

          o    changes in regulations related to pharmaceutical companies; and

          o    general economic conditions.


                                       18



     In addition, in the case of revenue related to service contracts, we
recognize revenue as services are performed, while program costs, other than
training costs, are expensed as incurred. As a result, during the first two to
three months of a new contract, we may incur substantial expenses associated
with implementing that new program without recognizing any revenue under that
contract. This could have a material adverse impact on our operating results and
the price of our common stock for the quarters in which these expenses are
incurred. For these and other reasons, we believe that quarterly comparisons of
our financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. Fluctuations in quarterly results
could materially adversely affect the market price of our common stock in a
manner unrelated to our long-term operating performance.

Our stock price is volatile and could be further affected by events not within
our control. In 2003 our stock traded at a low of $6.86 and a high of $31.71.

     The market for our common stock is volatile. The trading price of our
common stock has been and will continue to be subject to:

          o    volatility in the trading markets generally;

          o    significant fluctuations in our quarterly operating results;

          o    announcements regarding our business or the business of our
               competitors;

          o    industry development;

          o    regulatory developments;

          o    changes in product mix;

          o    changes in revenue and revenue growth rates for us and for our
               industry as a whole; and

          o    statements or changes in opinions, ratings or earnings estimates
               made by brokerage firms or industry analysts relating to the
               markets in which we operate or expect to operate.

Employees

     As of December 31, 2003, we had 3,884 employees. Included in that amount
are 420 part-time field representatives employed by InServe, the number of which
vary from time to time based on project demand. We are not party to a collective
bargaining agreement with a labor union and we believe that our relations with
our employees are good.

Available Information

     Our website address is www.pdi-inc.com. We are not including the
information contained on our website as part or, or incorporating it by
reference into, this annual report on Form 10-K. We make available free of
charge through our website our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all amendments to those reports as
soon as reasonably practicable after such material is electronically filed with
or furnished to the Securities and Exchange Commission.

     The public may read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers such as us that file electronically with the SEC. The website
address is www.sec.gov.

ITEM 2. PROPERTIES

Facilities

     Our corporate headquarters are located in Upper Saddle River, New Jersey,
in a 48,600 square foot facility. The lease for all but approximately 10,000
square feet of this space expires in the fourth quarter of 2004. The lease on
the remaining space expires in the second quarter of 2004. We have leased
approximately 84,000 square feet in Saddle River, New Jersey for a term of
approximately 12 years. We expect to relocate our corporate headquarters to this
location during the second quarter of 2004.


                                       19



     TVG operates out of a 48,000 square foot facility in Fort Washington,
Pennsylvania, under a lease that expires in the third quarter of 2005.

     InServe operates out of a 9,100 square foot facility in Novato, California,
under a lease which expires in the second quarter of 2005.

     We believe that our current and recently leased facilities are adequate for
our current and foreseeable operations and that suitable additional space will
be available if needed.

ITEM 3. LEGAL PROCEEDINGS

Securities Litigation

     In January and February 2002, we, our chief executive officer and our chief
financial officer were served with three complaints that were filed in the
United States District Court for the District of New Jersey alleging violations
of the Securities Exchange Act of 1934 (the "1934 Act"). These complaints were
brought as purported shareholder class actions under Sections 10(b) and 20(a) of
the 1934 Act and Rule 10b-5 established thereunder. On May 23, 2002, the Court
consolidated all three lawsuits into a single action entitled In re PDI
Securities Litigation, Master File No. 02-CV-0211, and appointed lead plaintiffs
("Lead Plaintiffs") and Lead Plaintiffs' counsel. On or about December 13, 2002,
Lead Plaintiffs filed a second consolidated and amended complaint ("Second
Consolidated and Amended Complaint"), which superseded their earlier complaints.

     The complaint names us, our chief executive officer and our chief financial
officer as defendants; purports to state claims against us on behalf of all
persons who purchased our common stock between May 22, 2001 and August 12, 2002;
and seeks money damages in unspecified amounts and litigation expenses including
attorneys' and experts' fees. The essence of the allegations in the Second
Consolidated and Amended Complaint is that we intentionally or recklessly made
false or misleading public statements and omissions concerning our financial
condition and prospects with respect to our marketing of Ceftin in connection
with the October 2000 distribution agreement with GlaxoSmithKline, our marketing
of Lotensin in connection with the May 2001 distribution agreement with Novartis
Pharmaceuticals Corporation, as well as our marketing of Evista in connection
with the October 2001 distribution agreement with Eli Lilly.

     In February 2003, we filed a motion to dismiss the Second Consolidated and
Amended Complaint under the Private Securities Litigation Reform Act of 1995 and
Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. We believe that
the allegations in this purported securities class action are without merit and
we intend to defend the action vigorously.

Bayer-Baycol Litigation

     We have been named as a defendant in numerous lawsuits, including two class
action matters, alleging claims arising from the use of Baycol, a prescription
cholesterol-lowering medication. Baycol was distributed, promoted and sold by
Bayer in the U.S. through early August 2001, at which time Bayer voluntarily
withdrew Baycol from the U.S. market. Bayer retained certain companies, such as
us, to provide detailing services on its behalf pursuant to contract sales force
agreements. We may be named in additional similar lawsuits. To date, we have
defended these actions vigorously and have asserted a contractual right of
defense and indemnification against Bayer for all costs and expenses we incur
relating to these proceedings. In February 2003, we entered into a joint defense
and indemnification agreement with Bayer, pursuant to which Bayer has agreed to
assume substantially all of our defense costs in pending and prospective
proceedings and to indemnify us in these lawsuits, subject to certain limited
exceptions. Further, Bayer agreed to reimburse us for all reasonable costs and
expenses incurred to date in defending these proceedings. As of February 20,
2004 Bayer has reimbursed us for approximately $1.6 million in legal expenses,
almost all of which was received in 2003 and is reflected as a credit within
selling, general and administrative expense.


                                       20



Auxilium Pharmaceuticals Litigation

     On January 6, 2003, we were named as a defendant in a lawsuit filed by
Auxilium Pharmaceuticals, Inc. (Auxilium), in the Pennsylvania Court of Common
Pleas, Montgomery County. Auxilium was seeking monetary damages and injunctive
relief, including preliminary injunctive relief, based on several claims related
to our alleged breaches of a contract sales force agreement entered into by the
parties on November 20, 2002, and claims that we were misappropriating trade
secrets in connection with our exclusive license agreement with Cellegy.

     On May 8, 2003, we entered into a settlement and mutual release agreement
with Auxilium (Settlement Agreement), by which the lawsuit and all related
counter claims were dropped without any admission of wrongdoing by either party.
The settlement terms included a cash payment which was paid upon execution of
the Settlement Agreement as well as certain other additional expenses. We
recorded a $2.1 million charge in the first quarter of 2003 related to this
settlement. Pursuant to the Settlement Agreement, we also agreed that we would
(a) not sell, ship, distribute or transfer any Fortigel product to any
wholesalers, chain drug stores, pharmacies or hospitals prior to November 1,
2003, and (b) pay Auxilium an additional amount per prescription to be
determined based upon a specified formula, in the event any prescriptions were
filled for Fortigel prior to January 26, 2004. As discussed above, in July 2003,
Cellegy received a letter from the FDA rejecting its NDA for Fortigel. We will
not pay any additional amount to Auxilium as set forth in clause (b) above since
Fortigel was not approved by the FDA prior to January 26, 2004. We do not
believe that the terms of the Settlement Agreement will have any material impact
on the success of our commercialization of the product if, or when, the FDA
approves it.

Cellegy Pharmaceuticals Litigation

     On December 12, 2003, we filed a complaint against Cellegy in the U.S.
District Court for the Southern District of New York. The complaint alleges that
Cellegy fraudulently induced us to enter into a license agreement with Cellegy
regarding Fortigel on December 31, 2002. The complaint also alleges claims for
misrepresentation and breach of contract related to the license agreement. In
the complaint, we seek, among other things, rescission of the license agreement
and return of the $15.0 million we paid Cellegy. After we filed this lawsuit,
also on December 12, 2003, Cellegy filed a complaint against us in the U.S.
District Court for the Northern District of California. Cellegy's complaint
seeks a declaration that Cellegy did not fraudulently induce us to enter the
license agreement and that Cellegy has not breached its obligations under the
license agreement. We are unable to predict the ultimate outcome of these
lawsuits.

Other Legal Proceedings

     We are currently a party to other legal proceedings incidental to our
business. While management currently believes that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a material adverse
effect on our consolidated financial statements, litigation is subject to
inherent uncertainties. Were we to settle a proceeding for a material amount or
were an unfavorable ruling to occur, there exists the possibility of a material
adverse impact on our business, financial condition and results of operations.

     No amounts have been accrued for losses under any of the above mentioned
matters, other than for the Auxilium litigation settlement reserve, as no other
amounts are considered probable or reasonably estimable at this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                       21



                                     PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock is traded on the Nasdaq National Market under the symbol
"PDII." The following table sets forth, for each of the periods indicated, the
range of high and low closing sales prices for the common stock as reported by
the Nasdaq National Market.

                                                                  High      Low
                                                                 ------   ------
        2003
     First quarter............................................   12.650    7.100
     Second quarter...........................................   12.600    7.350
     Third quarter............................................   26.810   10.330
     Fourth quarter...........................................   30.870   20.250

        2002
     First quarter............................................   22.410   13.300
     Second quarter...........................................   20.000   14.130
     Third quarter............................................   14.900    4.070
     Fourth quarter...........................................   10.790    3.040

     We believe that, as of March 1, 2004, we had approximately 3,000 beneficial
stockholders.

                      Equity Compensation Plan Information
                          Year Ended December 31, 2003



                                                                                   Number of securities
                                                                                 remaining available for
                                     Number of securities    Weighted-average     future issuance under
                                      to be issued upon      exercise price of     equity compensation
                                         exercise of            outstanding         plans (excluding
                                     outstanding options,    options, warrants   securities reflected in
           Plan Category             warrants and rights        and rights             column (a))
- ---------------------------------    --------------------   ------------------   -----------------------
                                             (a)                    (b)
                                                                                
Equity compensation plans
   approved by security holders
   (2000 Omnibus Incentive
   Compensation Plan and 1998
   Stock Option Plan)............         1,037,599               $27.33                 939,611
Equity compensation plans not
   approved by security
   holders(1)....................                --                   --                      --
                                          =========               ======                 =======
Total............................         1,037,599               $27.33                 939,611
                                          =========               ======                 =======


(1)  The Company does not have any equity compensation plans which have not been
     approved by security holders.

Dividend policy

     We have not paid any dividends and do not intend to pay any dividends in
the foreseeable future. Future earnings, if any, will be used to finance the
future growth of our business. Future dividends, if any, will be determined by
our board of directors.

ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial data set forth below as of and for the
years ended December 31, 2003, 2002, 2001, 2000 and 1999 are derived from our
audited consolidated financial statements and the accompanying notes. Our
consolidated financial statements for 1999 reflect our acquisition of TVG in May
1999, which was accounted for as a pooling of interests, on a pro forma basis as
if TVG had been owned by the Company the entire period. Consolidated balance
sheets at December 31, 2003 and 2002 and consolidated statements of operations,


                                       22



stockholders' equity and cash flows for the three years ended December 31, 2003,
2002 and 2001 and the related notes are included elsewhere in this Annual Report
on Form 10-K and have been audited by PricewaterhouseCoopers LLP, independent
auditors. The selected financial data set forth below should be read together
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our audited consolidated
financial statements and related notes appearing elsewhere in this report.

Statement of operations data:



                                                                               Years Ended December 31,
                                                                ----------------------------------------------------
                                                                  2003       2002        2001       2000       1999
                                                                --------   --------   --------   --------   --------
                                                                        (in thousands, except per share data)
                                                                                             
Revenue
   Service, net..............................................   $329,061   $277,575   $281,269   $315,867   $174,902
   Product, net..............................................    (11,613)     6,438    415,314    101,008         --
                                                                --------   --------   --------   --------   --------
      Total revenue, net.....................................    317,448    284,013    696,583    416,875    174,902
                                                                --------   --------   --------   --------   --------

Cost of goods and services
   Program expenses..........................................    227,080    254,140    232,171    235,355    130,121
   Cost of goods sold........................................      1,287         --    328,629     68,997         --
                                                                --------   --------   --------   --------   --------
      Total cost of goods and services.......................    228,367    254,140    560,800    304,352    130,121
                                                                --------   --------   --------   --------   --------

Gross profit.................................................     89,081     29,873    135,783    112,523     44,781

Operating expenses
   Compensation expense......................................     36,901     32,670     39,263     32,820     19,611
   Other selling, general and administrative expenses........     30,347     44,163     83,815     38,827      9,448
   Restructuring and other related expenses..................        143      3,215         --         --         --
   Litigation settlement.....................................      2,100         --         --         --         --
   Acquisition and related expenses..........................         --         --         --         --      1,246
                                                                --------   --------   --------   --------   --------
      Total operating expenses...............................     69,491     80,048    123,078     71,647     30,305
                                                                --------   --------   --------   --------   --------
Operating income (loss)......................................     19,590    (50,175)    12,705     40,876     14,476
Other income, net............................................      1,073      1,967      2,275      4,864      3,471
                                                                --------   --------   --------   --------   --------
Income (loss) before provision (benefit) for income taxes ...     20,663    (48,208)    14,980     45,740     17,947
Provision (benefit) for income taxes.........................      8,405    (17,447)     8,626     18,712      7,539
                                                                --------   --------   --------   --------   --------
Net income (loss)............................................   $ 12,258   $(30,761)  $  6,354   $ 27,028   $ 10,408
                                                                ========   ========   ========   ========   ========

Basic net income (loss) per share(1).........................   $   0.86   $  (2.19)  $   0.46   $   2.00   $   0.87
                                                                ========   ========   ========   ========   ========
Diluted net income (loss) per share(1).......................   $   0.85   $  (2.19)  $   0.45   $   1.96   $   0.86
                                                                ========   ========   ========   ========   ========
Basic weighted average number of shares outstanding(1).......     14,231     14,033     13,886     13,503     11,958
                                                                ========   ========   ========   ========   ========
Diluted weighted average number of shares outstanding(1).....     14,431     14,033     14,113     13,773     12,167
                                                                ========   ========   ========   ========   ========




                                                                             Years Ended December 31,
                                                             ------------------------------------------------------
                                                                                                             1999
                                                                                                            -------
                                                                    (in thousands, except per share data)
                                                                                                         
Pro forma data (unaudited)
Income before provision for income taxes..................                                                  $17,947
Pro forma provision for income taxes (2)..................                                                    7,677
                                                                                                            -------
Pro forma net income (2)..................................                                                  $10,270
                                                                                                            =======
Pro forma basic net income per share (2)..................                                                  $  0.86
                                                                                                            =======
Pro forma diluted net income per share (2)................                                                  $  0.84
                                                                                                            =======
Basic weighted average number of shares outstanding (1)...                                                   11,958
                                                                                                            =======
Pro forma diluted weighted average number of shares
   outstanding (1)........................................                                                   12,167
                                                                                                            =======


Balance sheet data:



                                                                            As of December 31,
                                                            --------------------------------------------------
                                                             2003       2002      2001       2000      1999
                                                            --------  --------  --------   --------   --------
                                                                            (in thousands)
                                                                                       
Cash and cash equivalents................................   $113,288  $ 66,827  $160,043   $109,000   $ 57,787
Working capital..........................................    100,009    81,854   113,685    120,720     53,144
Total assets.............................................    219,623   190,939   302,671    270,225    102,960
Total long-term debt.....................................         --        --        --         --         --
Stockholders' equity ....................................    138,448   123,211   150,935    138,110     60,820


- ----------
(1)  See Note 9 to our audited consolidated financial statements included
     elsewhere in this report for a description of the computation of basic and
     diluted weighted average number of shares outstanding.


                                       23



(2)  Prior to our initial public offering, we were an S corporation and had not
     been subject to Federal or New Jersey corporate income taxes, other than a
     New Jersey state corporate income tax of approximately 2%. In addition,
     TVG, a 1999 acquisition accounted for as a pooling of interest, was also
     taxed as an S corporation from January 1997 to May 1999. Pro forma
     provision for income taxes, pro forma net income and basic and diluted net
     income per share for 1999 reflect a provision for income taxes as if we and
     TVG had been taxed at the statutory tax rates in effect for C corporations
     for all periods.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Cautionary Statement Identifying Important Factors That Could Cause Our Actual
Results to Differ From Those Projected in Forward Looking Statements.

     Pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this report are advised that this
document contains both statements of historical facts and forward looking
statements. Forward looking statements are subject to risks and uncertainties,
which could cause our actual results to differ materially from those indicated
by the forward looking statements. Examples of forward looking statements
include, but are not limited to (i) projections of revenues, income or loss,
earnings per share, capital expenditures, dividends, capital structure and other
financial items, (ii) statements regarding our plans and objectives including
product enhancements, or estimates or predictions of actions by customers,
suppliers, competitors or regulatory authorities, (iii) statements of future
economic performance, and (iv) statements of assumptions underlying other
statements.

     This report also identifies important factors that could cause our actual
results to differ materially from those indicated by the forward looking
statements. These risks and uncertainties include, but are not limited to, the
factors, risks and uncertainties (i) identified or discussed herein, (ii) set
forth under the headings "Business" and "Risk Factors" in Part I, Item 1; "Legal
Proceedings" in Part I, Item 3; and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7, of this
Annual Report on Form 10-K, and (iii) set forth in the Company's periodic
reports on Forms 10-Q and 8-K as filed with the Securities and Exchange
Commission since January 1, 2003.

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our consolidated
financial statements and the related notes appearing elsewhere in this report.

Overview

     We are a healthcare sales and marketing company serving the
biopharmaceutical and medical devices and diagnostics (MD&D) industries. We
create and execute sales and marketing campaigns intended to improve the
profitability of pharmaceutical and MD&D products. We do this by partnering with
companies who own the intellectual property rights to these products and
recognize our ability to commercialize these products and maximize their sales
performance. We have a variety of agreement types that we enter into with our
partner companies, from fee for service arrangements to equity investments in a
product or company.

Description of Reporting Segments and Nature of Contracts

     Our business is organized into three reporting segments:

     *    PDI sales and marketing services group (SMSG), comprised of:

          o    dedicated contract sales services (CSO);

          o    shared contract sales services (CSO);

          o    marketing research and consulting services (MR&C); and

          o    medical education and communication services (EdComm).

     *    PDI pharmaceutical products group (PPG), comprised of:


                                       24



          o    copromotion;

          o    licensing;

          o    acquisitions; and

          o    integrated commercialization services.

     *    PDI medical devices and diagnostics group (MD&D), comprised of:

          o    contract sales services (CSO);

          o    clinical sales teams;

          o    copromotion;

          o    licensing; and

          o    acquisitions.

     An analysis of these reporting segments and their results of operations is
contained in Note 23 to the consolidated financial statements found elsewhere in
this report and in the Consolidated Results of Operations discussion below.

PDI Sales and Marketing Services Group

     Given the customized nature of our business, we utilize a variety of
contract structures. Historically, most of our product detailing contracts have
been fee for service, i.e., the client pays a fee for a specified package of
services. These contracts typically include operational benchmarks, such as a
minimum number of sales representatives or a minimum number of calls. Also, our
contracts might have a lower base fee offset by built-in incentives we can earn
based on our performance. In these situations, we have the opportunity to earn
additional fees, as incentives, based on attaining performance benchmarks.

     Our product detailing contracts generally are for terms of one to three
years and may be renewed or extended. However, the majority of these contracts
are terminable by the client for any reason on 30 to 90 days' notice. These
contracts typically, but not always, provide for termination payments in the
event they are terminated by the client without cause. While the cancellation of
a contract by a client without cause may result in the imposition of penalties
on the client, these penalties may not act as an adequate deterrent to the
termination of any contract. In addition, we cannot assure you that these
penalties will offset the revenue we could have earned under the contract or the
costs we may incur as a result of its termination. The loss or termination of a
large contract or the loss of multiple contracts could have a material adverse
effect on our business, financial condition and results of operations. As an
example, in February 2004, Novartis notified us that it was exercising its right
to terminate its contract with us without cause and as a result, $28.9 million
of anticipated revenue associated with the Novartis contract in 2004 will not be
realized. This contract was to run through December 31, 2004. Contracts may also
be terminated for cause if we fail to meet stated performance benchmarks. The
loss or termination of a large contract or the loss of multiple contracts would
have a material adverse effect on our business, financial condition and results
of operations.

     Our MR&C and EdComm contracts generally are for projects lasting from three
to six months. The contracts are terminable by the client and provide for
termination payments in the event they are terminated without cause. Termination
payments include payment for all work completed to date, plus the cost of any
nonrefundable commitments made on behalf of the client. Due to the typical size
of the projects, it is unlikely the loss or termination of any individual MR&C
or EdComm contract would have a material adverse effect on our business,
financial condition and results of operations.

PDI Pharmaceutical Products Group

     The contracts within the pharmaceutical products group can be either
performance based or fee for service and may require sales, marketing and
distribution of product. In performance based contracts, we provide and finance
a portion, if not all, of the commercial activities in support of a brand in
return for a percentage of product sales. An important performance parameter is
normally the level of sales or prescriptions attained by the product during the
period of our marketing or promotional responsibility, and in some cases, for
periods after our promotional activities have ended.

     In the fourth quarter of 2000, we entered into a performance based contract
with GSK. Our agreement with


                                       25



GSK was in support of Ceftin and was an exclusive sales, marketing and
distribution contract. The agreement had a five-year term, but was cancelable by
either party without cause on 120 days' notice. The agreement was terminated by
mutual consent, effective February 28, 2002, due to the unexpected entry of a
competitive generic product.

     In May 2001, we entered into a copromotion agreement with Novartis
Pharmaceuticals Corporation (Novartis) for the U.S. sales, marketing and
promotion rights for Lotensin(R), Lotensin HCT(R) and Lotrel(R). That agreement
ran through December 31, 2003. On May 20, 2002, that agreement was replaced by
two separate agreements: one for Lotensin and another one for Lotrel, Diovan(R)
and Diovan HCT(R). Both agreements ran through December 31, 2003; however, the
Lotrel-Diovan agreement was renewed on December 24, 2003 for an additional one
year period. In February 2004, we were notified by Novartis of its intent to
terminate the Lotrel-Diovan contract without cause, effective March 16, 2004
and, as a result, $28.9 million of anticipated revenue associated with the
Lotrel-Diovan contract in 2004 will not be realized. We will continue to be
compensated under the terms of the agreement through the effective termination
date. Even though the Lotensin agreement ended December 31, 2003, we are still
entitled to receive royalty payments on the sales of Lotensin through December
31, 2004. The Lotensin agreement called for us to provide promotion, selling,
marketing and brand management for Lotensin. In exchange, we were entitled to
receive a percentage of product revenue based on certain total prescription
(TRx) objectives above specified contractual baselines. The revenue resulting
from the efforts of the Novartis sales force responsible for Lotrel-Diovan was
classified in the SMSG segment in 2003 instead of the PPG segment, where it was
classified in 2002, due to the fact that during 2002, we were reliant on the
attainment of performance incentives, whereas in 2003 this contract was
basically a fixed fee arrangement.

     In October 2001, we entered into an agreement with Eli Lilly and Company
(Eli Lilly) to copromote Evista(R) in the U.S. Under this agreement, we were
entitled to be compensated based upon net sales achieved above a predetermined
level. In the event these predetermined net sales levels were not achieved, we
would not receive any revenue to offset expenses incurred. During 2002, it
became apparent that the net sales levels likely to be achieved would not be
sufficient to recoup our expenses. In November 2002, we agreed with Eli Lilly to
terminate the Evista copromotion agreement effective December 21, 2002.

     On December 31, 2002, we entered into an exclusive licensing agreement with
Cellegy Pharmaceuticals, Inc. (Cellegy) for the exclusive North American rights
for Fortigel(TM), a testosterone gel product. The agreement is in effect for the
commercial life of the product. Cellegy submitted a New Drug Application (NDA)
for the hypogonadism indication to the U.S. Food and Drug Administration (FDA)
in June 2002. In July 2003, Cellegy received a letter from the FDA rejecting its
NDA for Fortigel. Cellegy has told us that it is in discussions with the FDA to
determine the appropriate course of action needed to meet deficiencies cited by
the FDA in its determination. Since we filed the lawsuit, Cellegy is no longer
in regular contact with us regarding Fortigel. Thus, for example, we are unaware
of the FDA status regarding Fortigel (as of December 31, 2003, it had not been
approved) and are unaware of what steps Cellegy is taking to develop Fortigel,
to obtain FDA approval for Fortigel, and/or to arrange for a party to
manufacture Fortigel. We have requested this information from Cellegy but have
not received it. Accordingly, we may not possess the most current and reliable
information concerning the current status of, or future prospects relating to,
Fortigel. The issuance of the non-approvable letter by the FDA concerning
Fortigel, however, casts significant doubt upon Fortigel's prospects and whether
it will ever be approved. We cannot predict with any certainty whether the FDA
will ultimately approve Fortigel for sale in the U.S. Under the terms of the
agreement, we paid Cellegy a $15.0 million initial licensing fee on December 31,
2002. This payment was made prior to FDA approval and since there is no
alternative future use of the licensed rights, we expensed the $15.0 million
payment in December 2002, when incurred. This amount was recorded in other
selling, general and administrative expenses in the December 31, 2002
consolidated statements of operations. Pursuant to the terms of the licensing
agreement, we will be required to pay Cellegy a $10.0 million incremental
license fee milestone payment upon Fortigel's receipt of all approvals required
by the FDA (if such approvals are obtained) to promote, sell and distribute the
product in the U.S. This incremental milestone license fee, if incurred, will be
recorded as an intangible asset and amortized over its estimated useful life, as
then determined, which is not expected to exceed the life of the patent. Royalty
payments to Cellegy over the term of the commercial life of the product will
range from 20% to 30% of net sales.

     On December 12, 2003, we instituted an action against Cellegy in the U.S.
District Court for the Southern District of New York seeking to rescind the
Cellegy license agreement on the grounds that it was procured by fraud. We are
seeking return of the license fee we paid on December 31, 2002 of $15.0 million
plus additional damages


                                       26



caused by Cellegy's conduct.

PDI Medical Devices and Diagnostics Group

     Our MD&D group provides an array of sales and marketing services to the
MD&D industry. Our core service is the provision of clinical sales teams. Our
clinical sales teams employ nurses, medical technologists, and other clinicians
who train and provide hands-on clinical education and after sales support to the
medical staff of hospitals and clinics that recently purchased our clients'
equipment. Our activities maximize product utilization and customer satisfaction
for the medical practitioners, while simultaneously enabling our clients' sales
forces to continue their selling activities instead of in-servicing the
equipment they had recently sold.

     We also provide a contract sales business within the MD&D market. We took
our knowledge from years of providing sales forces to the pharmaceutical
industry and applied it to the MD&D business. As a result, we now have contract
sales as one of the services that we market to the MD&D industry, to assist our
clients in improving their product sales.

     In October 2002, we partnered with Xylos Corporation (Xylos) for the
exclusive U.S. commercialization rights to the Xylos XCell(TM) Cellulose Wound
Dressing (XCell) wound care products, by entering into an agreement pursuant to
which we became the exclusive commercialization partner for the sales, marketing
and distribution of the product line in the U.S. On January 2, 2004, we
exercised our contractual right to terminate the agreement on 135 days' notice
to Xylos since sales of XCell were not sufficient to sustain our role as
commercialization partner for the product. Our promotional activities in support
of the brand concluded in January 2004 and the agreement will terminate
effective May 16, 2004. We provided a short-term loan in the amount of $250,000
to Xylos in February 2004. Under the terms of the loan agreement, we may provide
another $250,000, if requested by Xylos.

     On May 29, 2003, we entered into an agreement with Organogenesis, Inc.
(Organogenesis) whereby we agreed to provide sales, marketing, and clinical
support for Apligraf(R), Organogenesis' living, bi-layered skin substitute. We
leveraged our wound care sales force to provide marketing resources in support
of Apligraf. PDI InServe also utilized its current team of wound care nurses to
provide after-sales clinical support for practitioners. Under the terms of the
agreement, we received a fee with the potential to earn incentives based on
performance. However, Apligraf sales did not result in us earning any
significant incentive payments. On October 14, 2003, we and Organogenesis
simultaneously exercised our rights to terminate the agreement, and our wound
care sales force ceased marketing Apligraf as of January 12, 2004. We do not
believe that this termination will have a material adverse effect on our
business, financial condition or results of operations.

     We currently do not anticipate entering into similar commercialization
agreements in the MD&D market.

Critical Accounting Policies

     We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP). The preparation of financial statements in
conformity with GAAP requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, including disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Our
critical accounting policies are those that are most important to our financial
condition and results and that require the most significant judgments on the
part of our management in their application. We believe that the following
represent our critical accounting policies. For a summary of all of our
significant accounting policies, including the critical accounting policies
discussed below, see Note 1 to the consolidated financial statements. Our
management and our independent accountants have discussed our critical
accounting policies with the audit committee of the board of directors. Because
of the uncertainty of factors surrounding the estimates or judgments in the
preparation of the consolidated financial statements, particularly as it relates
to a number of the judgmental items discussed in this section, actual results
may vary materially from these estimates.


                                       27



Revenue Recognition and Associated Costs

     The paragraphs that follow describe the guidelines that we adhere to in
accordance with GAAP when recognizing revenue and cost of goods and services in
our financial statements. In accordance with GAAP, service revenue and product
revenue and their respective direct costs have been shown separately on the
income statement.

     Historically, we have derived a significant portion of our service revenue
from a limited number of clients. Concentration of business in the
pharmaceutical services industry is common and the industry continues to
consolidate. As a result, we are likely to continue to experience significant
client concentration in future periods. For the years ended December 31, 2003,
2002 and 2001, our largest clients, who each individually represented 10% or
more of our service revenue, accounted for approximately 67.7%, 64.1% and 60.0%,
respectively, of our service revenue.

     Service revenue and program expenses

     Service revenue is earned primarily by performing product detailing
programs and other marketing and promotional services under contracts. Revenue
is recognized as the services are performed and the right to receive payment for
the services is assured. Revenue is recognized net of any potential penalties
until the performance criteria relating to the penalties have been achieved.
Performance incentives, as well as termination payments, are recognized as
revenue in the period earned and when payment of the bonus, incentive or other
payment is assured. Under performance based contracts, revenue is recognized
when the performance based parameters are achieved.

     Program expenses consist primarily of the costs associated with executing
product detailing programs, performance based contracts or other sales and
marketing services identified in the contract. Program expenses include
personnel costs and other costs associated with executing a product detailing or
other marketing or promotional program, as well as the initial direct costs
associated with staffing a product detailing program. Such costs include, but
are not limited to, facility rental fees, honoraria and travel expenses, sample
expenses and other promotional expenses. Personnel costs, which constitute the
largest portion of program expenses, include all labor related costs, such as
salaries, bonuses, fringe benefits and payroll taxes for the sales
representatives and sales managers and professional staff who are directly
responsible for executing a particular program. Initial direct program costs are
those costs associated with initiating a product detailing program, such as
recruiting, hiring, and training the sales representatives who staff a
particular product detailing program. All personnel costs and initial direct
program costs, other than training costs, are expensed as incurred for service
offerings. Product detailing, marketing and promotional expenses related to the
detailing of products we distribute are recorded as a selling expense and are
included in other selling, general and administrative expenses in the
consolidated statements of operations.

     Training Costs

     Training costs include the costs of training the sales representatives and
managers on a particular product detailing program so that they are qualified to
properly perform the services specified in the related contract. For all
contracts, training costs are deferred and amortized on a straight-line basis
over the shorter of the life of the contract to which they relate or 12 months.
When we receive a specific contract payment from a client upon commencement of a
product detailing program expressly to compensate us for recruiting, hiring and
training services associated with staffing that program, such payment is
deferred and recognized as revenue in the same period that the recruiting and
hiring expenses are incurred and amortization of the deferred training is
expensed. When we do not receive a specific contract payment for training, all
revenue is deferred and recognized over the life of the contract.

     As a result of the revenue recognition and program expense policies
described above, we may incur significant initial direct program costs before
recognizing revenue under a particular product detailing program. Our inability
to specifically negotiate for payments that are specifically attributable to
recruiting, hiring or training services in our product detailing contracts could
adversely impact our operating results for periods in which the costs associated
with the product detailing services are incurred.

     Product revenue and cost of goods sold

     Product revenue is recognized when products are shipped and title is
transferred to the customer. Product revenue for the year ended December 31,
2003 was negative, primarily from the adjustment to the Ceftin returns


                                       28



reserve, as discussed in Note 3 to the consolidated financial statements, net of
the sale of the Xylos wound care products. Product revenue recognized in prior
periods was related to the Ceftin contract which was terminated by mutual
consent in February 2002.

     Cost of goods sold includes all expenses for product distribution costs,
acquisition and manufacturing costs of the product sold. Inventory is valued at
the lower of cost or market value. Cost is determined using the first-in,
first-out costing method. Inventory to date has consisted of only finished
goods.

Estimates for accrued rebates, discounts and sales allowances

     For product sales, provision is made at the time of sale for all discounts
and estimated sales allowances. As is common in the pharmaceutical industry,
customers who purchased our Ceftin product are permitted to return unused
product, after approval from us, up to six months before and one year after the
expiration date for the product, but no later than December 31, 2004. The
products sold by us prior to the Ceftin agreement termination date of February
28, 2002 have expiration dates through June 2004. As discussed in Note 3 to the
consolidated financial statements, there was a $12.0 million adjustment to the
Ceftin returns reserve in 2003. This adjustment was recorded as a reduction to
revenue consistent with the initial recognition of the returns allowance and
resulted in us reporting net negative product revenue in 2003. Additionally,
certain customers were eligible for price rebates or discounts, offered as an
incentive to increase sales volume and achieve favorable formulary status, on
the basis of volume of purchases or increases in the product's market share over
a specified period, and certain customers are credited with chargebacks on the
basis of their resales to end-use customers, such as HMO's, which contracted
with us for quantity discounts. Furthermore, we are obligated to issue rebates
under the federally administered Medicaid program. In each instance we have the
historical data and access to other information, including the total demand for
the drug we distribute, our market share, the recent or pending introduction of
new drugs or generic competition, the inventory practices of our customers and
the resales by our customers to end-users having contracts with us, necessary to
reasonably estimate the amount of such returns or allowances, and record
reserves for such returns or allowances at the time of sale as a reduction of
revenue. The actual payment of these rebates varies depending on the program and
can take several calendar quarters before final settlement. As we settle these
liabilities in future periods, we will continue to monitor all appropriate
information and determine if any positive or negative adjustments are required
in that period. Any adjustments for changes in estimates are recorded through
revenue in that period.

Contract loss provisions

     Provisions for losses to be incurred on contracts are recognized in full in
the period in which it is determined that a loss will result from performance of
the contractual arrangement. Performance based contracts have the potential for
higher returns but also an increased risk of contract loss as compared to the
traditional fee for service CSO contracts. As discussed in Notes 2 and 3 to the
consolidated financial statements, we recognized contract losses in 2002 and
2001 related to the Evista and Ceftin contracts, respectively.

Financial instruments

     Our consolidated balance sheets reflect various financial instruments
including cash and cash equivalents and investments. We do not engage in trading
activities or off-balance sheet financial instruments. As a matter of policy,
excess cash and deposits are held by major banks or in high quality short-term
liquid instruments. We have investments, mainly in equity instruments, that are
carried at fair market value. We do not use derivative instruments such as swaps
or forward contracts. As discussed in Note 7 to the consolidated financial
statements, we have certain investments accounted for under the cost method and
certain investments accounted for under the equity method. We review our equity
investments for impairment on an ongoing basis based on our determination of
whether the decline in market value of the investment below its carrying value
is other than temporary.

Deferred taxes - valuation allowance

     We evaluate the need for a deferred tax asset valuation allowance by
assessing whether it is more likely than not that we will realize our deferred
tax assets in the future. The assessment of whether or not a valuation allowance
is required often requires significant judgment including the forecast of future
taxable income and the calculation of


                                       29



tax planning initiatives. Adjustments to the deferred tax allowance are made to
earnings in the period when such determination is made.

Goodwill impairment analysis

     We adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets" in fiscal year 2002. The effect of this
adoption on us is that goodwill is no longer amortized but is evaluated for
impairment on at least an annual basis. We have established reporting units for
purposes of testing goodwill for impairment. The tests involve 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. Goodwill has been assigned to the
reporting units to which the value of the goodwill relates. We completed the
first step of the transitional goodwill impairment test and determined that no
impairment existed at January 1, 2002. We evaluate goodwill and other intangible
assets at least on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable based on
the estimated future cash flows. We performed the required annual impairment
tests in the fourth quarters of both 2003 and 2002 and determined that no
impairment existed at either December 31, 2003 or December 31, 2002.

Restructuring and other related expenses

     In order to consolidate operations, downsize and improve operating
efficiencies, we have recorded restructuring charges. The recognition of
restructuring charges requires estimates and judgments regarding employee
termination benefits and other exit costs to be incurred when the restructuring
actions take place. Actual results can vary from these estimates which results
in adjustments in the period of the change in estimate.

Contingencies

     In the normal course of business, we are subject to contingencies, such as
legal proceedings and tax matters. In accordance with SFAS No. 5, "Accounting
for Contingencies," we record accruals for such contingencies when it is
probable that a liability will be incurred and the amount of the loss can be
reasonably estimated. For a discussion of legal contingencies, please refer to
Note 19 to the consolidated financial statements.

Consolidated Results of Operations

     The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of revenue. The trends illustrated
in this table may not be indicative of future operating results.


                                       30





                                                     Years Ended December 31,
                                               -------------------------------------
                                                2003    2002    2001    2000    1999
                                               -----   -----   -----   -----   -----
                                                                
Operating data
Revenue                                        103.7%   97.7%   40.4%   75.8%  100.0%
   Service, net
   Product, net                                 (3.7)    2.3    59.6    24.2      --
                                               -----   -----   -----   -----   -----
      Total revenue, net                       100.0   100.0   100.0   100.0   100.0
                                               -----   -----   -----   -----   -----
Cost of goods and services
   Program expenses                             71.5    89.5    33.3    56.5    74.4
   Cost of goods sold                            0.4      --    47.2    16.5      --
                                               -----   -----   -----   -----   -----
      Total cost of goods and services          71.9    89.5    80.5    73.0    74.4
                                               -----   -----   -----   -----   -----

Gross profit                                    28.1    10.5    19.5    27.0    25.6

Operating expenses
   Compensation expense                         11.6    11.5     5.7     7.9    11.2
   Other selling, general and administrative
      expenses                                   9.6    15.5    12.1     9.3     5.4
   Restructuring and other related expenses      0.1     1.1      --      --      --
   Litigation settlement                         0.6      --      --      --      --
   Acquisition and related expenses               --      --      --      --     0.7
                                               -----   -----   -----   -----   -----
      Total operating expenses                  21.9    28.1    17.8    17.2    17.3
                                               -----   -----   -----   -----   -----
Operating income (loss)                          6.2   (17.6)    1.7     9.8     8.3
Other income, net                                0.3     0.7     0.3     1.2     2.0
                                               -----   -----   -----   -----   -----
Income (loss) before provision (benefit) for
   income taxes                                  6.5   (16.9)    2.0    11.0    10.3
Provision (benefit) for income taxes             2.6    (6.1)    1.2     4.5     4.3
                                               -----   -----   -----   -----   -----
Net income (loss)                                3.9%  (10.8)%   0.8%    6.5%    6.0%
                                               =====   =====   =====   =====   =====

Pro forma data (unaudited)
Income (loss) before pro forma provision for
   income taxes                                                                 10.3%
Pro forma provision for income taxes                                             4.4
                                                                               -----
Pro forma net income (loss)                                                      5.9%
                                                                               =====



                                       31



     Comparison of 2003 and 2002



     Revenue, net (in thousands)
     ----------------------------------------------------------------------------------------------------
                                    Service                                      Product
                --------------------------------------------   ------------------------------------------
                                       variance                                     variance
                  2003        2002    fav/(unfav)   % change     2003      2002    fav/(unfav)   % change
                --------   --------   -----------   --------   --------   ------   -----------   --------
                                                                         
     SMSG       $262,966   $179,067    $ 83,899       46.9%    $     --   $   --    $     --        0.0%
     PPG          54,349     88,538     (34,189)     (38.6)%    (12,000)   6,438     (18,438)    (286.4)%
     MD&D         11,746      9,970       1,776       17.8%         387       --         387        0.0%
                --------------------------------------------   ------------------------------------------
        Total   $329,061   $277,575    $ 51,486       18.5%    $(11,613)  $6,438    $(18,051)    (280.4)%
     ----------------------------------------------------------------------------------------------------


     Revenue, net. Net revenue for 2003 was $317.4 million, 11.8% more than net
revenue of $284.0 million for the prior year period. Service revenue was $329.1
million in 2003, an increase of $51.5 million or 18.5% from the $277.6 million
recorded in 2002. This increase is mainly attributable to the addition of three
significant dedicated CSO contracts in July 2003, as well as the performance on
the Lotensin contract. Product revenue was negative $11.6 million as a result of
a $12.0 million increase in the Ceftin accrual which was recorded in the fourth
quarter of 2003; this increase was attributable to the changes in estimate
related to the allowance for sales returns recorded on previous Ceftin sales.
(Please see Note 3 to the consolidated financial statements.) This was partially
offset by Xylos product sales of approximately $387,000.

     The SMSG segment had $263.0 million in revenue for 2003, an increase of
$83.9 million over 2002. This increase is attributable to the three new
dedicated CSO contracts mentioned previously, and the reclassification of the
Lotrel-Diovan revenues due to the renegotiation of our Novartis contract in May
2002. As discussed in the PDI Pharmaceutical Products Group section of the MD&A,
the Novartis sales force responsible for Lotrel-Diovan was classified in the
SMSG segment in 2003 instead of the PPG segment, where it was classified in
2002, due to the fact that during 2002, we were reliant on the attainment of
performance incentives, whereas in 2003 this contract was basically a fixed fee
arrangement. As discussed previously, in February 2004, we were notified by
Novartis of its intent to terminate the Lotrel-Diovan contract without case,
and, as a result, $28.9 million of anticipated revenue associated with the
Lotrel-Diovan contract in 2004 will not be realized.

     The PPG segment had service revenue of $54.3 million, mainly attributable
to the results on behalf of Lotensin. We were able to maintain Lotensin
prescription levels relatively stable throughout the year, which resulted in us
earning additional revenue under the terms of the agreement. The decrease of
$34.2 million from the comparable prior year period can be primarily attributed
to the Lotrel-Diovan revenue reclassification discussed above.

     Revenues for MD&D were $12.1 million for 2003 versus $10.0 million in 2002,
an increase of 21.7%. MD&D service revenue increased by $1.8 million and there
was product revenue of approximately $387,000 related to the sale of the Xylos
product. As discussed in Note 2 to the consolidated financial statements, we
gave Xylos notice of termination of the Xylos agreement on January 2, 2004,
effective May 16, 2004.



     Cost of goods and services (in thousands)
     ----------------------------------------------------------------------------------------------------
                                Service                                   Product
                --------------------------------------------   ------------------------------------------
                                        variance                                    variance
                  2003       2002     fav/(unfav)   % change    2003      2002     fav/(unfav)   % change
                --------   --------   -----------   --------   ------   --------   -----------   --------
                                                                           
     SMSG       $182,170   $133,113    $(49,057)      (36.9)%  $   --      $--       $    --       0.0%
     PPG          36,364    113,751      77,387        68.0%       23       --           (23)      0.0%
     MD&D          8,546      7,276      (1,270)      (17.5)%   1,264       --        (1,264)      0.0%
                --------------------------------------------   ------------------------------------------
        Total   $227,080   $254,140    $ 27,060        10.6%   $1,287      $--       $(1,287)      0.0%
     ----------------------------------------------------------------------------------------------------



                                       32



     Costs of goods and services. Cost of goods and services for 2003 was $228.4
million, which was $25.7 million or 10.1% less than cost of goods and services
of $254.1 million for 2002. During 2003 the gross profit percentage was 28.1%
compared to 10.5% in the comparable prior year period. The gross profit
attributable to service revenue was $102.0 million in 2003 versus $23.4 million
in 2002, an increase of 335.9%. During 2002 the Evista contract resulted in a
$34.7 million negative gross profit. Excluding the effect of the Evista
contract, the gross profit percentage for 2002 would have been 17.5%.

     The SMSG segment had gross profit of $80.8 million with a gross profit
percentage of 30.7%, a substantial increase over the $45.9 million gross profit
and 25.7% gross profit percentage achieved in 2002, primarily due to the three
new significant contracts entered into during the current year. Generally, the
gross profit percentage achieved in 2003 was slightly higher than our historical
gross profit percentages and was attributable to the greater efficiencies
achieved in the performance of our contractual obligations for most service
units.

     The PPG segment had $6.0 million in gross profit for 2003 compared to
negative gross profit of $18.8 million in 2002. Excluding the $12.0 million
effect of the increase in the Ceftin accrual for sales returns, the contracts
within PPG contributed $18.0 million in gross profit with a gross profit
percentage of 33.1%. Excluding the Evista contract, in 2002 total PPG would have
earned a positive gross profit of $16.0 million and a gross profit percentage of
17.6%; the Evista contract was terminated as of December 31, 2002. The increase
in gross profit percentage from an adjusted 17.6% to an adjusted 33.1% resulted
from our success on the Lotensin program. We were able to maintain Lotensin
prescription levels relatively stable throughout the year, which resulted in us
earning additional revenue under the terms of the agreement.

     The MD&D segment earned a gross profit of $2.3 million and $2.7 million
for the years ended 2003 and 2002, respectively.

     (Note: Compensation and other SG&A expense amounts for each segment contain
allocated corporate overhead.)



          --------------------------------------------------------------------------------------
          Compensation Expense (excluding restructuring
          expense) (in thousands)
          --------------------------------------------------------------------------------------
                       2003    % of revenue     2002     % of revenue   $Inc/(Dec)   % Inc/(Dec)
                     -------   ------------   --------   ------------   ----------   -----------
                                                                      
          SMSG       $22,362        8.5%       $19,645       11.0%        $2,717        13.8%
          PPG         10,187       24.1%        10,353       10.9%          (166)       (1.6)%
          MD&D         4,352       35.9%         2,672       26.8%         1,680        62.9%
                     ---------------------------------------------------------------------------
             Total   $36,901       11.6%       $32,670       11.5%        $4,231        13.0%
          --------------------------------------------------------------------------------------


     Compensation expense. Compensation expense for 2003 was $36.9 million, an
increase of $4.2 million or 13.0% more than the $32.7 million for the comparable
prior year period. This increase can be attributed to a $7.1 million increase in
the accrual for incentive compensation in 2003, which resulted from the improved
performance of most business units in 2003; this increase in incentive
compensation was partially offset by savings attributable to the reduced
headcount associated with our prior year restructuring initiative. As a
percentage of total net revenue, compensation expense increased slightly to
11.6% for 2003 from 11.5% for 2002. Compensation expense as a percent of revenue
for the SMSG segment decreased but increased for the MD&D and PPG segments. The
increase in expense, as a percent of revenue for the latter two segments,
reflects the investment of additional management effort during 2003 toward our
investigation of opportunities for licensing or acquiring products for those
segments.



     ------------------------------------------------------------------------------------------------
     Other SG&A (excluding restructuring expense and litigation expense)
     (in thousands)
     ------------------------------------------------------------------------------------------------
                                                  % of               % of
                                       2003     revenue    2002     revenue   $Inc/(Dec)   %Inc/(Dec)
                                      -------   -------   -------   -------   ----------   ----------
                                                                           
     SMSG                             $16,836     6.4%    $15,796     8.8%     $  1,040        6.6%
     PPG                                7,081    16.7%     25,700    27.1%      (18,619)     (72.4)%
     MD&D                               6,430    53.0%      2,658    26.7%        3,772      141.9%
                                      ---------------------------------------------------------------
        Total                         $30,347     9.6%    $44,154    15.5%     $(13,807)     (31.3)%
                                      ---------------------------------------------------------------
        Less: Cellegy licensing fee        --      --      15,000    15.8%      (15,000)     100.0)%
                                      ---------------------------------------------------------------
        Adjusted Total                $30,347     9.6%    $29,154    10.3%     $  1,193        4.1%
     ------------------------------------------------------------------------------------------------



                                       33



     Other selling, general and administrative expenses. Total other SG&A
expenses were $30.3 million for 2003, which represented 9.6% of revenues. Other
selling, general and administrative expenses were $44.2 million in 2002, which
included the $15.0 million payment for the initial licensing fee associated with
the Cellegy agreement. Other SG&A expense as a percent of revenue for the SMSG
and PPG segments decreased but increased for the MD&D segment. There was a net
decrease in expense as a percent of revenue for the PPG segment in 2003 as
compared to 2002. During 2002, we incurred a $15.0 million (or 15.8% of revenue)
Cellegy license fee payment and the larger 2002 field teams required greater
administrative resources than in 2003. This increase as a percent of revenue for
the MD&D segment was primarily attributable to the sales force related costs and
other marketing costs associated with the marketing of our wound care products,
which began in January 2003.

     Restructuring and other related expenses. During the year ended December
31, 2002, we accrued $6.3 million in restructuring and other related expenses in
connection with our decision to consolidate operations to create efficiencies.
During 2003, our initial accrual was adjusted to reflect the following:

          o    a $270,000 reduction in the restructuring accrual due to
               negotiating higher sublease proceeds than originally estimated
               for the leased facility in Cincinnati, Ohio;

          o    $133,000 of additional restructuring expense due to higher than
               expected contractual termination costs. This additional expense
               was recorded in program expenses consistent with the original
               recording of the restructuring charges;

          o    a $473,000 reduction in the restructuring accrual due to lower
               than expected sales force severance costs. Greater success in the
               reassignment of sales representatives to other programs and the
               voluntary departure of other sales representatives combined to
               reduce the requirement for severance costs. This adjustment was
               recorded in program expenses consistent with the original
               recording of the restructuring charges;

          o    $413,000 of additional restructuring expense as a result of
               higher than expected exit costs and corporate employee severance
               costs. This adjustment was recorded in other SG&A expenses
               consistent with the original recording of the restructuring
               charges.

     As of December 31, 2003, the restructuring accrual is $744,000, consisting
of remaining lease and corporate severance payments. All restructuring
activities associated with this accrual are substantially complete. The
restructuring accrual and related activities are discussed more fully in the
Restructuring and Other Related Expenses section of this MD&A.

     Litigation settlement. On May 8, 2003, we entered into a settlement and
mutual release agreement with Auxilium (Settlement Agreement). We recorded a
$2.1 million charge in the first quarter of 2003 which included a cash payment
paid upon execution of the Settlement Agreement and other additional expenses
that were required as part of the settlement (Please see Note 19 to the audited
consolidated financial statements).

                 Operating income (loss)
                 (in thousands)
                 --------------------------------------------
                                                    variance
                              2003       2002     fav/(unfav)
                              ----       ----     -----------
                 SMSG       $ 40,240   $  7,908     $32,333
                 PPG         (11,970)   (55,210)     43,240
                 MD&D         (8,680)    (2,873)     (5,808)
                            ---------------------------------
                    Total   $ 19,590   $(50,175)    $69,765
                 --------------------------------------------


                                       34



     Operating income (loss). There was operating income for 2003 of $19.6
million, compared to an operating loss of $50.2 million in 2002, an increase of
$69.8 million. The 2002 period operating loss was primarily the result of losses
generated by the Evista contract and from the $15.0 million in licensing fee
expenses associated with the Cellegy agreement. Operating income for 2003 for
the SMSG segment was $40.2 million, or 408.9% more than the SMSG operating
income for 2002 of $7.9 million. As a percentage of net revenue from the SMSG
segment, operating income for that segment increased to 15.3% for 2003, from
4.4% for 2002. There was an operating loss for the PPG segment for 2003 of $12.0
million entirely attributable to the $12.0 million Ceftin accrual recorded in
the fourth quarter of 2003. As discussed in Note 3 to the consolidated financial
statements, the additional Ceftin accrual is attributable to the changes in
estimates related to the allowance for sales returns recorded on previous Ceftin
sales. This compares to an operating loss of $55.2 million in 2002, most of
which was attributable to the $35.1 million operating loss for the Evista
contract and the $15.0 million initial licensing fee associated with the Cellegy
agreement. There was an operating loss for 2003 for the MD&D segment of $8.7
million compared to an operating loss of $2.9 million in the prior period. The
2003 loss was due primarily to the 2003 Xylos product launch and the slower than
anticipated sales of that product.

     Other income, net. Other income, net, for 2003 and 2002 was $1.1 million
and $2.0 million, respectively. For 2003, other income, net, was comprised
primarily of interest income. For 2002, other income, net, was primarily
comprised of $2.5 million in other income and net interest income, which was
partially offset by losses on minority investments and disposal of assets of
$0.5 million. The reduction in other income, net, in 2003 is primarily due to
lower interest rates in 2003.

     Provision (benefit) for income taxes. There was an income tax provision of
$8.4 million for 2003, compared to an income tax benefit of $17.4 million for
2002, which consisted of Federal and state corporate income taxes. The effective
tax rate for 2003 was 40.7%, compared to an effective tax benefit rate of 36.2%
for 2002. During 2002, the benefit rate was lower than the target rate of 41% to
42% as a result of the effect of recording a valuation allowance against certain
state NOL carryforwards, for which it was determined that it was not more likely
than not that the benefit from the net operating losses would be realized and
the effect of non-deductible routinely incurred expenses. The effective tax rate
for 2003 was lower than the target rate of 41% to 42% due to reductions in
certain non-deductible costs and a decrease in the state effective tax rate
resulting from changes in state tax apportionment factors and an increase in the
number of filing jurisdictions required as a result of changes in our
operations. The tax benefit from the reversal of the state valuation allowance
was offset by a decrease in the value of our net state deferred tax asset
resulting from the decrease in our overall state effective tax rate.

     Net income (loss). There was net income for 2003 of $12.3 million, compared
to a net loss of $30.8 million for 2002 due to the factors discussed above.

     Comparison of 2002 and 2001

     Revenue, net. Net revenue for 2002 was $284.0 million, 59.2% less than net
revenue of $696.6 million for the prior year period. This decrease of $412.6
million was almost entirely due to the mutual termination of the marketing sales
and distribution contract with GSK for Ceftin; this product lost its patent
protection in early 2002 and as a result we recorded only $6.4 million of
product revenue in 2002, of which $5.7 million was attributable to changes in
estimates related to sales returns, discounts and rebates recorded on previous
Ceftin sales. Service revenue was $277.6 million in 2002, a reduction of $3.7
million or 1.3% from the $281.3 million recorded in 2001. There was a $71.8
million revenue reduction for the SMSG segment, primarily attributable to the
loss of several significant dedicated CSO contracts and the general decrease in
demand within our markets for sales and marketing services. This unfavorable
variance was almost totally offset by the revenue increase for the PPG segment
which had revenues of $88.5 million in 2002 compared to $27.7 million in 2001;
the major reason for this increase was our Novartis contracts through which we
provided services for Lotensin and Lotrel for all of 2002 and through which we
added the Diovan products to our service base in May 2002. Revenues for MD&D
were $10.0 million for 2002 versus $2.8 million in 2001 due to the fact we
recorded revenue for InServe for the entire year of 2002 as opposed to only
three and one-half months in 2001, and we earned modest revenue of $1.7 million
from the initiation of our MD&D contract sales unit in 2002.


                                       35



     Costs of goods and services. Cost of goods and services for 2002 was $254.1
million, which was $306.7 million or 54.7% less than cost of goods and services
of $560.8 million for 2001. The mutual termination of the Ceftin contract
resulted in a $328.6 million reduction in cost of goods and services for the
product category. During 2002 the cost of goods and services for the service
category was $254.1 million, an increase of $21.9 million compared to 2001, and
the gross profit for the category was $23.4 million in 2002 versus $49.1 million
in 2001. Despite the 28.6% revenue reduction for the SMSG segment, the group
maintained its gross profit percentage, achieving a 25.7% gross profit
percentage in 2002 compared to 25.4% in 2001. PPG has suffered a negative gross
profit for both years. During 2001, the negative gross profit for PPG service of
$15.4 million was mostly due to startup expenses and lower than expected product
performance on the Novartis contracts. During 2002 the Novartis contracts
achieved a positive gross profit but the Evista contract resulted in a $34.7
million negative gross profit. Excluding the Evista contract, total PPG would
have earned a positive gross profit of $16.0 million and a 17.6% gross margin,
which is lower than the SMSG margin by 8.1 percentage points. Performance based
contracts can achieve a gross profit percentage above our historical averages
for contract sales programs if the performance of the product(s) meets or
exceeds expectations, but can be below normal gross profit standards if the
performance of the product(s) falls short of baselines. The Evista contract was
terminated as of December 31, 2002 and therefore did not adversely affect 2003.
The MD&D segment earned a modest gross profit in both years.

     Compensation expense. Compensation expense for 2002 was $32.7 million,
16.8% less than $39.3 million for the comparable prior year period. As a
percentage of total net revenue, compensation expense increased to 11.5% for
2002 from 5.7% for 2001. Compensation expense for 2002 attributable to the sales
and marketing services segment was $19.6 million compared to $28.6 million for
2001. As a percentage of net revenue from the sales and marketing services
segment, compensation expense decreased slightly to 11.0% for 2002 from 11.4%
for 2001. Compensation expense for 2002 attributable to the PPG segment was
$10.4 million, or 10.9% of PPG net revenue, compared to $10.1 million, or 2.3%
in the prior year period. Compensation expense for 2002 attributable to the MD&D
segment was $2.7 million, or 26.8% of MD&D net revenue, compared to $0.6 million
for three and one-half months of 2001.

     Other selling, general and administrative expenses. Total other SG&A
expenses were $44.2 million for 2002, 47.3% less than other selling, general and
administrative expenses of $83.8 million (of which $46.9 million was related to
Ceftin activities) for 2001. As a percentage of total net revenue, total other
SG&A expenses increased to 15.5% for 2002 from 12.1% for 2001. Other SG&A
expenses attributable to the sales and marketing services segment for 2002 were
$15.8 million, $2.8 million less than other SG&A expenses of $18.6 million
attributable to that segment for the comparable prior year period. As a
percentage of net revenue from the sales and marketing services segment, other
SG&A expenses were 8.8% and 7.4% for 2002 and 2001, respectively. Other selling,
general and administrative expenses attributable to the PPG segment for 2002
were $25.7 million, included in this amount was the $15.0 million initial
licensing fee expense associated with the Cellegy agreement. For 2001, other
selling, general and administrative expenses attributable to the PPG segment
were $64.6 million. Excluding $46.9 million in Ceftin field and other
promotional expenses, other selling, general and administrative expenses for
2001 were $17.7 million. Other SG&A expenses attributable to MD&D segment for
2002 were $2.7 million, $2.1 million more than other SG&A expenses of $0.6
million for three and one-half months of 2001. As a percentage of net revenue
from the MD&D segment, other SG&A expenses were 26.7% and 21.7% for 2002 and
2001, respectively.

     Both compensation and other selling, general and administrative expenses
were higher as a percentage of revenue in the 2002 period than they were in
2001, even after excluding the SG&A expenses associated with the Ceftin
contract. This factor, considered with management's overall assessment of market
conditions and our cost structure, prompted us to undertake cost reduction
initiatives (see "Restructuring and Other Related Expenses").

     Operating loss. There was an operating loss for 2002 of $50.2 million,
compared to operating income of $12.7 million for 2001. The 2002 period
operating loss was primarily the result of losses generated by the Evista
contract and from recording $15.0 million in licensing fee expenses associated
with the Cellegy agreement. Operating income for 2002 for the sales and
marketing services segment was $7.9 million, or 52.0% less than the sales and
marketing services operating income for 2001 of $16.5 million. As a percentage
of net revenue from the sales and marketing services segment, operating income
for that segment decreased to 4.4% for 2002, from 6.7% for 2001. There was an
operating loss for the PPG segment for 2002 of $55.2 million almost entirely
attributable to the $35.1 million operating loss for the Evista contract and the
$15.0 million initial licensing fee associated with the Cellegy agreement. There
was an operating loss for 2002 for the MD&D segment of $2.9 million compared to
an operating


                                       36



loss of $0.2 million in the prior period. The 2002 loss was due primarily to
startup costs in preparation for the January 2003 Xylos product launch and the
initial efforts of the MD&D CSO unit.

     Other income, net. Other income, net, for 2002 and 2001 was $2.0 million
and $2.3 million, respectively. For 2002, other income, net, was primarily
comprised of $2.5 million in other income and net interest income. The reduction
in 2002 was primarily due to significantly lower interest rates and reduced
investments in 2002, which was partially offset by losses on investments and
securities of approximately $0.5 million.

     Benefit for income taxes. There was an income tax benefit of $17.4 million
for 2002, compared to an income tax provision of $8.6 million for 2001, which
consisted of Federal and state corporate income taxes. The effective tax benefit
rate for 2002 was 36.2%, compared to an effective tax rate of 57.6% for 2001.
During 2002, the benefit rate was lower than the target rate of 41% to 42%
primarily as a result of the effect of current state valuation allowances
recorded for certain states where the benefit from the net operating losses may
not be realized and the effect of non-deductible routinely incurred expenses.
During 2001, the increase in the effective tax rate was attributable to several
specific transactions or situations that when applied to our lower than normal
pretax earnings created a large deviation from our target effective tax rate.
For example, certain nondeductible expenses which are routinely incurred in
relatively consistent amounts had a significantly higher impact on the effective
tax rate in 2001, compared to prior years, due to the lower level of pretax
profits.

     Net loss. There was a net loss for 2002 of $30.8 million, compared to net
income of $6.4 million for 2001 due to the factors discussed above.

Restructuring and Other Related Expenses

     During the third quarter of 2002, we adopted a restructuring plan, the
objectives of which were to consolidate operations in order to enhance operating
efficiencies (the 2002 Restructuring Plan). This plan was primarily in response
to the general decrease in demand within our markets for the sales and marketing
services segment, and the recognition that the infrastructure that supported
these business units was larger than required. We originally estimated that the
restructuring would result in annualized SG&A savings of approximately $14.0
million, based on the level of SG&A spending at the time we initiated the
restructuring. However, these savings have been partially offset by incremental
SG&A expenses we incurred in the current period as we have been successful in
expanding our business platforms for our segments. Substantially all of the
restructuring activities have been completed as of December 31, 2003.

     In connection with this plan, we originally estimated that we would incur
total restructuring expenses of approximately $5.4 million, other non-recurring
expenses of approximately $0.1 million, and accelerated depreciation of
approximately $0.8 million. Excluding $0.1 million, all of these expenses were
recognized in 2002. The $0.1 million recognized in 2003 consisted of $0.4
million in additional expense incurred for severance and other exit costs
partially offset by the receipt of $0.3 million for subletting the Cincinnati,
Ohio facility.

     The primary items comprising the $5.4 million in restructuring expenses
were $3.7 million in severance expense consisting of cash and non-cash
termination payments to employees in connection with their involuntary
termination and $1.7 million in other restructuring exit costs relating to
leased facilities and other contractual obligations.

     During the quarter ended March 31, 2003, we recognized a $270,000 reduction
in to the restructuring accrual due to negotiating higher sublease proceeds than
originally estimated for the leased facility in Cincinnati, Ohio.

     During the quarter ended June 30, 2003, we incurred approximately $133,000
of additional restructuring expense due to higher than expected contractual
termination costs. This additional expense was recorded in program expenses
consistent with the original recording of the restructuring charges.

     Also during the quarter ended June 30, 2003, we recognized a $473,000
reduction in the restructuring accrual due to lower than expected sales force
severance costs. Greater success in the reassignment of sales representatives to
other programs and the voluntary departure of other sales representatives
combined to reduce the requirement for


                                       37



severance costs. This adjustment was recorded in program expenses consistent
with the original recording of the restructuring charges.

     During the quarter ended December 31, 2003, we recorded approximately
$413,000 in additional restructuring expense due to higher than expected
severance and other exit costs. This adjustment was recorded in SG&A consistent
with the original recording of the restructuring charges.

     The accrual for restructuring and exit costs totaled approximately $744,000
at December 31, 2003, and is recorded in current liabilities on the balance
sheet included in the accompanying consolidated financial statements.

     A roll forward of the activity for the 2002 Restructuring Plan (in
thousands) is as follows:



                                    Balance at                               Write offs/      Balance at
                                December 31, 2002   Accruals   Adjustments    Payments     December 31, 2003
                                -----------------   --------   -----------   -----------   -----------------
                                                                                   
     Administrative severance         $1,670          $ 58        $  --        $(1,443)           $285
     Exit costs                        1,288           488         (270)        (1,047)            459
                                      ------          ----        -----        -------            ----
                                      $2,958          $546        $(270)       $(2,490)           $744
                                      ------          ----        -----        -------            ----
     Sales force severance             1,741            --         (473)        (1,268)             --
                                      ------          ----        -----        -------            ----
        Total                         $4,699          $546        $(743)       $(3,758)           $744
                                      ======          ====        =====        =======            ====


Liquidity and Capital Resources

     As of December 31, 2003, we had cash and cash equivalents of approximately
$113.3 million and working capital of $100.0 million, compared to cash and cash
equivalents of approximately $66.8 million and working capital of approximately
$81.9 million at December 31, 2002.

     For the year ended December 31, 2003, net cash provided by operating
activities was $41.6 million, compared to $89.0 million net cash used in
operating activities in 2002. The main components of cash provided by operating
activities were:

     o    cash provided from other changes in assets and liabilities of $23.7
          million, primarily due to the receipt of a federal income tax refund
          of $20.7 million in August 2003;

     o    net income of approximately $12.3 million; and

     o    add back of depreciation and amortization of other intangible assets
          of approximately $6.2 million.

     At December 31, 2003, the Company has a remaining reserve of $22.8 million
related to Ceftin sales returns. The Company estimates that it will pay this
amount beginning in 2004, using available cash on hand and cash provided by
operations.

     In the third quarter of 2003, a valuation reserve of $835,000 was recorded
to reduce the value of the inventory associated with our XCell wound care
products to its net realizable value of approximately $174,000 as a result of
management's determination that the sales potential for this product has
diminished materially. The December 31, 2003 balance of the reserve is
approximately $818,000. On January 2, 2004 we gave Xylos notice of termination
of the Xylos agreement effective May 16, 2004. We continue to hold a $1.0
million investment of preferred stock of Xylos. In addition we provided a
short-term loan to Xylos in February 2004 of $250,000. Under the terms of the
agreement, we may provide another short-term loan of $250,000, if requested by
Xylos.

     As of December 31, 2003, we had $3.6 million of unearned contract revenue
and $4.0 million of unbilled costs and accrued profits. When we bill clients for
services before they have been completed, billed amounts are recorded as
unearned contract revenue, and are recorded as income when earned. When services
are performed in advance of billing, the value of such services is recorded as
unbilled costs and accrued profits. Substantially all costs and accrued profits
are earned and billed within 12 months from the end of the respective period.

     The net changes in the "Other changes in assets and liabilities" section of
the consolidated statement of cash flows may fluctuate depending on a number of
factors, the initiation and termination of contracts, contract terms and other
timing issues; these variations may change in size and direction with each
reporting period.


                                       38



     For the year ended December 31, 2003, net cash provided by investing
activities was $2.8 million which consisted of the sale of short-term
investments of $4.6 million, partially offset by $1.8 million in purchases of
property and equipment.

     For the year ended December 31, 2003, net cash provided by financing
activities was $2.0 million. This amount is attributable to net proceeds
received from the employee stock purchase plan of $1.3 million and $0.7 million
in proceeds received from the exercise of stock options by employees.

     Capital expenditures during the periods ended December 31, 2003 and 2002
were $1.8 million and $4.0 million, respectively, and were funded from available
cash. In the second quarter of 2004 we are anticipating moving our corporate
headquarters to a new facility; in connection with that move, we are expecting
to incur capital expenditures of approximately $3.0 million to $4.0 million.

     Due to the ability to carry back net operating losses incurred for the year
ended December 31, 2002, we received a Federal income tax refund of
approximately $20.7 million in August 2003.

     Our revenue and profitability depend to a great extent on our relationships
with a limited number of large pharmaceutical companies. For the year ended
December 31, 2003, we had two major clients that accounted for approximately
35.3% and 32.4%, respectively, or a total of 67.7% of our service revenue. We
are likely to continue to experience a high degree of client concentration,
particularly if there is further consolidation within the pharmaceutical
industry. The loss or a significant reduction of business from any of our major
clients, or a decrease in demand for our services, could have a material adverse
effect on our business, financial condition and results of operations.

     Under our licensing agreement with Cellegy, we will be required to pay
Cellegy a $10.0 million incremental license fee milestone payment upon
Fortigel's receipt of all approvals required by the FDA (if such approvals are
obtained) to promote, sell and distribute the product in the U.S. Upon payment,
this incremental milestone license fee will be recorded as an intangible asset
and amortized over the estimated commercial life of the product, as then
determined. This payment will be funded, when due, out of cash flows provided by
operations and existing cash balances. In addition, under the licensing
agreement, we will be required to pay Cellegy royalty payments ranging from 20%
to 30% of net sales, including minimum royalty payments, if and when complete
FDA approval is received. We believe that these royalty payments will be offset
by product revenue. In July 2003, Cellegy received a letter from the FDA
rejecting its NDA for Fortigel. Cellegy has told us that it is in discussions
with the FDA to determine the appropriate course of action needed to meet
deficiencies cited by the FDA in its determination. Since we filed a lawsuit
against Cellegy (see below), Cellegy is no longer in regular contact with us
regarding Fortigel. Thus, for example, we are unaware of the FDA status
regarding Fortigel (as of December 31, 2003, it had not been approved) and are
unaware of what steps Cellegy is taking to develop Fortigel, to obtain FDA
approval for Fortigel, and/or to arrange for a party to manufacture Fortigel. We
have requested this information from Cellegy but have not received it.
Accordingly, we may not possess the most current and reliable information
concerning the current status of, or future prospects relating to, Fortigel. The
issuance of the non-approvable letter by the FDA concerning Fortigel, however,
casts significant doubt upon Fortigel's prospects and whether it will ever be
approved. We cannot predict with any certainty whether the FDA will ultimately
approve Fortigel for sale in the U.S. Since the drug remains unapproved, we were
not required to pay Cellegy the $10.0 million incremental license fee milestone
payment in 2003, and it is unclear at this point when or if Cellegy will get
Fortigel approved by the FDA which would trigger our obligation to pay $10.0
million to Cellegy.

     On December 12, 2003, we instituted an action against Cellegy in the U.S.
District Court for the Southern District of New York seeking to rescind the
Cellegy license agreement on the grounds that it was procured by fraud. We are
seeking return of the license fee we paid on December 31, 2002 of $15.0 million
plus additional damages caused by Cellegy's conduct.

     We believe that our existing cash balances and expected cash flows
generated from operations will be sufficient to meet our operating and capital
requirements for the foreseeable future. We continue to evaluate and review
financing opportunities and acquisition candidates in the ordinary course of
business. We are evaluating the need for a credit facility which would be
secured by our current assets for the purpose of increasing liquidity.


                                       39



Contractual Obligations

     As of December 31, 2003, the aggregate minimum future rental payments
required by non-cancelable operating leases with initial or remaining lease
terms exceeding one year are as follows (in thousands):



                                              2004     2005     2006     2007     2008     Total
                                             ------   ------   ------   ------   ------   -------
                                                                        
          Operating leases
             Minimum lease payments          $3,084   $2,576   $2,319   $2,167   $2,166   $12,312
             Less minimum sublease rentals     (135)     (34)      --       --       --      (169)
                                             ----------------------------------------------------
                Net minimum lease payments   $2,949   $2,542   $2,319   $2,167   $2,166   $12,143
                                             ====================================================


Quarterly Operating Results

     Our results of operations have varied, and are expected to continue to
vary, from quarter to quarter. These fluctuations result from a number of
factors including, among other things, the timing of commencement, completion or
cancellation of major programs. In the future, our revenue may also fluctuate as
a result of a number of additional factors, including the types of products we
market and sell, delays or costs associated with acquisitions, government
regulatory initiatives and conditions in the healthcare industry generally.
Revenue, generally, is recognized as services are performed and products are
shipped. Program costs, other than training costs, are expensed as incurred. As
a result, we may incur substantial expenses associated with staffing a new
detailing program during the first two to three months of a contract without
recognizing any revenue under that contract. This could have an adverse impact
on our operating results for the quarters in which those expenses are incurred.
Revenue related to performance incentives is recognized in the period when the
performance based parameters are achieved. A significant portion of this revenue
could be recognized in the fourth quarter of a year. Costs of goods sold are
expensed when products are shipped. For milestone payments associated with
licensing agreements, amounts paid before the underlying product has obtained
regulatory approval and which have no alternate use are expensed as incurred,
whereas payments post-approval are capitalized and amortized over the economic
life of the product or agreement. We believe that because of these fluctuations,
quarterly comparisons of our financial results cannot be relied upon as an
indication of future performance.

     The following table sets forth quarterly operating results for the eight
quarters ended December 31, 2003:



                                                                                 Quarter Ended
                                                --------------------------------------------------------------------------------
                                                Mar 31,   Jun 30,   Sep 30,    Dec 31,   Mar 31,    Jun 30,    Sep 30,   Dec 31,
                                                  2003      2003      2003      2003       2002      2002       2002       2002
                                                -------   -------   -------   --------   -------   --------   --------   -------
                                                                     (in thousands except per share data)
                                                                                                 
Revenue
   Service, net .............................   $67,511   $71,177   $86,200   $104,173   $68,160   $ 66,033   $ 64,353   $79,029
   Product, net .............................        34        82        81    (11,810)    5,723        500        215        --
                                                -------   -------   -------   --------   -------   --------   --------   -------
         Total revenue, net .................    67,545    71,259    86,281     92,363    73,883     66,533     64,568    79,029
                                                -------   -------   -------   --------   -------   --------   --------   -------
Cost of goods and services
   Program expenses .........................    49,881    50,307    61,815     65,077    67,277     65,721     67,475    53,667
   Cost of goods sold .......................        62        83       952        190        --         --         --        --
                                                -------   -------   -------   --------   -------   --------   --------   -------
         Total cost of goods and services ...    49,943    50,390    62,767     65,267    67,277     65,721     67,475    53,667
                                                -------   -------   -------   --------   -------   --------   --------   -------

Gross profit (loss) .........................    17,602    20,869    23,514     27,096     6,606        812     (2,907)   25,362

   Operating expenses
   Compensation expense .....................     8,874     9,123     9,297      9,607     7,759      9,294      9,157     6,459
   Other selling, general and
      administrative expenses ...............     5,833     7,206     7,676      9,632     3,325      6,450      9,433    24,956
   Restructuring and other
      related expenses ......................      (270)       --        --        413        --         --        972     2,243
   Litigation settlement ....................     2,100        --        --         --        --         --         --        --
                                                -------   -------   -------   --------   -------   --------   --------   -------
         Total operating expenses ...........    16,537    16,329    16,973     19,652    11,084     15,744     19,562    33,658
                                                -------   -------   -------   --------   -------   --------   --------   -------
Operating income (loss) .....................     1,065     4,540     6,541      7,444    (4,478)   (14,932)   (22,469)   (8,296)
Other income net ............................       269       226       246        332       889        356        459       263
                                                -------   -------   -------   --------   -------   --------   --------   -------
Income (loss) before provision
   for taxes ................................     1,334     4,766     6,787      7,776    (3,589)   (14,576)   (22,010)   (8,033)
Provision (benefit) for income taxes ........       556     1,954     2,605      3,290    (1,322)    (5,385)    (7,696)   (3,044)
                                                -------   -------   -------   --------   -------   --------   --------   -------
Net income (loss) ...........................   $   778   $ 2,812   $ 4,182   $  4,486   $(2,267)  $ (9,191)  $(14,314)  $(4,989)
                                                =======   =======   =======   ========   =======   ========   ========   =======
Basic net income (loss) per share ...........   $  0.05   $  0.20   $  0.29   $   0.31   $ (0.16)  $  (0.66)  $  (1.02)  $ (0.35)
                                                =======   =======   =======   ========   =======   ========   ========   =======
Diluted net income (loss) per share .........   $  0.05   $  0.20   $  0.29   $   0.31   $ (0.16)  $  (0.66)  $  (1.02)  $ (0.35)
                                                =======   =======   =======   ========   =======   ========   ========   =======
Weighted average number of shares:
   Basic ....................................    14,166    14,188    14,252     14,320    13,969     14,003     14,063    14,097
                                                =======   =======   =======   ========   =======   ========   ========   =======
   Diluted ..................................    14,237    14,266    14,543     14,677    13,969     14,003     14,063    14,097
                                                =======   =======   =======   ========   =======   ========   ========   =======


Note: For 2003, the sum of the quarterly basic net income per share amounts does
not equal the annual basic net income per share due to rounding.


                                       40



Effect of new accounting pronouncements

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 requires a variable interest entity
(VIE) to be consolidated by a company, if that company is subject to a majority
of the risk of loss from the VIE's activities or entitled to receive a majority
of the entity's residual returns or both. In December 2003, the FASB issued a
revision to the FIN 46 (FIN46R) which partially delayed the effective date of
the interpretation to March 31, 2004 and added additional scope exceptions.
Adoption of FIN46R is not expected to have a material impact on our business,
financial position or results of operations.

     In December 2003, the Staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition," which
supercedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's
primary purpose is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, superceded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally, SAB 104 rescinds the SEC's "Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers" (the FAQ) issued with SAB 101
that had been codified in SEC Topic 13, "Revenue Recognition." The revenue
recognition principles provided for in both SAB 101 and EITF 00-21 remain
largely unchanged. As a result, the adoption of SAB 104 is not expected to have
a material impact on our business, financial position and results of operations.

Use Of Non-GAAP Financial Information

     This Form 10-K contains non-GAAP financial information adjusted to exclude
certain costs, expenses, gains and losses and other non-comparable items. This
information is intended to enhance an investor's overall understanding of our
past financial performance and our prospects for the future. For example,
non-GAAP financial information is an indication of our baseline performance
before items that are considered by us to be not reflective of our operational
results. In addition, this information is among the primary indicators we use as
a basis for planning and forecasting of future periods. This information is not
intended to be considered in isolation or as a substitute for financial
information prepared in accordance with GAAP.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our financial statements and the required financial statement schedule are
included herein beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURES

     None.


                                       41



ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our chief executive officer and
chief financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this report. Based on that
evaluation, our chief executive officer and chief financial officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective.

Changes in Internal Controls

     There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during our fiscal fourth quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.


                                       42



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Directors and executive officers

     The following table sets forth the names, ages and positions of our
directors, executive officers and key employees:



Name                             Age   Position
- ----                             ---   --------
                                 
John P. Dugan                     68   Chairman of the board of directors and director of strategic planning
Charles T. Saldarini              40   Chief executive officer and vice chairman of the board of directors
Steven K. Budd                    47   President, global sales and marketing services group
Bernard C. Boyle                  59   Chief financial officer, executive vice president and treasurer
Stephen Cotugno                   44   Executive vice president -- corporate development and investor relations
Beth R. Jacobson                  43   Executive vice president, general counsel and corporate secretary
Alan L. Rubino                    49   Executive vice president and general manager -- sales teams business
Deborah Schnell                   48   Executive vice president -- business development
Christopher Tama                  45   Executive vice president and general manager -- pharmaceutical products
Joseph T. Curti(1)(3)(4)          65   Director
Larry Ellberger(1)(2)             56   Director
John C. Federspiel (1)(3)         49   Director
Gerald J. Mossinghoff(2)(3)       67   Director
John M. Pietruski(2)(3)           70   Director
Frank J. Ryan(1)(2)               64   Director
Jan Martens Vecsi                 60   Director


- ----------
(1)  Member of audit committee.

(2)  Member of compensation and management development committee.

(3)  Member of nominating and corporate governance committee.

(4)  Member of science and technology committee.

     John P. Dugan is our founder, chairman of the board of directors and
director of strategic planning. He served as our president from inception until
January 1995 and as our chief executive officer from inception until November
1997. In 1972, Mr. Dugan founded Dugan Communications, a medical advertising
agency that later became known as Dugan Farley Communications Associates Inc.
and served as its president until 1990. We were a wholly-owned subsidiary of
Dugan Farley in 1990 when Mr. Dugan became our sole stockholder. Mr. Dugan was a
founder and served as the president of the Medical Advertising Agency
Association from 1983 to 1984. Mr. Dugan also served on the board of directors
of the Pharmaceutical Advertising Council (now known as the Healthcare Marketing
Communications Council, Inc.) and was its president from 1985 to 1986. Mr. Dugan
received an M.B.A. from Boston University in 1964.

     Charles T. Saldarini is our vice chairman and chief executive officer.
Joining PDI in 1987, Mr. Saldarini has held positions of increasing
responsibility, becoming president of PDI in January 1995, chief executive
officer in November 1997, and vice chairman in June 2000. In his 17 years at
PDI, his contributions have spanned the full range of our development. He is
responsible for making PDI the largest contract sales organization in the U.S.
Prior to PDI, Mr. Saldarini worked at Merrill Dow Pharmaceuticals. He received a
B.A. in political science from Syracuse University in 1985.

     Steven K. Budd has served as our global president of the sales and
marketing services group since September 2003. Prior to that, he was our
president and chief operating officer, a position he filled since June 2000. Mr.
Budd joined us in April 1996 as vice president, account group sales. He became
executive vice president in July 1997, chief operating officer in January 1998,
and our president in June 2000. From January 1994 through April 1995, Mr. Budd
was employed by Innovex, Inc., as director of new business development. From
1989 through December 1993, he was employed by Professional Detailing Network
(now known as Nelson Professional Sales, a division of Publicis), as vice
president with responsibility for building sales teams and developing marketing
strategies. Mr. Budd received a B.A. in history and education from Susquehanna
University in 1978.


                                       43



     Bernard C. Boyle has served as our chief financial officer, executive vice
president and treasurer since March 1997. In 1990, Mr. Boyle founded BCB
Awareness, Inc., a firm that provided management advisory services, and served
as its president until March 1997. During that period he was also a partner in
Boyle & Palazzolo, Partners, an accounting firm. From 1982 through 1990 he
served as controller and then chief financial officer and treasurer of William
Douglas McAdams, Inc., an advertising agency. From 1966 through 1971, Mr. Boyle
was employed by the national accounting firm then known as Coopers & Lybrand
L.L.P. as supervisor/senior audit staff. Mr. Boyle received a B.B.A. in
accounting from Manhattan College in 1965 and an M.B.A. in corporate finance
from New York University in 1972.

     Stephen P. Cotugno became our executive vice president - corporate
development and investor relations in January 2000. He joined us as a consultant
in 1997 and in January 1998 he was hired full time as vice president-corporate
development. Prior to joining us, Mr. Cotugno was an independent financial
consultant. He received a B.A. in finance and economics from Fordham University
in 1981.

     Beth R. Jacobson joined us in November 2002 as executive vice president,
general counsel and corporate secretary. Previously, she was with Skadden, Arps,
Slate, Meagher & Flom, LLP for 15 years, where she practiced corporate law. She
received a B.A. from Wesleyan University in 1983 and a J.D. from New York
University Law School in 1987.

     Alan L. Rubino joined us in January 2004 as executive vice president and
general manager of our sales teams business. He was most recently senior vice
president of the Pharmaceuticals Technology and Services Division within
Cardinal Health. He joined Cardinal Health as part of the acquisition of BLPG,
Inc., a healthcare marketing services company, where he was the executive vice
president and managing director. Prior to joining BLPG, he had a distinguished
career in key executive positions in marketing, sales and operations within
Hoffmann-LaRoche, most recently holding the position of vice president, business
operations. He received a B.A. in Economics from Rutgers University in 1976 with
a minor in biology and chemistry. Mr. Rubino has also attended management
courses at Harvard Business School.

     Deborah Schnell is our executive vice president - business development. She
was one of the founders of ProtoCall which was acquired by PDI in 1999. Prior to
joining ProtoCall, Ms. Schnell spent approximately 20 years with IBM Corporation
where she worked across a broad range of areas, including manufacturing,
distribution and healthcare. She received a B.A. in speech pathology and
audiology from Miami of Ohio University in 1976.

     Christopher Tama joined us as executive vice president and general manager
in January 2000. Mr. Tama is responsible for PDI Pharmaceutical Products Group
involving the commercialization of prescription pharmaceutical products secured
through licensing and acquisition. Prior to joining PDI, Mr. Tama was vice
president of marketing at Novartis Pharmaceuticals from 1996 through 2000. His
previous experience also includes the position of vice president of marketing at
G.D. Searle U.S. Operations and various marketing and sales positions of
increasing responsibility during his 13 years with Pharmacia. His marketing and
sales experience range many different therapeutic areas with both domestic and
global responsibility. He received a B.A. in economics from Villanova University
in 1981.

     Dr. Joseph T. Curti became a director in August 2003. Dr. Curti was most
recently president and chief executive officer of Ferring Pharmaceuticals in
Tarrytown, NY. He previously held the position of president and chief executive
officer of Neurochem, Inc. in Kingston, Ontario and President of North American
Operations of Searle in Skokie, Ill. He spent 19 years at Pfizer in a number of
senior positions, both domestically and internationally, directing clinical drug
development, drug regulatory, licensing and marketing activities. He is
currently a member of the board of trustees and executive committee of Morehouse
School of Medicine in Atlanta, GA. Dr. Curti received a B.S. from St. Joseph's
University in Philadelphia in 1959 and an M.D. from Thomas Jefferson University
in Philadelphia in 1963.

     Larry Ellberger became a director in February 2003. Mr. Ellberger is a
founder and partner in Healthcare Ventures Associates, Inc., a consulting firm
to pharmaceutical, biotech, vaccines and medical device companies. Until July
2003 Mr. Ellberger was Senior Vice President, Corporate Development at
PowderJect, PLC, a London Stock Exchange listed vaccines company. He had been a
member of PowderJect's Board of Directors since 1997. From November 1996 through
May 1999, Mr. Ellberger served as Chief Financial Officer of W. R. Grace and
from


                                       44



May 1999 through November 1999 he served as Senior Vice President - Corporate
Development of W. R. Grace. Mr. Ellberger is a Director of Avant
Immunotherapeutics and The Jewish Children's Museum. Mr. Ellberger received a
B.A. in economics from Columbia College in 1968 and a B.S. in chemical
engineering from Columbia School of Engineering in 1969.

     John C. Federspiel became a director in October 2001. Mr. Federspiel is
president of Hudson Valley Hospital Center, a 120-bed, short-term, acute care,
not-for-profit hospital in Westchester County, New York. Prior to joining Hudson
Valley Hospital in 1987, Mr. Federspiel spent an additional 10 years in health
administration, during which he held a variety of executive leadership
positions. Mr. Federspiel is an appointed Member of the State Hospital Review
and Planning Council, and has served as chairman of the Northern Metropolitan
Hospital Association, as well as other affiliations. Mr. Federspiel received a
B.S. degree from Ohio State University in 1975 and a M.B.A. from Temple
University in 1977.

     Gerald J. Mossinghoff became a director in May 1998. Mr. Mossinghoff is a
former Assistant Secretary of Commerce and Commissioner of Patents and
Trademarks of the Department of Commerce (1981 to 1985) and served as President
of Pharmaceutical Research and Manufacturers of America from 1985 to 1996. Since
1997 he has been senior counsel to the law firm of Oblon, Spivak, McClelland,
Maier and Newstadt of Arlington, Virginia. Mr. Mossinghoff has been a visiting
professor of Intellectual Property Law at the George Washington University Law
School since 1997 and Adjunct Professor of Law at George Mason University School
of Law since 1997. Mr. Mossinghoff served as U.S. Ambassador to the Diplomatic
Conference on the Revision of the Paris Convention from 1982 to 1985 and as
Chairman of the General Assembly of the United Nations World Intellectual
Property Organization from 1983 to 1985. He is also a former Deputy General
Counsel of the National Aeronautics and Space Administration (1976 to 1981). Mr.
Mossinghoff received an electrical engineering degree from St. Louis University
in 1957 and a juris doctor degree with honors from the George Washington
University Law School in 1961. He is a member of the Order of the Coif and is a
Fellow in the National Academy of Public Administration. He is the recipient of
many honors, including NASA's Distinguished Service Medal and the Secretary of
Commerce Award for Distinguished Public Service.

     John M. Pietruski became a director in May 1998. Since 1990 Mr. Pietruski
has been the chairman of the board of Encysive Corporation, a pharmaceutical
research and development company. He is a retired chairman of the board and
chief executive officer of Sterling Drug Inc. where he was employed from 1977
until his retirement in 1988. Mr. Pietruski is a member of the boards of
directors of First Energy Corp. and Xylos Corporation. Mr. Pietruski graduated
Phi Beta Kappa with a B.S. in business administration with honors from Rutgers
University in 1954.

     Frank J. Ryan became a director in November 2002. Mr. Ryan's career
includes a 38-year tenure with Johnson & Johnson. Mr. Ryan recently retired as
Company Group Chairman with responsibility for worldwide Ethicon franchises and
Johnson & Johnson Canada. In addition, Mr. Ryan was a member of the Medical
Devices and Diagnostics Operating Group and Leader for the Group in Process
Excellence (Six Sigma) and IT. Throughout the years, Mr. Ryan held positions of
increasing responsibility, including Worldwide President of Chicopee, President
of Johnson and Johnson Hospital Services Co. and President of Ethicon, Inc. Mr.
Ryan received a B.S. degree in mechanical engineering from the Illinois
Institute of Technology in 1965 and a M.B.A. from the University of Chicago
Graduate School of Business in 1969.

     Jan Martens Vecsi became a director in May 1998. Ms. Vecsi is the
sister-in-law of John P. Dugan, our chairman. Ms. Vecsi was employed by
Citibank, N.A. from 1967 through 1996 when she retired. Starting in 1984 she
served as the senior human resources officer and vice president of the Citibank
Private Bank. Ms. Vecsi received a B.A. in psychology and elementary education
from Immaculata College in 1965.

Board of directors and committees

     Our board of directors is divided into three classes. Each year the
stockholders elect the members of one of the three classes to a three-year term
of office. Messrs. Dugan and Mossinghoff and Dr. Curti serve in the class whose
term expires in 2004; Ms. Vecsi and Messrs. Federspiel and Ellberger serve in
the class whose term expires in 2005; and Messrs. Saldarini, Pietruski and Ryan
serve in the class whose term expires in 2006.


                                       45



     Our board of directors has an audit committee, a compensation and
management development committee, a nominating and corporate governance
committee and a science and technology committee. The audit committee reviews
the scope and results of the audit and other services provided by our
independent accountants and our internal controls. The compensation and
management development committee is responsible for the approval of compensation
arrangements for our officers and the review of our compensation plans and
policies and development of our management. The nominating and corporate
governance committee is responsible for selecting individuals qualified to serve
as directors and on committees of the board, to advise the board with respect to
board composition, procedures and committees and with respect to corporate
governance principles applicable to us and to oversee the evaluation of the
board and our management. The science and technology committee is responsible
for advising the board on scientific matters and to periodically examine
management's direction regarding the acquisition or licensing of pharmaceutical
products and our technology initiatives. Each committee member is a non-employee
director of ours who meets the independence requirements of Nasdaq and
applicable law.

     Audit Committee Financial Expert. The Board has determined that the
chairman of the audit committee, Mr. Ellberger, is an "audit committee financial
expert," as that term is defined in Item 401(h) of Regulation S-K, and
"independent" for purposes of current and recently-adopted Nasdaq listing
standards and Section 10A(m)(3) of the Securities Exchange Act of 1934.

Section 16(a) beneficial ownership reporting compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (SEC). Officers, directors and
greater than ten-percent stockholders are required by SEC regulation to furnish
us with copies of all Section 16(a) forms they file. Based solely on review of
the copies of such forms furnished to us, or written representations that no
Forms 5 were required, we believe that all Section 16(a) filing requirements
applicable to our officers and directors were complied with, except that a Form
4 filing on behalf of each of Messrs. Ellberger, Federspiel, Mossinghoff,
Pietruski and Ryan, and Ms. Vecsi, relating to the stock options automatically
granted to each of them as outside directors on the date of the 2003 annual
stockholders meeting, was not timely filed.

Code of Conduct

     We have adopted a code of conduct that applies to our principal executive
officer, principal financial officer and other persons performing similar
functions, as well as all of our other employees and directors. This code of
conduct is posted on our website at www.pdi-inc.com and is filed as Exhibit 14.1
to this report.

ITEM 11. EXECUTIVE COMPENSATION

     Information relating to executive compensation that is responsive to Item
11 of Form 10-K will be included in our Proxy Statement in connection with our
2004 annual meeting of stockholders and such information is incorporated by
reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information relating to security ownership of certain beneficial owners and
management that is responsive to Item 12 of Form 10-K will be included in our
Proxy Statement in connection with our 2004 annual meeting of stockholders and
such information is incorporated by reference herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information relating to certain relationships and related transactions that
is responsive to Item 13 of Form 10-K will be included in our Proxy Statement in
connection with our 2004 annual meeting of stockholders and such information is
incorporated by reference herein.


                                       46



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     Information relating to principal accounting fees and services that is
responsive to Item 14 of Form 10-K will be included in our Proxy Statement in
connection with our 2004 annual meeting of stockholders and such information is
incorporated by reference herein.


                                       47



                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

          The following documents are filed as part of this report:

     (a) (1) Financial Statements - See Index to Financial Statements on page
             F-1 of this report.

     (a) (2) Financial Statement Schedule

             Schedule II:  Valuation and Qualifying Accounts

     Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is included elsewhere in
the financial statements or notes thereto.

     (a) (3) Exhibits

     Exhibit
       No.                                Description
     -------                              -----------

        3.1    Certificate of Incorporation of PDI, Inc.(1)

        3.2    By-Laws of PDI, Inc.(1)

        3.3    Certificate of Amendment of Certificate of Incorporation of PDI,
                 Inc.(4)

        4.1    Specimen Certificate Representing the Common Stock(1)

       10.1    Form of 1998 Stock Option Plan(1)

       10.2    Form of 2000 Omnibus Incentive Compensation Plan(2)

       10.3    Office Lease for Upper Saddle River, NJ corporate headquarters(1)

       10.4    Form of Employment Agreement between the Company and Charles T.
                 Saldarini(4)

       10.5    Agreement between the Company and John P. Dugan(1)

       10.6    Form of Amended and Restated Employment Agreement between the
                 Company and Steven K. Budd(4)

       10.7    Form of Amended and Restated Employment Agreement between the
                 Company and Bernard C. Boyle(4)

       10.8    Form of Employment Agreement between the Company and Christopher
                 Tama(5)

       10.9    Form of Amended and Restated Employment Agreement between the
                 Company and Stephen Cotugno(4)

      10.10    Form of Employment Agreement between the Company and Beth
                 Jacobson(5)

      10.11    Form of Employment Agreement between the Company and Alan Rubino*

      10.12    Form of Loan Agreement between the Company and Steven K. Budd(3)

      10.13    Exclusive License Agreement between the Company and Cellegy
                 Pharmaceuticals, Inc.(5)(6)

      10.14    Saddle River Executive Centre Lease, as amended*

       14.1    Code of Conduct*

       21.1    Subsidiaries of the Registrant(4)

       23.1    Consent of PricewaterhouseCoopers LLP*


                                       48



     31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002*

     31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002*

     32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
          1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002*

     32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
          1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002*

     ----------
     *    Filed herewith

     (1)  Filed as an exhibit to our Registration Statement on Form S-1 (File No
          333-46321), and incorporated herein by reference.

     (2)  Filed as an Exhibit to our definitive proxy statement dated May 10
          2000, and incorporated herein by reference.

     (3)  Filed as an exhibit to our Annual Report on Form 10-K for the year
          ended December 31, 1999, and incorporated herein by reference.

     (4)  Filed as an exhibit to our Annual Report on Form 10-K for the year
          ended December 31, 2001, and incorporated herein by reference.

     (5)  Filed as an exhibit to our Annual Report on Form 10-K for the year
          ended December 31, 2002, and incorporated herein by reference.

     (6)  The Securities and Exchange Commission granted the Registrant's
          application for confidential treatment, pursuant to Rule 24b-2 under
          the Exchange Act, of certain portions of this exhibit. These portions
          of the exhibit have been redacted from the exhibit as filed.

(b)  Reports on Form 8-K

During the three months ended December 31, 2003, the Company filed the following
reports on Form 8-K:

            Date          Item(s)                   Description
            ----          -------                   -----------
     November 6, 2003     7 and 12   Press Release: PDI Reports Third Quarter
                                        Financial Results
     December 11, 2003    5 and 7    Press Release: PDI Reports Preliminary
                                        Earnings Guidance for 2004
     December 15, 2003    5 and 7    Press Release: PDI Files Action Against
                                        Cellegy Pharmaceuticals
     December 24, 2003    5 and 7    Press Release: PDI Announces Contract with
                                        Novartis


                                       49



                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, on the
3rd day of March, 2004.

                                               PDI, INC.


                                               /s/ Charles T. Saldarini
                                               ---------------------------------
                                               Charles T. Saldarini,
                                               Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Form 10-K has been signed by the following persons on behalf of
the Registrant and in the capacities indicated and on the 3rd day of March,
2004.

                Signature                            Title
                ---------                            -----


/s/ John P. Dugan                   Chairman of the Board of Directors
- ---------------------------------
   John P. Dugan


/s/ Charles T. Saldarini            Vice Chairman of the Board of Directors and
- ---------------------------------   Chief Executive Officer
   Charles T. Saldarini


/s/ Bernard C. Boyle                Chief Financial Officer and Treasurer
- ---------------------------------   (principal accounting and financial officer)
   Bernard C. Boyle


/s/ John M. Pietruski               Director
- ---------------------------------
   John M. Pietruski


/s/ Jan Martens Vecsi               Director
- ---------------------------------
   Jan Martens Vecsi


/s/ Frank Ryan                      Director
- ---------------------------------
   Frank Ryan


/s/ Larry Ellberger                 Director
- ---------------------------------
   Larry Ellberger


/s/ Dr. Joseph T. Curti             Director
- ---------------------------------
   Dr. Joseph T. Curti


                                       50



  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                                                                            Page
                                                                            ----
PDI, INC.

   Report of Independent Auditors                                           F-2

   Consolidated Balance Sheets                                              F-3

   Consolidated Statements of Operations                                    F-4

   Consolidated Statements of Cash Flows                                    F-5

   Consolidated Statements of Stockholders' Equity                          F-6

   Notes to Consolidated Financial Statements                               F-7

   Schedule II. Valuation and Qualifying Accounts                           F-28


                                      F-1



                         Report of Independent Auditors

To Board of Directors and
Stockholders of PDI, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index appearing under Item 15(a)(1) present fairly, in all material respects,
the financial position of PDI, Inc. and its subsidiaries at December 31, 2003
and 2002, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2), present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


PricewaterhouseCoopers LLP
Florham Park, NJ
March 3, 2004


                                      F-2



                                    PDI, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                                                       December 31,
                                                                                   -------------------
                                                                                     2003       2002
                                                                                   --------   --------
                                                                                      (in thousands)
                                                                                        
ASSETS
Current assets:
   Cash and cash equivalents ...................................................   $113,288   $ 66,827
   Short-term investments ......................................................      1,344      5,834
   Inventory, net of obsolescence reserve of $818 and $0 as of
      December 31, 2003 and 2002, respectively .................................         43        646
   Accounts receivable, net of allowance for doubtful accounts of
      $749 and $1,063 as of December 31, 2003 and 2002, respectively ...........     40,885     40,729
   Unbilled costs and accrued profits on contracts in progress .................      4,041      3,360
   Deferred training ...........................................................      1,643      1,106
   Prepaid income tax ..........................................................         --     18,856
   Other current assets ........................................................      8,847      4,804
   Deferred tax asset ..........................................................     11,053      7,420
                                                                                   --------   --------
Total current assets ...........................................................    181,144    149,582
   Net property and equipment ..................................................     14,494     18,295
   Deferred tax asset ..........................................................      7,304      7,820
   Goodwill ....................................................................     11,132     11,132
   Other intangible assets .....................................................      1,648      2,261
   Other long-term assets ......................................................      3,901      1,849
                                                                                   --------   --------
Total assets ...................................................................   $219,623   $190,939
                                                                                   ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ............................................................   $  8,689   $  5,374
   Accrued rebates, sales discounts and returns ................................     22,811     16,500
   Accrued incentives ..........................................................     20,486     11,758
   Accrued salaries and wages ..................................................      9,031      6,617
   Unearned contract revenue ...................................................      3,604      9,473
   Restructuring accruals ......................................................        744      4,699
   Other accrued expenses ......................................................     15,770     13,307
                                                                                   --------   --------
Total current liabilities ......................................................     81,135     67,728
                                                                                   --------   --------
Long-term liabilities ..........................................................         --         --
                                                                                   --------   --------
Total liabilities ..............................................................   $ 81,135   $ 67,728
                                                                                   ========   ========

Commitments and Contingencies

Stockholders' equity:
   Common stock, $.01 par value; 100,000,000 shares authorized; shares
      issued and outstanding, 2003 - 14,387,126; 2002 - 14,165,880;
      restricted $.01 par value; shares issued and outstanding, 2003- 136,178;
      2002 - 44,325 ............................................................   $    145   $    142
   Preferred stock, $.01 par value; 5,000,000 shares authorized, no
      shares issued and outstanding ............................................         --         --
Additional paid-in capital (includes restricted of $2,361and $1,547
      in 2003 and 2002, respectively) ..........................................    109,531    106,673
Retained earnings ..............................................................     29,505     17,247
Accumulated other comprehensive income (loss) ..................................         25       (100)
Unamortized compensation costs .................................................       (608)      (641)
Treasury stock, at cost: 5,000 shares at December 31, 2003 and 2002 ............       (110)      (110)
                                                                                   --------   --------
Total stockholders' equity .....................................................   $138,488   $123,211
                                                                                   --------   --------
Total liabilities & stockholders' equity .......................................   $219,623   $190,939
                                                                                   ========   ========


              The accompanying notes are an integral part of these
                        consolidated financial statements


                                      F-3



                                    PDI, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                    For The Years Ended December 31,
                                                               -----------------------------------------
                                                                   2003           2002           2001
                                                               ------------   ------------   -----------
                                                               (in thousands, except for per share data)
                                                                                      
Revenue
   Service, net ............................................     $329,061       $277,575       $281,269
   Product, net ............................................      (11,613)         6,438        415,314
                                                                 --------       --------       --------
      Total revenue, net ...................................      317,448        284,013        696,583
                                                                 --------       --------       --------
Cost of goods and services
   Program expenses (including related party amounts of
      $983, $516 and $1,057 for the periods ended
      December 31, 2003, 2002 and 2001, respectively) ......      227,080        254,140        232,171
   Cost of goods sold ......................................        1,287             --        328,629
                                                                 --------       --------       --------
      Total cost of goods and services .....................      228,367        254,140        560,800
                                                                 --------       --------       --------

Gross profit ...............................................       89,081         29,873        135,783

Operating expenses
   Compensation expense ....................................       36,901         32,670         39,263
   Other selling, general and administrative expenses ......       30,347         44,163         83,815
   Restructuring and other related expenses ................          143          3,215             --
   Litigation settlement ...................................        2,100             --             --
                                                                 --------       --------       --------
      Total operating expenses .............................       69,491         80,048        123,078
                                                                 --------       --------       --------
Operating income (loss) ....................................       19,590        (50,175)        12,705
Other income, net ..........................................        1,073          1,967          2,275
                                                                 --------       --------       --------
Income (loss) before provision (benefit) for taxes .........       20,663        (48,208)        14,980
Provision (benefit) for income taxes .......................        8,405        (17,447)         8,626
                                                                 --------       --------       --------
Net income (loss) ..........................................     $ 12,258       $(30,761)      $  6,354
                                                                 ========       ========       ========

Basic net income (loss) per share ..........................     $   0.86       $  (2.19)      $   0.46
                                                                 ========       ========       ========
Diluted net income (loss) per share ........................     $   0.85       $  (2.19)      $   0.45
                                                                 ========       ========       ========
Basic weighted average number of shares outstanding ........       14,231         14,033         13,886
                                                                 ========       ========       ========
Diluted weighted average number of shares outstanding ......       14,431         14,033         14,113
                                                                 ========       ========       ========


              The accompanying notes are an integral part of these
                        consolidated financial statements


                                      F-4



                                    PDI, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                          For The Years Ended December 31,
                                                                          --------------------------------
                                                                            2003       2002         2001
                                                                          --------    --------    --------
                                                                                   (in thousands)
                                                                                         
Cash Flows From Operating Activities
Net income (loss) from operations .....................................   $ 12,258    $(30,761)   $  6,354
   Adjustments to reconcile net income to net cash
     provided by operating activities:
      Depreciation and amortization ...................................      6,243       7,374       4,676
      Loss on disposal of asset .......................................         --          --         858
      Amortized compensation costs ....................................        554         443         318
      Deferred taxes, net .............................................     (3,117)      8,501     (19,411)
      Reserve for inventory obsolescence and bad debt .................      1,939      (2,080)      2,995
      Loss on other investments .......................................         --         379       1,863
   Other changes in assets and liabilities, net of acquisitions:
      (Increase) decrease in accounts receivable ......................     (1,277)     13,991      31,304
      (Increase) decrease  in inventory ...............................       (216)       (203)     35,066
      (Increase) decrease in unbilled costs ...........................       (681)      3,538      (3,703)
      (Increase) decrease in deferred training ........................       (537)      4,463        (639)
      Decrease (increase) in other current assets .....................     14,813     (15,559)       (477)
      (Increase) decrease in other long-term assets ...................     (2,052)      4,385      (2,071)
      Increase (decrease) in accounts payable .........................      3,316      (4,119)    (21,969)
      Increase (decrease) in accrued rebates and sales discounts ......      6,311     (51,903)     44,026
      (Decrease) increase in accrued contract losses ..................         --     (12,256)     12,256
      Increase (decrease) in accrued liabilities ......................     11,957     (10,398)      6,411
      (Decrease) in unearned contract revenue .........................     (5,869)     (1,404)    (12,939)
      Increase (decrease) in other current liabilities ................      1,943      (3,371)     (4,623)
      (Decrease) in other deferred compensation .......................         --          --        (169)
      (Decrease) in restructuring liability ...........................     (3,954)         --          --
                                                                          --------    --------    --------
Net cash provided by (used in) operating activities ...................     41,631     (88,980)     80,126
                                                                          --------    --------    --------

Cash Flows From Investing Activities
      Sale of short-term investments ..................................      4,614       1,532       6,225
      Purchase of short-term investments ..............................         --          --      (8,750)
      Investments in Xylos, In2Focus, and iPhysicianNet ...............         --      (1,379)     (1,103)
      Purchase of property and equipment ..............................     (1,829)     (4,012)    (15,560)
      Cash paid for acquisition, net of cash acquired .................         --      (2,735)    (11,902)
                                                                          --------    --------    --------
Net cash provided by (used in) investing activities ...................      2,785      (6,594)    (31,090)
                                                                          --------    --------    --------

Cash Flows From Financing Activities

      Net proceeds from employee stock purchase plan
         and the exercise of stock options ............................      2,045       2,358       2,117
      Purchase of treasury stock ......................................         --          --        (110)
                                                                          --------    --------    --------
Net cash provided by financing activities .............................      2,045       2,358       2,007
                                                                          --------    --------    --------

Net increase (decrease) in cash and cash equivalents ..................     46,461     (93,216)     51,043
Cash and cash equivalents - beginning .................................     66,827     160,043     109,000
                                                                          --------    --------    --------
Cash and cash equivalents - ending ....................................   $113,288    $ 66,827    $160,043
                                                                          ========    ========    ========

Cash paid for interest ................................................   $     25    $     33    $     59
                                                                          ========    ========    ========
Cash paid for taxes ...................................................   $  9,619    $  4,827    $ 18,023
                                                                          ========    ========    ========


              The accompanying notes are an integral part of these
                       consolidated financial statements


                                      F-5



                                    PDI, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)



                                                                                                                Accumulated
                                                      Common Stock    Treasury Stock   Additional                  Other
                                                   ---------------   ---------------     Paid in    Retained   Comprehensive
                                                   Shares   Amount   Shares   Amount     Capital    Earnings   Income (Loss)
                                                   ------   ------   ------   ------   ----------   --------   -------------
                                                                                              
Balance - December 31, 2000                        13,845    $138       --     $  --    $ 97,162     $41,654       $ (34)

Net income for the year ended December 31, 2001                                                        6,354
Unrealized investment holding losses, net of tax                                                                     (56)
Comprehensive income
Issuance of common stock                               90       1                          1,408
Issuance of employees' restricted common stock          7                                    737
Purchase of treasury stock                                               5      (110)
Exercise of common stock options                       41       1                            709
Tax benefit of  nonqualified option exercise                                               3,695
Realized loss on sale of investment holdings                                                                          11
Amortization of deferred compensation costs
Deferred compensation costs
                                                   ------    ----      ---     -----    --------     -------       -----
Balance - December 31, 2001                        13,983    $140        5     $(110)   $103,711     $48,008       $ (79)
                                                   ======    ====      ===     =====    ========     =======       =====

Net loss for the year ended December 31, 2002                                                        (30,761)
Unrealized investment holding losses, net of tax                                                                     (21)

Comprehensive income
Issuance of common stock                              190       2                          2,239
Issuance of employees' restricted common stock         29                                    593
Exercise of common stock options                        8                                    130
Amortization of deferred compensation costs
Deferred compensation costs
                                                   ------    ----      ---     -----    --------     -------       -----
Balance - December 31, 2002                        14,210    $142        5     $(110)   $106,673     $17,247       $(100)
                                                   ======    ====      ===     =====    ========     =======       =====

Net income for the year ended December 31, 2003                                                       12,258
Unrealized investment holding gains, net of tax                                                                      125
Comprehensive income
Issuance of common stock                              143       1                          1,326
Issuance of employees' restricted common stock        129       1                            814
Exercise of common stock options                       41       1                            526
Tax benefit of  nonqualified option exercise                                                 192
Amortization of deferred compensation costs
Deferred compensation costs
                                                   ------    ----      ---     -----    --------     -------       -----
Balance - December 31, 2003                        14,523    $145        5     $(110)   $109,531     $29,505       $  25
                                                   ======    ====      ===     =====    ========     =======       =====


                                                                                 Unamortized
                                                     Deferred       Loan to     Compensation
                                                   Compensation     Officer         Costs        Total
                                                   ------------   -----------   ------------   --------
                                                                                    
Balance - December 31, 2000                             $--           $--          $(810)      $138,110

Net income for the year ended December 31, 2001                                                   6,354
Unrealized investment holding losses, net of tax                                                    (56)
                                                                                                -------
Comprehensive income                                                                              6,298
Issuance of common stock                                                                          1,409
Issuance of employees' restricted common stock                                                      737
Purchase of treasury stock                                                                         (110)
Exercise of common stock options                                                                    710
Tax benefit of  nonqualified option exercise                                                      3,695
Realized loss on sale of investment holdings                                                         11
Amortization of deferred compensation costs                                          318            318
Deferred compensation costs                                                         (243)          (243)
                                                        ---           ---          -----       --------
Balance - December 31, 2001                             $--           $--          $(735)      $150,935
                                                        ===           ===          =====       ========

Net loss for the year ended December 31, 2002                                                   (30,761)
Unrealized investment holding losses, net of tax                                                    (21)
Comprehensive income                                                                            (30,782)
Issuance of common stock                                                                          2,241
Issuance of employees' restricted common stock                                                      593
Exercise of common stock options                                                                    130
Amortization of deferred compensation costs                                          443            443
Deferred compensation costs                                                         (349)          (349)
                                                        ---           ---          -----       --------
Balance - December 31, 2002                             $--           $--          $(641)      $123,211
                                                        ===           ===          =====       ========

Net income for the year ended December 31, 2003                                                  12,258
Unrealized investment holding gains, net of tax                                                     125
                                                                                                -------
Comprehensive income                                                                             12,383
Issuance of common stock                                                                          1,327
Issuance of employees' restricted common stock                                                      815
Exercise of common stock options                                                                    527
Tax benefit of  nonqualified option exercise                                                        192
Amortization of deferred compensation costs                                          554            554
Deferred compensation costs                                                         (521)          (521)
                                                        ---           ---          -----       --------
Balance - December 31, 2003                             $--           $--          $(608)      $138,488
                                                        ===           ===          =====       ========


                 The accompanying notes are an integral part of
                    these consolidated financial statements


                                      F-6



                                    PDI, Inc.
                 Notes to the Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies

Nature of Business

     PDI, Inc. ("PDI" and, together with its wholly owned subsidiaries, "the
Company") is a healthcare sales and marketing company serving the
biopharmaceutical and medical devices and diagnostics (MD&D) industries. See
Note 23 for segment information.

Principles of Consolidation

     The consolidated financial statements include accounts of PDI and its
wholly owned subsidiaries TVG, Inc. (TVG), ProtoCall, Inc. (ProtoCall), InServe
Support Solutions, Inc. (InServe) and PDI Investment Company, Inc. (PDII). All
significant intercompany balances and transactions have been eliminated in
consolidation.

Use of Estimates

     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates. Significant
estimates include accrued contract losses, accrued incentives payable to
employees, valuation allowances related to deferred taxes, allowances for
doubtful accounts and inventory obsolescence, sales returns, and accruals for
sales rebates.

Revenue Recognition and Associated Costs

     The paragraphs that follow describe the guidelines that the Company adheres
to in accordance with GAAP when recognizing revenue and cost of goods and
services in financial statements. In accordance with GAAP, service revenue and
product revenue and their respective direct costs have been shown separately on
the income statement.

     Historically, the Company has derived a significant portion of its service
revenue from a limited number of clients. Concentration of business in the
pharmaceutical services industry is common and the industry continues to
consolidate. As a result, the Company is likely to continue to experience
significant client concentration in future periods. For the years ended December
31, 2003, 2002 and 2001, the Company's largest clients, who each individually
represented 10% or more of its service revenue, accounted for approximately
67.7%, 64.1% and 60.0%, respectively, of its service revenue.

     Service revenue and program expenses

     Service revenue is earned primarily by performing product detailing
programs and other marketing and promotional services under contracts. Revenue
is recognized as the services are performed and the right to receive payment for
the services is assured. Revenue is recognized net of any potential penalties
until the performance criteria relating to the penalties have been achieved.
Performance incentives, as well as termination payments, are recognized as
revenue in the period earned and when payment of the bonus, incentive or other
payment is assured. Under performance based contracts, revenue is recognized
when the performance based parameters are achieved.

     Program expenses consist primarily of the costs associated with executing
product detailing programs, performance based contracts or other sales and
marketing services identified in the contract. Program expenses include
personnel costs and other costs associated with executing a product detailing or
other marketing or promotional program, as well as the initial direct costs
associated with staffing a product detailing program. Such costs include, but
are not limited to, facility rental fees, honoraria and travel expenses, sample
expenses and other promotional expenses. Personnel costs, which constitute the
largest portion of program expenses, include all labor related costs, such as
salaries, bonuses, fringe benefits and payroll taxes for the sales
representatives and sales managers and professional staff who are directly
responsible for executing a particular program. Initial direct program costs are
those costs associated with initiating a product detailing program, such as
recruiting, hiring, and training the sales representatives who staff a
particular product detailing program. All personnel costs and initial direct
program costs, other than training costs, are expensed as incurred for service
offerings. Product detailing, marketing and promotional expenses related to the
detailing of products the Company distributes are recorded as a selling expense
and are included in other selling, general and administrative expenses in the
consolidated statements of operations.


                                      F-7



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

     Training Costs

     Training costs include the costs of training the sales representatives and
managers on a particular product detailing program so that they are qualified to
properly perform the services specified in the related contract. For all
contracts, training costs are deferred and amortized on a straight-line basis
over the shorter of the life of the contract to which they relate or 12 months.
When the Company receives a specific contract payment from a client upon
commencement of a product detailing program expressly to compensate the Company
for recruiting, hiring and training services associated with staffing that
program, such payment is deferred and recognized as revenue in the same period
that the recruiting and hiring expenses are incurred and amortization of the
deferred training is expensed. When the Company does not receive a specific
contract payment for training, all revenue is deferred and recognized over the
life of the contract.

     Product revenue and cost of goods sold

     Product revenue is recognized when products are shipped and title is
transferred to the customer. Product revenue for the year ended December 31,
2003 was negative, primarily from the adjustment to the Ceftin returns reserve,
as discussed in Note 3 to the consolidated financial statements, net of the sale
of the Xylos wound care products. Product revenue recognized in prior periods
was related to the Ceftin contract which was terminated by mutual consent in
February 2002.

     Cost of goods sold includes all expenses for product distribution costs,
acquisition and manufacturing costs of the product sold.

Estimates for accrued rebates, discounts and sales allowances

     For product sales, provision is made at the time of sale for all discounts
and estimated sales allowances. As is common in the pharmaceutical industry,
customers who purchased the Company's Ceftin product are permitted to return
unused product, after approval from the Company, up to six months before, and
one year after the expiration date for the product, but no later than December
31, 2004. The products sold by the Company prior to the Ceftin agreement
termination date of February 28, 2002 have expiration dates through June 2004.
As discussed in Note 3 to the consolidated financial statements, there was a
$12.0 million adjustment to the Ceftin returns reserve in 2003. This adjustment
was recorded as a reduction to revenue consistent with the initial recognition
of the returns allowance and resulted in the Company reporting net negative
product revenue in 2003. Additionally, certain customers were eligible for price
rebates or discounts, offered as an incentive to increase sales volume and
achieve favorable formulary status, on the basis of volume of purchases or
increases in the product's market share over a specified period, and certain
customers are credited with chargebacks on the basis of their resales to end-use
customers, such as HMO's, which contracted with the Company for quantity
discounts. Furthermore, the Company is obligated to issue rebates under the
federally administered Medicaid program. In each instance the Company has the
historical data and access to other information, including the total demand for
the drug it distributes, its market share, the recent or pending introduction of
new drugs or generic competition, the inventory practices of the Company's
customers and the resales by its customers to end-users having contracts with
the Company, necessary to reasonably estimate the amount of such returns or
allowances, and record reserves for such returns or allowances at the time of
sale as a reduction of revenue. The actual payment of these rebates varies
depending on the program and can take several calendar quarters before final
settlement. As the Company settles these liabilities in future periods, it will
continue to monitor all appropriate information and determine if any positive or
negative adjustments are required in that period. Any adjustments for changes in
estimates are recorded through revenue in that period.

Contract Loss Provisions

     Provisions for losses to be incurred on contracts are recognized in full in
the period in which it is determined that a loss will result from performance of
the contractual arrangement. Performance based contracts have the potential for
higher returns but also an increased risk of contract loss as compared to the
traditional fee for service CSO contracts. The Company did not recognize any
contract losses in 2003. As discussed in Notes 2 and 3 to the consolidated
financial statements, the Company recognized contract losses in 2002 and 2001
related to the Evista and Ceftin contracts, respectively.


                                      F-8



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

Unbilled Costs and Accrued Profits and Unearned Contract Revenue

     In general, contractual provisions, including predetermined payment
schedules or submission of appropriate billing detail, establish the
prerequisites for billings. Unbilled costs and accrued profits arise when
services have been rendered and payment is assured but clients have not been
billed. These amounts are classified as a current asset. Normally, in the case
of detailing contracts, the clients agree to pay the Company a portion of the
fee due under a contract in advance of performance of services because of large
recruiting and employee development costs associated with the beginning of a
contract. The excess of amounts billed over revenue recognized represents
unearned contract revenue, which is classified as a current liability.

Cash and Cash Equivalents

     Cash and cash equivalents consist of unrestricted cash accounts, highly
liquid investment instruments and certificates of deposit with an original
maturity of three months or less at the date of purchase.

Investments

     The Company accounts for investments under Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Available-for-sale investments are valued at fair market
value based on quoted market values, with the resulting adjustments, net of
deferred taxes, reported as a separate component of stockholders' equity as
accumulated other comprehensive income (loss). For the purposes of determining
gross realized gains and losses, the cost of securities sold is based upon
specific identification. The Company also has certain other investments which
are accounted for under the cost method, which are included in other long-term
assets. Lastly, the Company has certain other investments which are accounted
for under the equity method of accounting, which requires the Company to
recognize its share of both profits and losses of the investee. These
investments are also included in other long-term assets. The Company reviews its
equity investments for impairment on an ongoing basis, based on its
determination of whether a decline in the fair value of the investments below
the Company's carrying value is other than temporary. See Note 7.

Inventory

     Inventory is valued at the lower of cost or market value. Cost is
determined using the first in, first out costing method. Inventory consists
entirely of finished goods and is recorded net of a provision for obsolescence.

Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method, based on estimated
useful lives of seven to ten years for furniture and fixtures, three to five
years for office equipment and computer equipment, and seven years for computer
software. Leasehold improvements are amortized over the shorter of the estimated
service lives or the terms of the related leases. Repairs and maintenance are
charged to expense as incurred. Upon disposition, the asset and related
accumulated depreciation are removed from the related accounts and any gains or
losses are reflected in operations. Purchased computer software is capitalized
and amortized over the software's useful life, unless the amounts are immaterial
in which case the Company expenses it immediately. Internally developed software
is also capitalized and amortized over its useful life in accordance with of the
American Institute of Certified Public Accountants' (AICPA) Statement of
Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use."


                                      F-9



                                   PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

Realizability of Carrying Value of Long-Lived Assets

     The Company reviews the recoverability of long-lived assets and
finite-lived intangible assets when circumstances indicate that the carrying
amount of assets may not be recoverable. This evaluation is based on various
analyses including cash flow projections. In the event cash flow projections
indicate an impairment, the Company would record an impairment based on the fair
value of the assets at the date of the impairment. Effective January 1, 2002,
the Company began accounting for impairments under SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". Prior to the adoption of this
standard, impairments were accounted for using SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which was superceded by SFAS No. 144. No impairments of long-lived assets were
recorded in 2003, 2002, or 2001.

Goodwill and Other Intangible Assets

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" in fiscal year 2002. The effect of
this adoption on the Company is that goodwill is no longer amortized but is
evaluated for impairment on at least an annual basis. The Company has
established reporting units for purposes of testing goodwill for impairment. The
tests involve 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. Goodwill has been
assigned to the reporting units to which the value of the goodwill relates. The
Company completed the first step of the transitional goodwill impairment test
and determined that no impairment existed at January 1, 2002. The Company
evaluates goodwill and other intangible assets at least on an annual basis and
whenever events and changes in circumstances suggest that the carrying amount
may not be recoverable based on the estimated future cash flows. The Company
performed the required annual impairment tests in the fourth quarters of both
2003 and 2002 and determined that no impairment existed at either December 31,
2003 or December 31, 2002.

Stock-Based Compensation

     As of December 31, 2003 the Company has two stock-based employee
compensation plans described more fully in Note 20. SFAS No. 123, "Accounting
for Stock-Based Compensation" allows companies a choice of measuring employee
stock-based compensation expense based on either the fair value method of
accounting or the intrinsic value approach under the Accounting Pronouncement
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25 and related Interpretations. No stock
option-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of the grant. Certain employees
receive restricted common stock, the amortization of which is reflected in net
income. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation.



                                                      As of December 31,
                                                 ----------------------------
                                                   2003      2002      2001
                                                 -------   --------   -------
                                             (in thousands, except per share data)
                                                             
     Net income (loss), as reported              $12,258   $(30,761)  $ 6,354
     Add: Stock-based employee
     compensation expense included in
     reported net income (loss), net of
     related tax effects                             368        283       134
     Deduct: Total stock-based employee
     compensation expense determined under
     fair value based methods for all
     awards, net of related tax effects           (6,133)    (8,137)   (5,769)
                                                 -------   --------   -------
     Pro forma net income (loss)                 $ 6,493   $(38,615)  $   719
                                                 =======   ========   =======
     Earnings (loss) per share
        Basic--as reported                       $  0.86   $  (2.19)  $  0.46
                                                 =======   ========   =======
        Basic--pro forma                         $  0.46   $  (2.75)  $  0.05
                                                 =======   ========   =======
        Diluted--as reported                     $  0.85   $  (2.19)  $  0.45
                                                 =======   ========   =======
        Diluted--pro forma                       $  0.45   $  (2.75)  $  0.05
                                                 =======   ========   =======



                                      F-10



                                   PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

     Compensation cost for the determination of Pro forma net income (loss) and
related per share amounts were estimated using the Black Scholes option pricing
model, with the following assumptions: (i) risk free interest rate of 3.25%,
4.49% and 5.01% at December 31, 2003, 2002 and 2001, respectively; (ii) expected
life of five years for 2003, 2002 and 2001; (iii) expected dividends - $0 for
2003, 2002 and 2001; and (iv) volatility of 100% for 2003, 100% for 2002 and 90%
for 2001. The weighted average fair value of options granted during 2003, 2002
and 2001 was $11.23, $14.92 and $43.56, respectively.

Advertising

     The Company recognizes advertising costs as incurred. The total amounts
charged to advertising expense were approximately $555,000, $259,000 and
$547,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Income Taxes

     The Company applies an asset and liability approach to accounting for
income taxes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. The
Company evaluates the need for a deferred tax asset valuation allowance by
assessing whether it is more likely than not that the Company will realize its
deferred tax assets in the future. The assessment of whether or not a valuation
allowance is required often requires significant judgment including the forecast
of future taxable income and the calculation of tax planning initiatives.
Adjustments to the deferred tax allowance are made to earnings in the period
when such determination is made.

License Fees

     Costs related to the acquisition or licensing of products that have not yet
received regulatory approval to be marketed, and that have no alternative future
uses, are expensed as incurred, while costs incurred post-approval are
capitalized and amortized over the estimated economic life of the underlying
product. See Note 2.

Reclassifications

     Certain reclassifications have been made to conform prior periods'
information to the current year presentation.

New Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 requires a variable interest entity
(VIE) to be consolidated by a company, if that company is subject to a majority
of the risk of loss from the VIE's activities or entitled to receive a majority
of the entity's residual returns or both. In December 2003, the FASB issued a
revision to the FIN 46 (FIN46R) which partially delayed the effective date of
the interpretation to March 31, 2004 and added additional scope exceptions.
Adoption of FIN46 did not, and the adoption of FIN46R is not expected to, have a
material impact on the Company's business, financial position or results of
operations.

     In December 2003, the Staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition," which
supercedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's
primary purpose is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, superceded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally, SAB 104 rescinds the SEC's "Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers" (the FAQ) issued with SAB 101
that had been codified in SEC Topic 13, "Revenue Recognition." The revenue
recognition principles provided for in both SAB 101 and EITF 00-21 remain
largely unchanged. As a result, the adoption of SAB 104 is not expected to have
a material impact on the Company's business, financial position and results of
operations.


                                      F-11



                                   PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

2. Current Performance Based Contracts

     In May 2001, the Company entered into a copromotion agreement with Novartis
Pharmaceuticals Corporation (Novartis) for the U.S. sales, marketing and
promotion rights for Lotensin(R), Lotensin HCT(R) and Lotrel(R), which agreement
terminated December 31, 2003. On May 20, 2002, this agreement was replaced by
two separate agreements, one for Lotensin and one for Lotrel-Diovan through the
addition of Diovan(R) and Diovan HCT(R). Both of these agreements ended December
31, 2003; however, the Lotrel-Diovan agreement was renewed on December 24, 2003
for an additional one year period. In February 2004, the Company was notified by
Novartis of its intent to terminate the Lotrel-Diovan contract, without cause,
effective March 16, 2004. The Company will continue to be compensated under the
terms of the agreement through the effective termination date. Even though the
Lotensin agreement ended December 31, 2003, the Company is still entitled to
receive royalty payments on the sales of Lotensin through December 31, 2004.

     In October 2002, the Company entered into an agreement with Xylos for the
exclusive U.S. commercialization rights to the Xylos XCell(TM) Cellulose Wound
Dressing (XCell) wound care products. Pursuant to this agreement, the Company
had certain minimum purchase requirements. The minimum purchase requirement for
the calendar year 2003 was $750,000, which was met. The minimum purchase
requirement for each subsequent calendar year was to be based on the aggregate
dollar volume of sales of products during the 12-month period ending with
September of the prior year, but in no event less than $750,000. The Company did
have the right to terminate the agreement with 135 days' notice to Xylos,
beginning January 1, 2004. The Company began selling the Xylos products in
January 2003; however, initial sales were significantly slower than anticipated
and actual 2003 sales did not meet the Company's forecasts. Based on these sales
results, the Company concluded that sales of XCell were not sufficient enough to
sustain the Company's continued role as commercialization partner for the
product and therefore, on January 2, 2004, the Company exercised its contractual
right to terminate the agreement on 135 days' notice to Xylos. The Company's
promotional activities in support of the brand concluded in January 2004. The
Company recorded a reserve for potential excess inventory during 2003. As
discussed in Note 7, the Company continues to have an investment in Xylos.

     On December 31, 2002, the Company entered into a licensing agreement with
Cellegy Pharmaceuticals, Inc. (Cellegy) for the exclusive North American rights
for Fortigel(TM), a testosterone gel product. The agreement is in effect for the
commercial life of the product. Cellegy submitted a New Drug Application (NDA)
for the hypogonadism indication to the U.S. Food and Drug Administration (FDA)
in June 2002. In July 2003, Cellegy received a letter from the FDA rejecting its
NDA for Fortigel. Cellegy has told the Company that it is in discussions with
the FDA to determine the appropriate course of action needed to meet
deficiencies cited by the FDA in its determination. The Company cannot predict
with any certainty whether the FDA will ultimately approve Fortigel for sale in
the U.S. Under the terms of the agreement, the Company paid Cellegy a $15.0
million initial licensing fee on December 31, 2002. This nonrefundable payment
was made prior to FDA approval and, since there is no alternative future use of
the licensed rights, the $15.0 million payment was expensed by the Company in
December 2002, when incurred. This amount was recorded in other selling,
general, and administrative expenses in the December 31, 2002 consolidated
statements of operations. Pursuant to the terms of the licensing agreement, the
Company will be required to pay Cellegy a $10.0 million incremental license fee
milestone payment upon Fortigel's receipt of all approvals required by the FDA
(if such approvals are obtained) to promote, sell and distribute the product in
the U.S. This incremental milestone license fee, if incurred, will be recorded
as an intangible asset and amortized over its estimated useful life, as then
determined, which is not expected to exceed the life of the patent. Royalty
payments to Cellegy over the term of the commercial life of the product will
range from 20% to 30% of net sales.

     As discussed in Note 19, in May 2003, the Company settled a lawsuit with
Auxilium Pharmaceuticals, Inc. which sought to enjoin its performance under the
Cellegy agreement. Additionally, the Company filed a complaint against Cellegy
in December 2003, that alleges, among other things, that Cellegy fraudulently
induced the Company to enter into the licensing agreement, and seeks the return
of the $15.0 million initial licensing fee, plus additional damages caused by
Cellegy's conduct.


                                      F-12



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

3. Historic Performance Based Contracts

     Evista

     In October 2001, the Company entered into an agreement with Eli Lilly and
Company (Eli Lilly) to copromote Evista(R) in the U.S. Under the terms of the
agreement, the Company provided sales representatives to copromote Evista to
physicians in the U.S. The Company's sales representatives supplemented the Eli
Lilly sales force promoting Evista. Under this agreement, the Company was
entitled to be compensated based on net sales achieved by the product above a
predetermined level. The agreement did not provide for the reimbursement of
expenses the Company incurred.

     The Eli Lilly arrangement was a performance based contract. The Company was
required to commit a certain level of spending for promotional and selling
activities, including but not limited to sales representatives. The sales force
assigned to Evista was at times used to promote other products in addition to
Evista, including products covered by other Company copromotion arrangements,
which partially offset the costs of the sales force. The Company's compensation
for Evista was determined based upon a percentage of net factory sales of Evista
above contractual baselines. To the extent that such baselines were not
exceeded, the Company received no revenue.

     Based upon management's assessment of the future performance potential of
the Evista brand, on November 11, 2002, the Company and Eli Lilly mutually
agreed to terminate the contract as of December 31, 2002. The Company accrued a
contract loss of $7.8 million as of September 30, 2002 representing the
anticipated future loss expected to be incurred by the Company to fulfill its
contractual obligations under the Evista contract. There was no remaining
accrual as of December 31, 2002 as the Company had no further obligations due to
the termination of the contract. Operating losses of $35.1 million and $6.8
million were recognized under this contract for the years ended December 31,
2002 and December 31, 2001.

     Ceftin

     In October 2000, the Company entered into an agreement (the Ceftin
Agreement) with GlaxoSmithKline (GSK) for the exclusive U.S. sales, marketing
and distribution rights for Ceftin(R) Tablets and Ceftin(R) for Oral Suspension,
two dosage forms of a cephalosporin antibiotic, which agreement was terminated
in February 2002 by mutual agreement of the parties. The Ceftin Agreement had a
five-year term but was cancelable by either party without cause on 120 days'
notice. From October 2000 through February 2002, the Company marketed Ceftin to
physicians and sold the products primarily to wholesale drug distributors,
retail chains and managed care providers.

     On August 21, 2001, the U.S. Court of Appeals overturned a preliminary
injunction granted by the New Jersey District Court to GSK, which subsequently
allowed for the entry of a generic competitor to Ceftin immediately upon
approval by the FDA. The affected Ceftin patent had previously been scheduled to
run through July 2003. The generic version of Ceftin was approved by the FDA in
February 2002 and it began to be manufactured in late March 2002. As a result of
this U.S. Court of Appeals decision and its impact on future sales, in the third
quarter of 2001 the Company recorded a charge to cost of goods sold and a
related reserve of $24.0 million representing the anticipated future loss to be
incurred by the Company under the Ceftin Agreement as of September 30, 2001. The
recorded loss was calculated as the excess of estimated costs that the Company
was contractually obligated to incur to complete its obligations under the
Ceftin Agreement, over the remaining estimated gross profits to be earned under
the Ceftin Agreement from selling the inventory. These costs primarily consisted
of amounts paid to GSK to reduce purchase commitments, estimated committed sales
force expenses, selling and marketing costs through the effective date of the
termination, distribution costs, and fees to terminate existing arrangements.
The Ceftin Agreement was terminated by the Company and GSK under a mutual
termination agreement entered into in December 2001. GSK resumed exclusive
rights to Ceftin after the effective date of the termination of the Ceftin
Agreement, and the Company believes that GSK currently sells Ceftin under its
own label code.

     Pursuant to the termination agreement, the Company agreed to perform
marketing and distribution services through February 28, 2002. As is common in
the pharmaceutical industry, customers who purchased the Company's Ceftin
product are permitted to return unused product, after approval from the Company,
up to six months before and one year after the expiration date for the product,
but no later than December 31, 2004. The products sold by the Company prior to
the Ceftin agreement termination date of February 28, 2002 have expiration dates
through June 2004. The Company also maintains responsibility for processing and
payment of certain sales rebates through December 31, 2004. The Company's Ceftin
sales aggregated approximately $628 million during the term of the Ceftin
agreement. Only minimal credits have been issued for returns of product sold by
the Company to date.


                                      F-13



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

     As of December 31, 2002, the Company had accrued reserves of approximately
$16.5 million related to Ceftin sales. Of this accrual, $11.0 million related to
return reserves and $5.5 million related to sales rebates accruals. On an
ongoing basis, the Company assesses its reserve for product returns by:
analyzing historical sales and return patterns; monitoring prescription data for
branded Ceftin; monitoring inventory withdrawals by the wholesalers and
retailers for branded Ceftin; inquiring about inventory levels and potential
product returns with the wholesaler companies; and estimating demand for the
product. During the third quarter of 2003, the Company made a $5.5 million
payment to settle its estimated remaining sales rebate liabilities, and
concluded based on its returns reserve review process, which included a review
of prescription and withdrawal data for branded Ceftin as well as information
communicated to the Company by the wholesalers, that the remaining $11.0 million
reserve for returns was adequate as of September 30, 2003.

     The Company has since determined, based primarily upon new information
obtained from its wholesalers as part of its ongoing reserve review process,
that significant amounts of inventory, incremental to that previously reported
by the wholesalers, are being held by them in inventory. The Company believes
that this resulted, in part, from the sale by the wholesalers of Ceftin product
not supplied by the Company and acquired by the wholesalers subsequent to the
mutual termination of the Ceftin agreement. The Company is in the process of
determining the reasons its lots were not sold. Based upon this information, the
Company increased its returns reserve as of December 31, 2003 by $12.0 million
to a total reserve of $22.8 million. Product held by one wholesaler currently
accounts for approximately two-thirds of this amount. This $22.8 million reserve
reflects the Company's estimated liability for all identified product that could
potentially be returned and an estimate of the Company's liability with respect
to remaining, but not yet identified, product sold by the Company that is still
being held in the trade.

     The reserve has been calculated based on reimbursing the wholesalers at the
amount that they purchased the product from the Company. In certain instances,
the wholesalers have requested reimbursement at an amount higher than the
original purchase price. The difference is approximately $3.3 million. The
reserve as recorded by the Company is its best estimate based on its
interpretation of the contracts. The Company will continue to assess the
adequacy of its reserves until the Company's obligations for processing any
returned products ceases on December 31, 2004. The Company expects that it will
begin to pay these amounts in 2004.

4. Repurchase Program

     On September 21, 2001, the Company announced that its Board of Directors
had unanimously authorized management to repurchase up to $7.5 million of its
Common Stock. Subject to availability, the transactions may be made from time to
time in the open market or directly from stockholders at prevailing market
prices that the Company deems appropriate. In October 2001, 5,000 shares were
repurchased in an open market transaction for a total of $110,000. No further
purchases have been made through December 31, 2003.

5. Acquisition

     On September 10, 2001, the Company acquired 100% of the capital stock of
InServe in a transaction treated as an asset acquisition for tax purposes.
InServe is a nationwide supplier of supplemental field-staffing programs for the
MD&D industry. The acquisition has been accounted for as a purchase. The net
assets of InServe on the date of acquisition were approximately $1.3 million.
The Company made payments to InServe shareholders (the Seller) at closing of
$8.5 million, net of cash acquired. Additionally, the Company put $3.0 million
in escrow related to additional amounts payable during 2002 if certain defined
benchmarks were achieved. In April 2002, $1.2 million of the escrow was paid to
the Seller and $265,265 was returned to the Company due to non-achievement of a
performance benchmark. In September 2002, substantially all of the remaining
$1.5 million in escrow was paid to the Seller. In connection with these
transactions, the Company recorded $7.8 million in goodwill, which is included
in other long-term assets, and the remaining purchase price was allocated to
identifiable tangible and intangible assets and liabilities acquired.

     The following unaudited pro forma results of operations for the year ended
December 31, 2001 assume that the Company and InServe had been combined as of
the beginning of the periods presented. The pro forma results include estimates
and assumptions which management believes are reasonable. However, pro forma
results are not necessarily indicative of the results which would have occurred
if the acquisition had been consummated as of the dates indicated, nor are they
necessarily indicative of future operating results.


                                      F-14



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

                                                Year ended December 31,
                                                          2001
                                                        --------
                                       (in thousands, except for per share data)
                                                       (unaudited)

Net sales - pro forma                                   $702,958
                                                        ========
Net income - pro forma                                  $  6,440
                                                        ========
Pro forma diluted earnings per share                    $   0.46
                                                        ========

6. Short-Term Investments

     At December 31, 2003, short-term investments were $1.3 million, including
approximately $1.1 million of investments classified as available-for-sale
securities. At December 31, 2002, short-term investments were $5.8 million,
including approximately $1.1 million of investments classified as
available-for-sale securities. The unrealized after-tax gain/(loss) on the
available-for-sale securities is included as a separate component of
stockholders' equity as accumulated other comprehensive income (loss). All other
short-term investments are stated at cost, which approximates fair value.

7. Other Investments

     In October 2002, the Company acquired $1.0 million of preferred stock of
Xylos. The Company recorded its investment in Xylos under the cost method and
its ownership interest in Xylos is less than five percent. As discussed in Note
2, the Company served in 2003 as the exclusive distributor of the Xylos XCell
product line, but on January 2, 2004, the Company terminated that arrangement
effective May 16, 2004. Although Xylos recognized operating losses in 2003, the
Company believes that, based on current market conditions and activities at
Xylos, its investment in Xylos is not impaired as of December 31, 2003. In
addition, the Company provided a short-term loan in the amount of $250,000 to
Xylos in February 2004. Under the terms of the loan agreement, the Company may
provide another $250,000, if requested by Xylos.

     The Company has an investment in the preferred stock of iPhysicianNet, Inc.
(iPhysicianNet) that is accounted for under the equity method; however,
recognition of losses by the Company was suspended in 2000 after the Company's
investment was reduced to zero. During 2002, additional investments of $379,000
were made by the Company. Due to the continuing losses of iPhysicianNet, the
2002 investments were immediately expensed rather than recorded as an asset. The
Company does not have, nor has it ever had, any commitments to provide future
financing to iPhysicianNet. No investments were made by the Company in
iPhysicianNet during 2003 and no losses were recorded in the year due to the
suspension of losses mentioned above because the investment has been previously
reduced to zero. The Company's ownership interest in iPhysicianNet is less than
five percent. The Company was informed by iPhysicianNet that they ceased
operations effective August 1, 2003 and they subsequently filed for bankruptcy
protection.

8. Inventory

     At December 31, 2003 and December 31, 2002, the Company had approximately
$43,000 and $646,000, respectively, in finished goods inventory, net of
reserves, relating to the products being marketed and distributed in accordance
with the Xylos agreement discussed in Note 2. In the third quarter, as a result
of the continued lower than anticipated Xylos product sales, management recorded
a reserve of $835,000 to reduce the value of the XCell inventory to its
estimated net realizable value. The December 31, 2003 balance of the reserve is
approximately $818,000. As discussed in Note 2, on January 2, 2004 the Company
gave notice of termination of its agreement with Xylos, effective May 16, 2004,
and will therefore discontinue sales of the XCell product after the effective
date.

9. Historical Basic and Diluted Net Income/(Loss) Per Share

     Historical basic and diluted net income/(loss) per share is calculated
based on the requirements of SFAS No. 128, "Earnings Per Share."

     A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share for the years ended December 31, 2003, 2002 and
2001 is as follows:


                                      F-15



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued



                                                             Years Ended December 31,
                                                             ------------------------
                                                              2003     2002     2001
                                                             ------   ------   ------
                                                                 (in thousands)
                                                                      
     Basic weighted average number of common
        shares outstanding ...............................   14,231   14,033   13,886
     Dilutive effect of stock options ....................      200       --      227
                                                             ------   ------   ------
     Diluted weighted average number of common shares
        outstanding ......................................   14,431   14,033   14,113
                                                             ======   ======   ======


     Outstanding options at December 31, 2003 to purchase 380,493 shares of
common stock with exercise prices of $27.00 to $93.75 were not included in the
2003 computation of historical and pro forma diluted net income per share
because to do so would have been antidilutive. Outstanding options at December
31, 2002 to purchase 1,514,297 shares of common stock with exercise prices of
$5.21 to $98.70 per share were not included in the 2002 computation of
historical and pro forma diluted net income per share because to do so would
have been antidilutive, as a result of the Company's net loss. Outstanding
options at December 31, 2001 to purchase 1,003,162 shares of common stock with
exercise prices of $27.00 to $98.70 were not included in the 2001 computation of
historical and pro forma diluted net income per share because to do so would
have been antidilutive.

10. Property and Equipment

     Property and equipment consisted of the following as of December 31, 2003
and 2002:

                                                                December 31,
                                                            -------------------
                                                              2003       2002
                                                            --------   --------
                                                               (in thousands)
     Furniture and fixtures..............................   $  3,288   $  3,644
     Office equipment....................................      3,204      3,177
     Computer equipment..................................     13,494     11,981
     Computer software...................................     13,685     13,937
     Leasehold improvements..............................      1,905      1,703
                                                            --------   --------
     Total property and equipment........................     35,576     34,442

        Less accumulated depreciation and amortization...    (21,082)   (16,147)
                                                            --------   --------

     Property and equipment, net.........................   $ 14,494   $ 18,295
                                                            ========   ========

Depreciation expense was approximately $5.6 million, $6.8 million, and $4.0
million for December 31, 2003, 2002 and 2001, respectively.

11.  Operating Leases

     The Company leases facilities, automobiles and certain equipment under
agreements classified as operating leases which expire at various dates through
2016. Lease expense under these agreements for the years ended December 31,
2003, 2002 and 2001 was approximately $21.3 million, $26.1 million, and $28.4
million, respectively, of which $18.0 million in 2003, $21.2 million in 2002,
and $24.8 million in 2001 related to automobiles leased for employees for a term
of one-year from the date of delivery.

     As of December 31, 2003, the aggregate minimum future rental payments
required by non-cancelable operating leases with initial or remaining lease
terms exceeding one year are as follows (in thousands):



                                             2004     2005     2006     2007     2008     Total
                                            ------   ------   ------   ------   ------   -------
                                                                       
     Operating leases
        Minimum lease payments ..........   $3,084   $2,576   $2,319   $2,167   $2,166   $12,312
        Less minimum sublease rentals ...     (135)     (34)      --       --       --      (169)
                                            ----------------------------------------------------
           Net minimum lease payments ...   $2,949   $2,542   $2,319   $2,167   $2,166   $12,143
                                            ====================================================



                                      F-16



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

12. Significant Customers

Service

     During 2003, 2002 and 2001 the Company had several significant customers
for which it provided services under specific contractual arrangements. The
following sets forth the net service revenue generated by customers who
accounted for more than 10% of the Company's net service revenue during each of
the periods presented.

                         Years Ended December 31,
                       ---------------------------
     Customers           2003       2002     2001
     ---------         --------   -------  -------
                              (in thousands)

        A...........   $116,077   $88,354  $    --
        B...........    106,584    89,739   89,522
        C...........         --        --   60,120

     At December 31, 2003 and 2002, two customers represented 69.2% and 62.0%,
respectively, of the aggregate of outstanding service accounts receivable and
unbilled services. The loss of any one of the foregoing customers could have a
material adverse effect on the Company's business, financial position, results
of operations and cash flows.

Product

     Excluding the effects of the adjustment to the Ceftin reserve for sales
returns and rebates in 2003 and 2002 for changes in estimates, product revenue
from the sale of the Xylos wound care product was approximately $387,000 in 2003
and product revenue from the sale of Ceftin was approximately $716,000 in 2002.
Due to the immateriality of the product sales per customer in 2003 and 2002,
those sales are not shown in the chart below.

     During 2001, the Company had several significant customers for which it
provided products related to its distribution arrangement with GSK. The
following sets forth the product revenue generated by customers who accounted
for more than 10% of the Company's product revenue during the year ended
December 31, 2001.

                       Years Ended December 31,
                       ------------------------
     Customers                  2001
     ---------                  ----
                            (in thousands)

        A...........          $157,541
        B...........           122,063
        C...........            53,392

13. Related Party Transactions

     The Company purchases certain print advertising for initial recruitment of
representatives through a company that is wholly-owned by family members of the
Company's largest stockholder. The amounts charged to the Company for these
purchases totaled approximately $983,000, $516,000, and $1.1 million for the
years ended December 31, 2003, 2002 and 2001.

14. Income Taxes

     The provision (benefit) for income taxes for the years ended December 31,
2003, 2002 and 2001 are summarized as follows:


                                      F-17



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

                                                 2003       2002       2001
                                                -------   --------   --------
                                                       (in thousands)
     Current:
        Federal..............................   $10,308   $(26,972)  $ 23,346
        State................................     1,181      1,024      4,691
                                                 ------   --------   --------
        Total current........................    11,489    (25,948)    28,037
     Deferred................................    (3,084)     8,501    (19,411)
                                                -------   --------   --------
     Provision (benefit) for income taxes....   $ 8,405   $(17,447)  $  8,626
                                                =======   ========   ========

     A reconciliation of the difference between the Federal statutory tax rates
and the Company's effective tax rate is as follows:

                                                         2003    2002   2001
                                                         ----   -----   ----
     Federal statutory rate...........................   35.0%  (35.0)% 35.0%
     State income tax rate, net of Federal benefit....    6.1    (1.1)   9.8
     Meals and entertainment..........................    0.3     0.8    6.7
     Valuation allowance..............................     --     0.3    4.8
     Other............................................   (0.7)   (1.2)   1.3
                                                         ----   -----   ----

     Effective tax rate...............................   40.7%  (36.2)% 57.6%
                                                         ====   =====   ====

     The tax effects of significant items comprising the Company's deferred tax
assets and (liabilities) as of December 31, 2003 and 2002 are as follows:

                                                           2003      2002
                                                          -------   -------
     Deferred tax assets (liabilities)-- current
        Allowances and reserves .......................   $ 9,938   $ 6,378
        Inventory .....................................       312        --
        Compensation ..................................       762     1,042
        Other .........................................        41        --
                                                          -------   -------
                                                          $11,053   $ 7,420
                                                          -------   -------
     Deferred tax assets (liabilities)-- non current
        Property, plant and equipment .................   $(2,457)  $(1,778)
        State net operating loss carryforwards ........     1,427     2,994
        State taxes ...................................     1,296     1,178
        Intangible assets .............................      (126)       58
        Equity investment .............................     1,882     1,941
        Self insurance and other reserves .............     1,466       548
        Contract costs ................................     5,698     5,820
        Valuation allowance on deferred tax assets ....    (1,882)   (2,941)
                                                          -------   -------
                                                          $ 7,304   $ 7,820
                                                          -------   -------
        Net deferred tax asset ........................   $18,357   $15,240
                                                          =======   =======

     At December 31, 2003, a valuation allowance of $1,881,851 has been recorded
related to the Company's equity investments. At December 31, 2002, the Company
had a valuation allowance of $2,941,161 related to certain state net operating
loss (NOL) carryforwards and the Company's equity investments. At December 31,
2003, the Company reduced the valuation allowance by $1,059,310 for state NOL
carryforwards that it believes will more likely than not be realized prior to
expiration. The future realization of the deferred tax assets related to the
state NOL carryforwards is contingent upon the Company's future results of
operations. The Company performs an analysis each year to determine whether the
Company's expected future income will more likely than not be sufficient to
realize the recorded deferred tax assets. At December, 31 2003, the Company had
approximately $47.2 million of state NOL carryforwards which will begin to
expire in 2010.

15. Preferred Stock

     The Company's board of directors is authorized to issue, from time to time,
up to 5,000,000 shares of preferred stock in one or more series. The board is
authorized to fix the rights and designation of each series, including dividend
rights and rates, conversion rights, voting rights, redemption terms and prices,
liquidation preferences and the number of shares of each series. As of December
31, 2003 and 2002, there were no issued and outstanding shares of preferred
stock.


                                      F-18



                                    PDI, INC.
           Notes to the Consolidated Financial Statements - continued

16. Loans to Stockholders/Officers

     In November 1998, the Company agreed to lend $250,000 to an executive
officer of which $100,000 was funded in November 1998, and the remaining
$150,000 was funded in February 1999. This amount was recorded in other
long-term assets. Such loan is payable on December 31, 2008 and bears interest
at a rate of 5.5% per annum, payable quarterly in arrears. In February 2003,
$100,000 of this loan was repaid leaving a balance of $150,000.

17. Retirement Plans

     During 2003, the Company restructured its qualified profit sharing plans
with 401(k) features. Effective January 1, 2003, the Company's InServe 401(k)
Plan (the "Inserve Plan") was frozen, and participants in the Inserve Plan began
to participate in the Company's PDI, Inc. 401(k) Plan (the "PDI Plan"). Under
the terms of the PDI Plan, the Company is committed to make mandatory cash
contributions in an amount equal to the employee contributions up to a maximum
of 2% of each participating employee's annual base wages. There is no option for
employees to invest any of their 401(k) funds in the Company's common stock. The
Company's total contribution expense related to the Company's 401(k) plans for
2003, 2002 and 2001 was approximately $905,000, $1.7 million, and $1.6 million,
respectively.

     Effective January 1, 2004, the PDI Plan shall provide all "Safe Harbor
Eligible" plan participants with Company matching contributions (Safe Harbor
Matching Contributions) in accordance with the formula described below:

     o    Employee contributions of 1% to 3% of base salary will be matched
          100%; and

     o    Employee contributions which exceed 3% but do not exceed 5% will
          be matched 50%.

     Employees must meet all Safe Harbor Matching Contributions eligibility
requirements as defined in the Plan in order to participate. Employees' account
balances derived from the Safe Harbor Matching Contributions will be immediately
vested. In addition the Company can make discretionary contributions to the
Plan. There will continue to be no option for employees to invest any of their
401(k) funds in the Company's common stock.

18. Deferred Compensation Arrangements

     Beginning in 2000, the Company established a deferred compensation
arrangement whereby a portion of certain employees' salaries is withheld and
placed in a Rabbi Trust. The plan permits the employees to diversify these
assets through a variety of investment options. The Company adopted the
provisions of Emerging Issues Task Force (EITF) 97-14 "Accounting for Deferred
Compensation Arrangement Where Amounts are Earned and Held in a Rabbi Trust and
Invested" which requires the Company to consolidate into its financial
statements the net assets of the trust. The deferred compensation obligation has
been classified as a current liability and is adjusted, with the corresponding
charge or credit to compensation expense, to reflect changes in fair value of
the amounts owed to the employee. The assets in the trust are classified as
available-for-sale. In 2003 the market value of the investments increased by
$42,000, recorded as a debit to compensation expense. The credit to compensation
expense due to a decrease of the market value of the investments was
approximately $95,000 and $30,000 during 2002 and 2001, respectively. The total
value of the Rabbi Trust was approximately $1.1 million at each of December 31,
2003 and 2002.

     In 2000, the Company established a Long-term Incentive Compensation Plan
whereby certain employees are required to take a portion of their bonus
compensation in the form of restricted Common Stock. The restricted shares vest
on the third anniversary of the grant date and are subject to accelerated
vesting and forfeiture under certain circumstances. The Company recorded
deferred compensation costs of approximately $349,000 and $243,000 during 2002
and 2001, respectively, which is being amortized over the three-year vesting
period. There were no deferred compensation costs during 2003. The unamortized
compensation costs have been classified as a separate component of stockholders'
equity.

19. Commitments and Contingencies

     Due to the nature of the business that the Company is engaged in, such as
product detailing and distribution of products, it could be exposed to certain
risks. Such risks include, among others, risk of liability for personal injury
or death to persons using products the Company promotes or distributes. There
can be no assurance that substantial claims or liabilities will not arise in the
future because of the nature of the Company's business activities and recent


                                      F-19



                                    PDI, INC.
           Notes to the Consolidated Financial Statements - continued

increases in litigation related to healthcare products including pharmaceuticals
increases this risk. The Company seeks to reduce its potential liability under
its service agreements through measures such as contractual indemnification
provisions with clients (the scope of which may vary from client to client, and
the performances of which are not secured) and insurance. The Company could,
however, also be held liable for errors and omissions of its employees in
connection with the services it performs that are outside the scope of any
indemnity or insurance policy. The Company could be materially adversely
affected if it was required to pay damages or incur defense costs in connection
with a claim that is outside the scope of an indemnification agreement; if the
indemnity, although applicable, is not performed in accordance with its terms;
or if the Company's liability exceeds the amount of applicable insurance or
indemnity.

Securities Litigation

     In January and February 2002, the Company, its chief executive officer and
its chief financial officer were served with three complaints that were filed in
the United States District Court for the District of New Jersey alleging
violations of the Securities Exchange Act of 1934 (the "1934 Act"). These
complaints were brought as purported shareholder class actions under Sections
10(b) and 20(a) of the 1934 Act and Rule 10b-5 established thereunder. On May
23, 2002, the Court consolidated all three lawsuits into a single action
entitled In re PDI Securities Litigation, Master File No. 02-CV-0211, and
appointed lead plaintiffs (Lead Plaintiffs) and Lead Plaintiffs' counsel. On or
about December 13, 2002, Lead Plaintiffs filed a second consolidated and amended
complaint (Second Consolidated and Amended Complaint), which superseded their
earlier complaints.

     The complaint names the Company, its chief executive officer and its chief
financial officer as defendants; purports to state claims against the Company on
behalf of all persons who purchased the Company's Common Stock between May 22,
2001 and August 12, 2002; and seeks money damages in unspecified amounts and
litigation expenses including attorneys' and experts' fees. The essence of the
allegations in the Second Consolidated and Amended Complaint is that the Company
intentionally or recklessly made false or misleading public statements and
omissions concerning its financial condition and prospects with respect to its
marketing of Ceftin in connection with the October 2000 distribution agreement
with GSK, its marketing of Lotensin in connection with the May 2001 distribution
agreement with Novartis, as well as its marketing of Evista in connection with
the October 2001 distribution agreement with Eli Lilly.

     In February 2003, the Company filed a motion to dismiss the Second
Consolidated and Amended Complaint under the Private Securities Litigation
Reform Act of 1995 and Rules 9(b) and 12(b)(6) of the Federal Rules of Civil
Procedure. The Company believes that the allegations in this purported
securities class action are without merit and intends to defend the action
vigorously.

Bayer-Baycol Litigation

     The Company has been named as a defendant in numerous lawsuits, including
two class action matters, alleging claims arising from the use of Baycol(R), a
prescription cholesterol-lowering medication. Baycol(R) was distributed,
promoted and sold by Bayer Corporation (Bayer) in the United States through
early August 2001, at which time Bayer voluntarily withdrew Baycol(R) from the
United States market. Bayer retained certain companies, such as the Company, to
provide detailing services on its behalf pursuant to contract sales force
agreements. The Company may be named in additional similar lawsuits. To date,
the Company has defended these actions vigorously and has asserted a contractual
right of indemnification against Bayer for all costs and expenses the Company
incurs relating to these proceedings. In February 2003, the Company entered into
a joint defense and indemnification agreement with Bayer, pursuant to which
Bayer has agreed to assume substantially all of the Company's defense costs in
pending and prospective proceedings and to indemnify the Company in these
lawsuits, subject to certain limited exceptions. Further, Bayer agreed to
reimburse the Company for all reasonable costs and expenses incurred to date in
defending these proceedings. As of February 20, 2004, Bayer has reimbursed the
Company for approximately $1.6 million in legal expenses, almost all of which
was received in 2003 and is reflected as a credit within selling, general and
administrative expense.

Auxilium Pharmaceuticals Litigation

     On January 6, 2003, the Company was named as a defendant in a lawsuit filed
by Auxilium Pharmaceuticals, Inc. (Auxilium), in the Pennsylvania Court of
Common Pleas, Montgomery County. Auxilium was seeking monetary damages and
injunctive relief, including preliminary injunctive relief, based on several
claims related to the Company's alleged breaches of a contract sales force
agreement entered into by the parties on November 20, 2002,


                                      F-20



                                    PDI, INC.
           Notes to the Consolidated Financial Statements - continued

and claims that the Company was misappropriating trade secrets in connection
with its exclusive license agreement with Cellegy.

     On May 8, 2003, the Company entered into a settlement and mutual release
agreement with Auxilium (Settlement Agreement), by which the lawsuit and all
related counter claims were dropped without any admission of wrongdoing by
either party. The settlement terms included a cash payment which was paid upon
execution of the Settlement Agreement as well as certain other additional
expenses. The Company recorded a $2.1 million charge in the first quarter of
2003 related to this settlement. Pursuant to the Settlement Agreement, the
Company also agreed that it would (a) not sell, ship, distribute or transfer any
Fortigel product to any wholesalers, chain drug stores, pharmacies or hospitals
prior to November 1, 2003, and (b) pay Auxilium an additional amount per
prescription to be determined based upon a specified formula, in the event any
prescriptions are filled for Fortigel prior to January 26, 2004. As discussed in
Note 4, in July 2003, Cellegy received a letter from the FDA rejecting its NDA
for Fortigel. The Company will not pay any additional amount to Auxilium as set
forth in clause (b) above since Fortigel was not approved by the FDA prior to
January 26, 2004. The Company does not believe that the terms of the Settlement
Agreement will have any material impact on the success of its commercialization
of the product if, or when, the FDA approves it.

Cellegy Pharmaceuticals Litigation

     On December 12, 2003, the Company filed a complaint against Cellegy in the
U.S. District Court for the Southern District of New York. The complaint alleges
that Cellegy fraudulently induced the Company to enter into a December 2002
license agreement with Cellegy regarding Fortigel ("License Agreement"). The
complaint also alleges claims for misrepresentation and breach of contract
related to the License Agreement. In the complaint, the Company seeks, among
other things, rescission of the License Agreement and return of the $15.0
million initial licensing fee it paid Cellegy. After the Company filed this
lawsuit, also on December 12, 2003, Cellegy filed a complaint against the
Company in the U.S. District Court for the Northern District of California.
Cellegy's complaint seeks a declaration that Cellegy did not fraudulently induce
the Company to enter the License Agreement and that Cellegy has not breached its
obligations under the License Agreement. The Company is unable to predict the
ultimate outcome of these lawsuits.

Other Legal Proceedings

     The Company is currently a party to other legal proceedings incidental to
its business. While the Company currently believes that the ultimate outcome of
these proceedings individually and in the aggregate, will not have a material
adverse effect on its consolidated financial statements, litigation is subject
to inherent uncertainties. Were the Company to settle a proceeding for a
material amount or were an unfavorable ruling to occur, there exists the
possibility of a material adverse impact on the Company's business, financial
condition and results of operations.

     No amounts have been accrued for losses under any of the above mentioned
matters, other than for the Auxilium litigation settlement reserve, as no other
amounts are considered probable or reasonably estimable at this time.

     Other than the foregoing, the Company is not currently a defendant in any
material pending litigation and it is not aware of any material threatened
litigation.

20. Stock-Based Compensation

     In May 2000 the Board of Directors (the Board) approved the PDI, Inc. 2000
Omnibus Incentive Compensation Plan (the 2000 Plan). The purpose of the 2000
Plan is to provide a flexible framework that will permit the Board to develop
and implement a variety of stock-based incentive compensation programs based on
the changing needs of the Company, its competitive market and the regulatory
climate. The maximum number of shares as to which awards or options may at any
time be granted under the 2000 Plan is 2.2 million shares. Eligible participants
under the 2000 Plan include officers and other employees of the Company, members
of the Board and outside consultants, as specified under the 2000 Plan and
designated by the Compensation Committee of the Board. The right to grant Awards
under the 2000 Plan will terminate 10 years after the date the 2000 Plan was
adopted. No Participant may be granted, in the aggregate, more than 100,000
shares of Company common stock from all awards under the 2000 Plan.

     In March 1998, the Board approved the 1998 Stock Option Plan (the 1998
Plan) which reserves for issuance up to 750,000 shares of the Company's common
stock, pursuant to which officers, directors and key employees of the


                                      F-21



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

Company and consultants to the Company are eligible to receive incentive and/or
non-qualified stock options. The 1998 Plan, which has a term of ten years from
the date of its adoption, is administered by a committee designated by the
Board. The selection of participants, allotment of shares, determination of
price and other conditions relating to the purchase of options is determined by
the committee, in its sole discretion. Incentive stock options granted under the
1998 Plan are exercisable for a period of up to 10 years from the date of grant
at an exercise price which is not less than the fair market value of the common
stock on the date of the grant, except that the term of an incentive stock
option granted under the 1998 Plan to a shareholder owning more than 10% of the
outstanding common stock may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the common stock on the date
of the grant.

     Options granted to members of the Board vest a third upon date of grant and
then a third over the next two years. All other options granted vest a third
each year over a three-year period.

     At December 31, 2003, options for an aggregate of 1,037,599 shares were
outstanding under the Company's stock option plans and options to purchase
376,260 shares of common stock had been exercised since its inception.

     The activity for the 2000 and 1998 Plans during the years ended December
31, 2003, 2002 and 2001 is set forth in the table below:



                                                2003                  2002                    2001
                                        --------------------   --------------------   --------------------
                                                    Weighted               Weighted               Weighted
                                                     Average                Average                Average
                                                    Exercise               Exercise               Exercise
                                          Shares     Price       Shares     Price       Shares      Price
                                          ------     -----       ------     -----       ------      -----
                                                                                 
Outstanding at beginning of year        1,514,297    $39.23    1,125,313    $53.60      653,921    $46.60
Granted                                   115,303     16.13      596,812     14.81      548,848     71.17
Exercised                                 (42,373)    13.06       (6,520)    16.00      (40,733)    17.41
Terminated                               (549,628)    58.86     (201,308)    49.91      (36,723)    63.06
                                        -------------------    -------------------    -------------------
Outstanding at end of year              1,037,599    $27.33    1,514,297    $39.23    1,125,313    $53.60
                                        ===================    ===================    ===================
Options exercisable at end of year        608,811    $31.87      611,871    $46.04      361,584    $37.11
                                        ===================    ===================    ===================


     The following table summarizes information about stock options outstanding
at December 31, 2003:



                         Options Outstanding                       Options Exercisable
     ----------------------------------------------------------   ----------------------
                                         Remaining
                           Number of     weighted      Weighted    Number of    Weighted
     Exercise price per     options     contractual    exercise     options     exercise
           share          outstanding   life (years)     price    exercisable     price
     ----------------------------------------------------------   ----------------------
                                                                  
     $ 5.21 - $ 9.56          63,334        8.9         $ 7.28       10,999      $ 8.35
     $14.16 - $18.38         563,042        7.9          15.87      246,687       14.77
     $21.10 - $29.88         203,312        6.2          26.64      195,401       26.82
     $59.50                  155,561        7.1          59.50      103,707       59.50
     $80.00 - $93.75          52,350        7.1          81.85       52,017       81.77
                           -----------------------------------      -------------------
                           1,037,599        7.5         $27.33      608,811      $31.87
                           ===================================      ===================


     In March 2003, the Company initiated an option exchange program pursuant to
which eligible employees, which excluded certain members of senior management,
were offered an opportunity to exchange an aggregate of 357,885 outstanding
stock options with exercise prices of $30.00 and above for either cash or shares
of restricted stock, depending upon the number of options held by an eligible
employee. The offer exchange period expired on May 12, 2003. Approximately
310,403 shares of common stock underlying eligible options were tendered by


                                      F-22



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

eligible employees and accepted by the Company. This number represents
approximately 87% of the total shares of common stock underlying eligible
options. A total of approximately 120 eligible participants elected to exchange
an aggregate of approximately 59,870 shares of common stock under eligible
options and received cash in the aggregate amount of approximately $67,000
(which amount includes applicable withholding taxes). A total of approximately
145 eligible participants elected to exchange an aggregate of approximately
250,533 shares of common stock underlying eligible options in exchange for an
aggregate of approximately 49,850 shares of restricted stock. All tendered
options have been canceled and are eligible for re-issuance under the Company's
option plans. The restricted stock is subject to three-year cliff vesting and is
subject to forfeiture upon termination of employment other than in the event of
the recipient's death or disability.

     Approximately 47,483 options, which were offered to, but did not
participate in, the option exchange program, are subject to variable accounting.
As such, the Company may record compensation expense if the market price of the
Company's common stock exceeds the exercise price of the non-tendered options
until these options are terminated, exercised or forfeited. The non-tendered
options have exercise prices ranging from $59.50 to $80.00 and a remaining life
of 6.8 to 7.1 years.

21. Goodwill and Intangible Assets

     Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill is no longer amortized
but is evaluated for impairment on at least an annual basis. This resulted in a
decrease in amortization expense that would have been recorded in the year ended
December 31, 2002 of approximately $1.1 million. The Company has established
reporting units for purposes of testing goodwill for impairment. Goodwill has
been assigned to the reporting units to which the value of the goodwill relates.
The Company completed the first step of the transitional goodwill impairment
test and has determined that no impairment existed at January 1, 2002. The
Company performed the required annual impairment tests in the fourth quarters of
both 2003 and 2002 and determined that no impairment existed at either December
31, 2003 or 2002. These tests 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. The Company's total goodwill which is not subject to amortization is
$11.1 million as of December 31, 2003.

     The statements of operations adjusted to exclude amortization expense for
2001 related to goodwill and related taxes are as follows:

                                                 For the Year Ended
                                                    December 31,
                                             -------------------------
                                                        2001
                                             -------------------------
                                             (in thousands, except per
                                                    share data)

     Reported net income                               $6,354
     Add goodwill amortization                            191
                                                       ------
     Adjusted net income                               $6,545
                                                       ======
     Basic earnings per share:
     Reported net income per share                     $ 0.46
     Add: Goodwill amortization                          0.01
                                                       ------
     Adjusted basic net income per share               $ 0.47
                                                       ======
     Diluted earnings per share:
     Reported diluted net income per share             $ 0.45
     Add: Goodwill amortization                          0.01
                                                       ------
     Adjusted diluted net income per share             $ 0.46
                                                       ======


                                      F-23



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

     Changes in the carrying amount of goodwill for the years ended December 31,
2003 and 2002, by operating segment, were as follows:

                                                 SMSG    PPG    MD&D     Total
     Balance as of January 1, 2002              $3,344   $--   $5,067   $ 8,411
     Amortization                                   --    --       --        --
     Goodwill additions                             --    --    2,721     2,721
                                                ------   ---   ------   -------

     Balance as of December 31, 2002            $3,344   $--   $7,788   $11,132
                                                ======   ===   ======   =======

     Balance as of January 1, 2003              $3,344   $--   $7,788   $11,132
     Amortization                                   --    --       --        --
     Goodwill additions                             --    --       --        --
                                                ------   ---   ------   -------

     Balance as of December 31, 2003            $3,344   $--   $7,788   $11,132
                                                ======   ===   ======   =======

     All intangible assets recorded as of December 31, 2003 and 2002 are being
amortized on a straight-line basis over the life of the intangibles which is
primarily five years.



                                      As of December 31, 2003            As of December 31, 2002

                                  Carrying   Accumulated             Carrying    Accumulated
                                   Amount    Amortization    Net      Amount    Amortization     Net
                                  --------------------------------   --------------------------------
                                                                             
     Covenant not to compete       $1,686       $  780      $  906    $1,686      $  442       $1,244
     Customer relationships         1,208          559         649     1,208         318          890
     Corporate tradename              172           79          93       172          45          127
                                   -------------------------------    -------------------------------
        Total                      $3,066       $1,418      $1,648    $3,066      $  805       $2,261
                                   ===============================    ===============================


     Amortization expense for the years ended December 31, 2003, 2002 and 2001
was approximately $613,000, $613,000 and $688,000, respectively. Amortization
expense included amounts related to goodwill during 2001 of approximately
$450,000. Estimated amortization expense for the next five years is as follows:

     2004   $613
            ====
     2005    613
            ====
     2006    422
            ====
     2007     --
            ====
     2008     --
            ====

22. Restructuring and Other Related Expenses

     During the third quarter of 2002, the Company adopted a restructuring plan,
the objectives of which were to consolidate operations in order to enhance
operating efficiencies (the 2002 Restructuring Plan). This plan was primarily in
response to the general decrease in demand within the Company's markets for the
sales and marketing services segment, and the recognition that the
infrastructure that supported these business units was larger than required. The
Company originally estimated that the restructuring would result in annualized
SG&A savings of approximately $14.0 million, based on the level of SG&A spending
at the time it initiated the restructuring. However, these savings have been
partially offset by incremental SG&A expenses the Company incurred in the
current period as the Company has been successful in expanding its business
platforms for its segments. Substantially all of the restructuring activities
have been completed as of December 31, 2003.


                                      F-24



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued

     In connection with this plan, the Company originally estimated that it
would incur total restructuring expenses of approximately $5.4 million, other
non-recurring expenses of approximately $0.1 million, and accelerated
depreciation of approximately $0.8 million. Excluding $0.1 million, all of these
expenses were recognized in 2002. The $0.1 million recognized in 2003 consisted
of $0.4 million in additional expense incurred for severance and other exit
costs partially offset by the receipt of $0.3 million for subletting the
Cincinnati, Ohio facility.

     The primary items comprising the $5.4 million in restructuring expenses
were $3.7 million in severance expense consisting of cash and non-cash
termination payments to employees in connection with their involuntary
termination and $1.7 million in other restructuring exit costs relating to
leased facilities and other contractual obligations.

     During the quarter ended March 31, 2003, the Company recognized a $270,000
reduction in to the restructuring accrual due to negotiating higher sublease
proceeds than originally estimated for the leased facility in Cincinnati, Ohio.

     During the quarter ended June 30, 2003, the Company incurred approximately
$133,000 of additional restructuring expense due to higher than expected
contractual termination costs. This additional expense was recorded in program
expenses consistent with the original recording of the restructuring charges.

     Also during the quarter ended June 30, 2003, the Company recognized a
$473,000 reduction in the restructuring accrual due to lower than expected sales
force severance costs. Greater success in the reassignment of sales
representatives to other programs and the voluntary departure of other sales
representatives combined to reduce the requirement for severance costs. This
adjustment was recorded in program expenses consistent with the original
recording of the restructuring charges.

     During the quarter ended December 31, 2003, the Company recorded
approximately $413,000 in additional restructuring expense due to higher than
expected corporate severance and other exit costs. This adjustment was recorded
in SG&A consistent with the original recording of the restructuring charges.

     The accrual for restructuring and exit costs totaled approximately $744,000
at December 31, 2003, and is recorded in current liabilities on the accompanying
balance sheet.

     A roll forward of the activity for the 2002 Restructuring Plan (in
thousands) is as follows:



                                   Balance at                                Write offs/       Balance at
                                December 31, 2002   Accruals   Adjustments     Payments    December 31, 2003
                                                                                   
     Administrative severance         $1,670          $ 58        $  --        $(1,443)           $285
     Exit costs                        1,288           488         (270)        (1,047)            459
                                      ------          ----        -----        -------            ----
                                      $2,958          $546        $(270)       $(2,490)           $744
                                      ------          ----        -----        -------            ----
     Sales force severance             1,741            --         (473)        (1,268)             --
                                      ------          ----        -----        -------            ----
         Total                        $4,699          $546        $(743)       $(3,758)           $744
                                      ======          ====        =====        =======            ====


23.  Segment Information

     The Company operates under three reporting segments: the sales and
marketing services group (SMSG), pharmaceutical products group (PPG) and medical
devices and diagnostics (MD&D), none of which have changed since the Company's
December 31, 2002 financial presentation. Since the termination of the Ceftin
contract and the elimination of Ceftin product sales effective February 28,
2002, the shift in management's focus on the business has been to view the
traditional fee for service type arrangements within the pharmaceutical industry
(offered by the SMSG segment) in the aggregate and to view the performance based
contracts for pharmaceutical products - those for which the Company is
compensated based predominantly on the performance of the products that it is
responsible for marketing and/or selling (the PPG segment) - also in the
aggregate. Further, all contracts within the MD&D industry, regardless of the
nature of the contract, are reported in the MD&D segment. The SMSG segment
includes the Company's contract sales (CSO) units; and the Company's marketing
services business unit, which includes marketing research and medical education
and communication services. The PPG segment includes revenues earned through the
Company's licensing and copromotion of pharmaceutical products. The PPG
contracts are characterized by either significant management effort required
from the Company's product marketing group, or reliance on the attainment of
performance incentives in order to fully cover the Company's costs, or both. The
Company's MD&D


                                      F-25



segment includes PDI InServe, contract sales, and product licensing. The segment
information from prior periods has been reclassified to conform to the current
period's presentation.

     The accounting policies of the segments are described in Note 1. Corporate
charges are allocated to each of the operating segments on the basis of total
salary costs. Corporate charges include corporate headquarter costs and certain
depreciation expense. Certain corporate capital expenditures have not been
allocated from the SMSG segment to the other operating segments since it is
impracticable to do so.



                                                                      For the Year
                                                                   Ended December 31,
                                                             ------------------------------
                                                               2003       2002       2001
                                                             --------   --------   --------
                                                                          
     Revenue
        Sales and marketing services group ...............   $262,966   $179,067   $348,860
        Pharmaceutical products group ....................     42,349     94,976    449,539
        Medical devices and diagnostics ..................     12,133      9,970      2,760
                                                             --------   --------   --------
           Total .........................................   $317,448   $284,013   $801,159
                                                             ========   ========   ========

     Revenue, intercompany
        Sales and marketing services group ...............   $     --   $     --   $ 98,022
        Pharmaceutical products group ....................         --         --      6,554
        Medical devices and diagnostics ..................         --         --         --
                                                             --------   --------   --------
           Total .........................................   $     --   $     --   $104,576
                                                             ========   ========   ========

     Revenue, less intercompany
        Sales and marketing services group ...............   $262,966   $179,067   $250,838
        Pharmaceutical products group ....................     42,349     94,976    442,985
        Medical devices and diagnostics ..................     12,133      9,970      2,760
                                                             --------   --------   --------
           Total .........................................   $317,448   $284,013   $696,583
                                                             ========   ========   ========

     Income (loss) from operations
        Sales and marketing services group ...............   $ 54,219   $ 17,247   $ 32,481
        Pharmaceutical products group ....................     (9,781)   (48,821)    (2,834)
        Medical devices and diagnostics ..................     (7,457)    (2,068)       (39)
        Corporate charges ................................    (17,391)   (16,533)   (16,903)
                                                             --------   --------   --------
           Total .........................................   $ 19,590   $(50,175)  $ 12,705
                                                             ========   ========   ========

     Income from operations, intercompany
        Sales and marketing services group ...............   $     --   $     --   $  4,284
        Pharmaceutical products group ....................         --         --     (4,284)
        Medical devices and diagnostics ..................         --         --         --
        Corporate charges ................................         --         --         --
                                                             --------   --------   --------
           Total .........................................   $     --   $     --   $     --
                                                             ========   ========   ========

     Income (loss) from operations, less intercompany,
       before corporate allocations
        Sales and marketing services group ...............   $ 54,219   $ 17,247   $ 28,197
        Pharmaceutical products group ....................     (9,781)   (48,821)     1,450
        Medical devices and diagnostics ..................     (7,457)    (2,068)       (39)
        Corporate charges ................................    (17,391)   (16,533)   (16,903)
                                                             --------   --------   --------
           Total .........................................   $ 19,590   $(50,175)  $ 12,705
                                                             ========   ========   ========



                                      F-26



                                    PDI, Inc.
           Notes to the Consolidated Financial Statements - continued



                                                                          For the Year
                                                                       Ended December 31,
                                                                 ------------------------------
     (continued)                                                   2003        2002      2001
                                                                 --------   --------   --------
                                                                              
     Corporate allocations
        Sales and marketing services group ...................   $(13,979)  $ (9,339)  $(11,721)
        Pharmaceutical products group ........................     (2,189)    (6,389)    (4,986)
        Medical devices and diagnostics.......................     (1,223)      (805)      (196)
        Corporate charges.....................................     17,391     16,533     16,903
                                                                 --------   --------   --------
           Total..............................................   $     --   $     --   $     --
                                                                 ========   ========   ========

     Income (loss) from operations, less corporate allocations
        Sales and marketing services group....................   $ 40,240   $  7,908   $ 16,476
        Pharmaceutical products group.........................    (11,970)   (55,210)    (3,536)
        Medical devices and diagnostics.......................     (8,680)    (2,873)      (235)
        Corporate charges.....................................         --         --         --
                                                                 --------   --------   --------
           Total..............................................   $ 19,590   $(50,175)  $ 12,705
                                                                 ========   ========   ========

     Reconciliation of income (loss) from operations to
       income (loss) before provision for income taxes
        Total income (loss) from operations for operating
           groups.............................................   $ 19,590   $(50,175)  $ 12,705
        Other income, net.....................................      1,073      1,967      2,275
                                                                 --------   --------   --------
           Income (loss) before provision for income taxes....   $ 20,663   $(48,208)  $ 14,980
                                                                 ========   ========   ========

     Capital expenditures
        Sales and marketing services group ...................   $  1,746   $  3,735   $ 14,277
        Pharmaceutical products group.........................         --        217      1,213
        Medical devices and diagnostics.......................         83         60         70
                                                                 --------   --------   --------
           Total..............................................   $  1,829   $  4,012   $ 15,560
                                                                 ========   ========   ========

     Total Assets
        Sales and marketing services group ...................   $147,832   $114,742   $116,898
        Pharmaceutical products group.........................     55,169     60,417    175,933
        Medical devices and diagnostics.......................     16,622     15,780      9,840
                                                                 --------   --------   --------
           Total..............................................   $219,623   $190,939   $302,671
                                                                 ========   ========   ========

     Depreciation expense
        Sales and marketing services group ...................   $  4,181   $  4,318   $  2,760
        Pharmaceutical products group.........................      1,029      2,277      1,199
        Medical devices and diagnostics.......................        420        165         29
                                                                 --------   --------   --------
           Total..............................................   $  5,630   $  6,760   $  3,988
                                                                 ========   ========   ========



                                      F-27



                                   Schedule II

                                    PDI, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003



                                        BALANCE AT    ADDITIONS       (1)       BALANCE AT
                                         BEGINNING   CHARGED TO   DEDUCTIONS        END
DESCRIPTION                              OF PERIOD   OPERATIONS      OTHER       OF PERIOD
- -----------                             ----------   ----------   ----------    ----------
                                                                    
Against trade receivables--
Year ended December 31, 2001
   Allowance for doubtful accounts...   $  250,000   $8,590,676   $(5,148,629)  $3,692,047
Year ended December 31, 2002
   Allowance for doubtful accounts...    3,692,047      366,125    (2,994,695)   1,063,477
Year ended December 31, 2003
   Allowance for doubtful accounts...   $1,063,477   $1,526,626   $(1,840,762)  $  749,341

Against taxes--
Year ended December 31, 2001
   Tax valuation allowance...........   $  989,000   $  819,046   $        --   $1,808,046
Year ended December 31, 2002
   Tax valuation allowance...........    1,808,046    1,133,115            --    2,941,161
Year ended December 31, 2003
   Tax valuation allowance...........   $2,941,161   $       --   $(1,059,310)  $1,881,851

Against inventory--
Year ended December 31, 2001
   Inventory valuation allowance.....   $       --   $       --   $        --   $       --
Year ended December 31, 2002
   Inventory valuation allowance.....           --           --            --           --
Year ended December 31, 2003
   Inventory valuation allowance.....   $       --   $  835,448   $   (17,583)  $  817,865


- ----------
(1)  Includes both actual write offs as well as changes in estimates in the
     reserves.


                                      F-28

EX-10.11

                                                                   Exhibit 10.11

                              EMPLOYMENT AGREEMENT

      THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 5th day of
January 2004, by and among PDI, INC., a Delaware corporation (the "Company"),
having its principal place of business at 10 Mountainview Road, Suite C200,
Upper Saddle River, New Jersey 07458, on the one hand, and ALAN L. RUBINO,
residing at 210 Old Chester Road, Essex Fells, NJ 07021 (the "Executive"), on
the other.

                               W I T N E S S E T H

      WHEREAS, the Company believes that it would benefit from the application
of the Executive's particular and unique skills, experiences and background in
connection with the management and operation of the Company, and wishes to
employ the Executive as Executive Vice President and General Manager, Sales
Teams Business; and

      WHEREAS, the parties desire by this Agreement to set forth the terms and
conditions of the employment relationship between the Company and the Executive.

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
in this Agreement, the Company and the Executive agree as follows:

      1. Employment and Duties. The Company hereby employs the Executive as
Executive Vice President and General Manager, Sales Teams Business on the terms
and conditions provided in this Agreement and Executive agrees to accept such
employment subject to the terms and conditions of this Agreement. The Executive
shall be responsible for management of the day-to-day affairs of the Company's
Sales Teams Business, shall perform the duties and responsibilities as are
customary for the officer of a corporation in such positions, and shall perform
such other duties and responsibilities as are reasonably determined from time to
time by the President of Global Sales and Marketing Services Group of the
Company. The Executive shall report to and be supervised by the Company's
President of Global Sales and Marketing Services Group. The Executive shall be
based at the Company's offices in Upper Saddle River, New Jersey, or such other
place that shall constitute the Company's headquarters. The Executive agrees to
devote substantially all his attention and time during normal business hours to
the business and affairs of the Company and to use his reasonable best efforts
to perform faithfully and efficiently the duties and responsibilities of his
positions and to accomplish the goals and



objectives of the Company as may be established from time to time by the
Company's Board of Directors (the "Board"). Notwithstanding the foregoing, the
Executive may engage in the following activities (and shall be entitled to
retain all economic benefits thereof including fees paid in connection
therewith) as long as they do not interfere in any material respect with the
performance of the Executive's duties and responsibilities hereunder and, with
respect to subsections (i) and (ii) below, that such activity is pre-approved by
the Company's President of Global Sales and Marketing Services Group: (i) serve
on corporate, civic, religious, educational and/or charitable boards or
committees, provided that the Executive shall not serve on any board or
committee of any corporation or other business which competes with the Business
(as defined in Section 10(a) below); (ii) deliver lectures, fulfill speaking
engagements or teach on a part-time basis at educational institutions; and (iii)
make investments in businesses or enterprises and manage his personal
investments; provided that with respect to such activities, Executive shall
comply with all applicable laws and any business conduct and ethics policy
applicable to employees of the Company.

      2. Term. The term of this Agreement shall commence on January 5, 2004 (the
"Commencement Date"), and shall terminate on January 5, 2006, unless extended or
earlier terminated in accordance with the terms of this Agreement (the
"Termination Date"). Such term of employment is herein sometimes referred to
herein as the "Employment Term". The Employment Term shall be extended for
successive one year periods unless either party notifies the other in writing at
least 90 days before the Termination Date, or any anniversary of the Termination
Date, as the case may be, that he or it chooses not to extend the Employment
Term. If the Company chooses not to extend the Employment Term, the Executive
shall be paid an amount equal to the product of twelve (12) times the Monthly
Salary Amount (as defined below), the continuation of his car allowance and
medical benefits for the 12 months following the end of the term of the
Agreement, contingent upon receipt by the Company of a signed Agreement and
Release by the Executive.

      3. Compensation. As compensation for performing the services required by
this Agreement, and during the Employment Term, the Executive shall be
compensated as follows:

            (a) Base Compensation. The Company shall pay to the Executive an
annual salary ("Base Compensation") of $230,000, payable in equal installments
pursuant to the


                                       2


Company's customary payroll procedures in effect for its executive personnel at
the time of payment, but in no event less frequently than monthly, subject to
withholding for applicable federal, state and local income and employment
related taxes. The Executive may be entitled to such increases in Base
Compensation with respect to each calendar year during the Employment Term, as
shall be determined by the Compensation Committee of the Board (the
"Committee"), in its sole and absolute discretion, based on an annual review of
the Executive's performance.

            (b) Incentive Compensation. In addition to Base Compensation, the
Executive may be entitled to receive additional compensation ("Incentive
Compensation") in the discretion of the Committee. The Incentive Compensation
shall be pursuant to short-term and/or long-term incentive compensation programs
which currently exist or may be established by the Company. For purposes of this
Agreement, the Executive's "Pro Rata Share" of Incentive Compensation for any
calendar year shall be a fraction whose numerator shall be equal to the number
of months (or parts of months) during which the Executive was actually employed
by the Company during any such calendar year and whose denominator shall be the
total number of months in such calendar year. The current ICP program is set at
0-125% of base salary with a 100% target. These targets are subject to change at
the discretion of the Compensation Committee of the Board of Directors.

            (c) Sign-On Bonus. In addition to Base Compensation, the Company
shall pay to the Executive within the first thirty days following the
Commencement Date the sum of $20,000, subject to withholding for applicable
federal, state and local income and employment related taxes.

            (d) Sign-On Stock Option. The Executive will be granted an option to
purchase 10,000 shares of the Company's common stock upon approval by the
Committee within the first thirty days following the Commencement Date. The
price of option will be determined by the closing market price of the Company's
common stock on the day the Executive's employment begins with the Company. The
option will vest in one-third increments over three years.

            (e) Financial Planning Program. The executive is eligible for the
Company's Financial Planning Program (AYCO).

      4. Employee Benefits. During the Employment Term and subject to the
limitations set forth in this Section 4, the Executive and his eligible
dependents shall have the right to


                                       3


participate in any retirement plans (qualified and non-qualified), pension,
insurance, health, disability or other benefit plan or program that has been or
is hereafter adopted by the Company (or in which the Company participates),
according to the terms of such plan or program, on terms no less favorable than
the most favorable terms granted to senior executives of the Company.

      5. Vacation and Leaves of Absence. The Executive shall be entitled to the
normal and customary amount of paid vacation provided to senior executive
officers of the Company, but in no event less than 20 days during each 12 month
period, beginning on the Commencement Date of this Agreement. Any vacation days
that are not taken in a given 12 month period shall not accrue or carry-over
from year to year. Upon any termination of this Agreement for any reason
whatsoever, accrued and unused vacation for the year in which this Agreement
terminates will be paid to the Executive within 10 days of such termination
based on his annual rate of Base Compensation in effect on the date of such
termination. In addition, the Executive may be granted leaves of absence with or
without pay for such valid and legitimate reasons as the Company in its sole and
absolute discretion may determine, and the Executive shall be entitled to the
same sick leave and holidays provided to other senior executives of the Company.

      6. Expenses.

            (a) Business Expenses. The Executive shall be promptly reimbursed
against presentation of vouchers or receipts for all reasonable and necessary
expenses incurred by him in connection with the performance of his duties
hereunder.

            (b) Automobile Expense. During the Employment Term, in order to
facilitate the performance of the Executive's duties hereunder, and otherwise
for the convenience of the Company, the Company (a) (i) shall reimburse the
Executive for the cost of leasing an automobile consistent with the Executive
Vice President car benefit described in the Company's Car Benefit Program as of
December 2002 or (ii) shall pay the Executive $850.00 per month and (b) shall
pay or reimburse Executive (upon presentation of vouchers or receipts) for the
reasonable cost of all maintenance, insurance, repairs and other reasonable
expenses related to such automobile (the "Automobile Benefit"). The Executive
hereby agrees that a new lease for an automobile will not be executed until the
Executive's existing lease term has expired.

      7. Indemnification.


                                       4


            (a) General. The Company agrees that if the Executive is made a
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that she is or was a director or officer of the Company, is
or was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee
or agent while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent authorized by applicable law (in accordance with the certificate of
incorporation and/or bylaws of the Company), as the same exists or may hereafter
be amended, against all Expenses (as defined below) incurred or suffered by the
Executive in connection therewith, and such indemnification shall continue as to
the Executive even if the Executive has ceased to be an officer, director or
agent, or is no longer employed by the Company and shall inure to the benefit of
his heirs, executors and administrators.

            (b) Expenses. As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.

            (c) Enforcement. If a claim or request under this Agreement is not
paid by the Company, or on its behalf, within fifteen days after a written claim
or request has been received by the Company, the Executive may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Executive shall be
entitled to be paid also the expenses of prosecuting such suit. The burden of
proving that the Executive is not entitled to indemnification for any reason
shall be upon the Company.

            (d) Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Executive.


                                       5


            (e) Partial Indemnification. If the Executive is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Executive for the portion of such
Expenses to which the Executive is entitled.

            (f) Advances of Expenses. Expenses incurred by the Executive in
connection with any Proceeding shall be paid by the Company in advance upon
request of the Executive that the Company pay such Expenses.

            (g) Notice of Claim. The Executive shall give to the Company notice
of any claim made against him for which indemnity will or could be sought under
this Agreement. In addition, the Executive shall give the Company such
information and cooperation as it may reasonably require and as shall be within
the Executive's power and at such times and places as are reasonable for the
Executive.

            (h) Defense of Claim. With respect to any Proceeding as to which the
Executive notifies the Company of the commencement thereof: (i) the Company will
be entitled to participate therein at its own expense; and (ii) except as
otherwise provided below, to the extent that it may wish, the Company jointly
with any other indemnifying party similarly notified will be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the Executive. The
Company shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Company or as to which the Executive
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Executive in the conduct of the defense of such action.

                  The Company shall not be liable to indemnify the Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the
Executive without Executive's written consent. Neither the Company nor the
Executive shall unreasonably withhold or delay their consent to any proposed
settlement.

            (i) Non-exclusivity. The right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in this Section 7 shall not be exclusive of any other right which the
Executive may have or hereafter may acquire


                                       6


under any statute, provision of the certificate of incorporation or bylaws of
the Company, agreement, vote of stockholders or disinterested directors or
otherwise.

            (j) Directors and Officers Liability Policy. The Company agrees to
use reasonable efforts to maintain directors and officers liability insurance
covering the Executive in a reasonable and adequate amount determined by the
Company.

      8. Termination and Termination Benefits.

            (a) Termination by the Company.

                  (i) For Cause. Notwithstanding any provision contained herein,
the Company may terminate this Agreement at any time during the Employment Term
for "Cause". For purposes of this subsection 8(a)(i), "Cause" shall mean (1) the
continuing failure by the Executive to perform his duties hereunder for any
reason other than total or partial incapacity due to physical or mental illness,
or (2) gross negligence or gross malfeasance on the part of the Executive in the
performance of his duties hereunder that causes material harm to the Company.
Termination pursuant to this subsection 8(a)(i) shall be effective immediately
upon giving the Executive written notice thereof stating the reason or reasons
therefor with respect to clause (2) above, and 15 days after written notice
thereof from the Company to the Executive specifying the acts or omissions
constituting the failure and requesting that they be remedied with respect to
clause (1) above, but only if the Executive has not cured such failure within
such 15 day period. In the event of a termination pursuant to this subsection
8(a)(i), the Executive shall be entitled to payment of his Base Compensation and
the benefits pursuant to Section 4 hereof up to the effective date of such
termination and it is also the intention and agreement of the Company that
Executive shall not be deprived by reason of termination for Cause of any
payments, options or benefits which have been vested or have been earned or to
which Executive is entitled as of the effective date of such termination.

                  (ii) Disability. If due to illness, physical or mental
disability, or other incapacity, the Executive shall fail, for a total of any
six consecutive months ("Disability"), to substantially perform the principal
duties required by this Agreement, the Company may terminate this Agreement upon
30 days' written notice to the Executive. In such event, the Executive shall be
(1) paid his Base Compensation until the Termination Date and his Pro Rata Share
of any Incentive Compensation to which she would have been entitled for the year
in which such


                                       7


termination occurs, and (2) provided with employee benefits pursuant to Section
4, to the extent available, for the remainder of the Employment Term; provided,
however, that any compensation to be paid to the Executive pursuant to this
subsection 8(a)(ii) shall be offset against any payments received by the
Executive pursuant to any policy of disability insurance the premiums of which
are paid for by the Company.

            (b) Termination Without Cause or Termination For Good Reason. The
Company may terminate the Executive's employment hereunder without Cause and the
Executive may terminate his employment hereunder for "Good Reason" (as defined
below). If the Company terminates the Executive's employment hereunder without
Cause, other than due to death or Disability, or if the Executive terminates his
employment for Good Reason, the Executive shall be paid (contingent upon receipt
by the Company of a signed Agreement and General Release by the Executive): (i)
his Base Compensation at the rate in effect at the time of termination through
the Termination Date; (ii) his Pro Rata Share of any Incentive Compensation to
which she would have been entitled for the year in which such termination
occurs; (iii) a lump sum payment equal to the product of twelve (12) times the
"Monthly Salary Amount"; (iv) any vested deferred compensation (including,
without limitation, interest or other credits on the deferred amounts) and any
accrued vacation pay; (v) continuation, until the expiration of the Employment
Term and for twelve months thereafter, of the health and welfare benefits of the
Executive and any long-term disability insurance generally provided to senior
executives of the Company (as provided for by Section 4 of this Agreement) (or
the Company shall provide the economic equivalent thereof); provided, however,
if the Executive obtains new employment and such employment makes the Executive
eligible for health and welfare or long-term disability benefits which are equal
to or greater in scope then the benefits then being offered by the Company, then
the Company shall no longer be required to provide such benefits to the
Executive; (vi) continuation, until the expiration of the Employment Term and
for twelve months thereafter, of the Automobile Benefit; and (vii) any other
compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans or programs of the Company; provided,
however, if the Executive terminates his employment for Good Reason pursuant to
subsection (e) thereof (reasons relating to a Change of Control), the Executive
shall be entitled to a lump sum payment equal to the product of thirty-six (36)
times the "Monthly Salary Amount".


                                       8


            As used herein, "Monthly Salary Amount" shall mean an amount equal
to one-twelfth of the sum of (y) the Executive's then current annual Base Salary
plus (z) the average cash incentive compensation paid to the Executive each year
during the three years immediately preceding the termination date.

            As used herein, "Good Reason" means and shall be deemed to exist if,
without the prior express written consent of the Executive, (a) the Company
breaches this Agreement in any material respect; (b) the Company fails to obtain
the full assumption of this Agreement by a successor; (c) the Company fails to
use its reasonable best efforts to maintain, or cause to be maintained directors
and officers liability insurance coverage for the Executive; (d) the Company
purports to terminate the Executive's employment for Cause and such purported
termination of employment is not effected in accordance with the requirements of
this Agreement, or (e) of within two years following the occurrence of a Change
in Control (i) the Executive suffers an adverse change in his status, title,
position or responsibilities, (ii) the Executive suffers a reduction in his base
salary, (iii) the Executive suffers an adverse change in his working conditions,
or (iv) the Company breaches any material provision of this Agreement; provided,
however, that with respect to items (a) through (d) above, within 30 days of
written notice of termination by the Executive, the Company has not cured, or
commenced to cure, such failure or breach.

            For purposes of this Agreement, a "Change of Control" shall mean (1)
any merger by the Company into another corporation or corporations which results
in the stockholders of the Company immediately prior to such transaction owning
less than 55% of the surviving Corporation; (2) any acquisition (by purchase,
lease or otherwise) of all or substantially all of the assets of the Company by
any person, corporation or other entity or group thereof acting jointly; (3) the
acquisition of beneficial ownership, directly or indirectly, of voting
securities of the Company (defined as Common Stock of the Company or any
securities having voting rights that the Company may issue in the future) and
rights to acquire voting securities of the Company (defined as including,
without limitation, securities that are convertible into voting securities of
the Company (as defined above) and rights, options warrants and other agreements
or arrangements to acquire such voting securities) by any person, corporation or
other entity or group thereof acting jointly, in such amount or amounts as would
permit such person, corporation or other entity or group thereof acting jointly
to elect a majority of the members of the Board of the Company, as


                                       9


then constituted; or (4) the acquisition of beneficial ownership, directly or
indirectly, of voting securities and rights to acquire voting securities having
voting power equal to 25% or more of the combined voting power of the Company's
then outstanding voting securities by any person, corporation or other entity or
group thereof acting jointly unless such acquisition as is described in this
part (4) is expressly approved by resolution of the Board of the Company passed
upon affirmative vote of not less than a majority of the Board and adopted at a
meeting of the Board held not later than the date of the next regularly
scheduled or special meeting held following the date the Company obtains actual
knowledge of such acquisition (which approval may be limited in purpose and
effect solely to affecting the rights of Employee under this Agreement).
Notwithstanding the preceding sentence, (i) any transaction that involves a mere
change in identity form or place of organization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, or a transaction
of similar effect, shall not constitute a Change in Control.

            (c) Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided or maintained by the
Company and for which the Executive may qualify, nor shall anything herein limit
or otherwise prejudice such rights as the Executive may have under any other
existing or future agreements with the Company. Except as otherwise expressly
provided for in this Agreement, amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plans or programs of the
Company at or subsequent to the date of termination shall be payable in
accordance with such plans or programs.

            (d) Vesting of Stock Grants and Stock Options. In the event of any
termination of this Agreement, Executive's rights with regard to any stock
grants, loan agreements or stock options shall be as set forth in the respective
agreement containing the terms and conditions pertaining thereto.
Notwithstanding the foregoing, in the event that the Executive is terminated for
reasons other than for "Cause" or in the event the Executive terminates this
Agreement for "Good Reason", any stock options then held by the Executive shall
immediately vest in the Executive; provided, however, all stock options then
held by the Executive shall expire and/or terminate 90 days after the date this
Agreement is terminated.


                                       10


            (e) Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event that it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986 or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (an "Excise Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Excise Gross-Up Payment and any ordinary income tax on the
Excise Gross-Up Payment, in order to put the Executive in the same net after-tax
position as if the payment were not subject to any Excise Tax. Subject to the
provisions of this Section 8(e), all determinations required to be made
hereunder, including whether an Excise Gross-Up Payment is required and the
amount of such Excise Gross-Up Payment, shall be made by PricewaterhouseCoopers
LLP or such other accounting firm which at the time audits the financial
statements of the Company (the "Accounting Firm") at the sole expense of the
Company, which shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the date of termination of
the Executive's employment under this Agreement, if applicable, or such earlier
time as is requested by the Company.

      If the Accounting Firm determines that no Excise Tax is payable by the
Executive, the Company shall use its reasonable best efforts to cause the
Accounting Firm to furnish the Executive with an opinion that she has
substantial authority not to report any Excise Tax on his federal income tax
return. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Excise Gross-Up Payments, which
will not have been made by the Company, should have been made (an
"Underpayment") consistent with the calculations required to be made hereunder.
If the Company exhausts its remedies pursuant hereto and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such


                                       11


Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

      The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Excise Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall: (i) give the Company
any information reasonably requested by the Company relating to such claim; (ii)
take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including (without limitation)
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company; (iii) cooperate with the Company in good
faith to contest effectively such claim; and (iv) permit the Company to
participate in any proceedings relating to such claim; provided that the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions hereof the Company shall control
all proceedings taken in connection with such contest and, at its sole option,
may pursue or forgo any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine, provided that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an


                                       12


after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance, and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which an Excise Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.

      If, after the receipt by the Executive of an amount advanced by the
Company pursuant hereto, the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements hereof) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant hereto, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Excise Gross-Up Payment required to be paid.

            (f) Death Benefit. Notwithstanding any other provision of this
Agreement, this Agreement shall terminate on the date of the Executive's death.
In such event the Company shall pay Executive's Base Compensation to his wife,
if she survives him, or, if she does not survive him, to his estate, through the
Termination Date. In addition, the Company shall pay to Executive's wife, if she
survives him, or, if she does not survive him, to his estate, the Pro Rata Share
of any Incentive Compensation to which Executive would have been entitled for
the year in which such death occurs.

            (g) Payment. Except as otherwise provided in this Agreement, any
payments to which the Executive shall be entitled under this Section 8,
including, without limitation, any economic equivalent of any benefit, shall be
made as promptly as possible following the date of


                                       13


termination. If the amount of any payment due to the Executive cannot be finally
determined within 90 days after the Date of Termination, such amount shall be
estimated on a good faith basis by the Company and the estimated amount shall be
paid no later than 90 days after such Date of Termination. As soon as
practicable hereafter, the final determination of the amount due shall be made
and any adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.

            (h) No Mitigation. The Executive shall not be required to mitigate
the amount of any payments provided for by this Agreement by seeking employment
or otherwise, nor shall the amount of any payment or benefit provided in this
Agreement be reduced by any compensation or benefit earned by the Executive
after termination of his employment.

      9. Company Property. All advertising, promotional, sales, suppliers,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or at or after the termination of the Executive's employment,
the Executive shall immediately deliver the same to the Company.

      10. Covenant Not To Compete.

            (a) Covenants Against Competition. The Executive acknowledges that
as of the execution of this Employment Agreement (i) the Company, as part of its
business, is engaged in the business of providing the outsource sales and
marketing and marketing research services to the pharmaceutical, medical device
and diagnostics and biotechnology industries (the "Business"); (ii) the
Company's Business is conducted currently throughout the United States and may
be expanded to other locations; (iii) his employment with the Company will have
given him access to confidential information concerning the Company; (iv)
"Competitors" for the purpose of this agreement include firms that compete in
the Contract Sales Organizations markets and include but are not limited to
Innovex, Ventive, Nelson, and Cardinal Health's outsourced Sales Services
Business (the list of competitive firms may change based on the job scope of the
executive


                                       14


AND/OR changes to PDI's competitive peer group); and (v) the agreements and
covenants contained in this Agreement are essential to protect the business and
goodwill of the Company. Accordingly, the Executive covenants and agrees as
follows:

                  (i) Non-Compete. Without the prior written consent of the
Board, the Executive shall not during the Restricted Period (as defined below)
within the Restricted Area (as defined below) (except in the Executive's
capacity as an officer of the Company or any of its affiliates), (a) engage or
participate in the Business; (b) enter the employ of, or render any services
(whether or not for a fee or other compensation) to, any Competitor engaged in
the Business; or (c) acquire an equity interest in any such person; provided,
however, that such restriction shall not apply to any persons which do not have
products which compete with the Company's products at the time that such
Employee engages, participates, enters the employ of, or renders service to any
person engaged in the Business during the Restricted Period or with products
that the Company at the time of such Termination is in the process of
negotiating to market, license and/or acquire. The foregoing restrictions shall
not apply at any time if the Executive's employment is terminated during the
Term by the Executive for Good Reason; provided, however, that during the
Restricted Period the Executive may own, directly or indirectly, solely as a
passive investment, securities of any company traded on any national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System.

                  As used herein, "Restricted Period" shall mean the period
commencing on the Commencement Date and ending on the second anniversary of the
Executive's termination of employment.

                  "Restricted Area" shall mean any place within the United
States and any other country in which the Company is then actively considering
conducting Business.

            (b) Confidential Information; Personal Relationships. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and has invested
substantial sums and will continue to invest substantial sums to develop,
maintain and protect confidential information. The Executive agrees that, during
and after the Restricted Period, without the prior written consent of the Board,
the Executive shall keep secret and retain in strictest confidence, and shall
not knowingly use for


                                       15


the benefit of himself or others any and all confidential matters relating to
the Company's Business including, without limitation, operational methods,
marketing or development plans or strategies, business acquisition plans, joint
venture proposals or plans, and new personnel acquisition plans, learned by the
Executive heretofore or hereafter (such information shall be referred to herein
collectively as "Confidential Information"); provided, that nothing in this
Agreement shall prohibit the Executive from disclosing or using any Confidential
Information (A) in the performance of his duties hereunder, (B) as required by
applicable law, (C) in connection with the enforcement of his rights under this
Agreement or any other agreement with the Company, or (D) in connection with the
defense or settlement of any claim, suit or action brought or threatened against
the Executive by or in the right of the Company. Notwithstanding any provision
contained herein to the contrary, the term Confidential Information shall not be
deemed to include any general knowledge, skills or experience acquired by the
Executive or any knowledge or information known or available to the public in
general. Moreover, the Executive shall be permitted to retain copies of, or have
access to, all such Confidential Information relating to any disagreement,
dispute or litigation (pending or threatened) involving the Executive.

            (c) Employees of the Company and its Affiliates. During the
Restricted Period, without the prior written consent of the Board, the Executive
shall not, directly or indirectly, hire or solicit, or cause others to hire or
solicit, for employment by any person other than the Company or any affiliate or
successor thereof, any employee of, or person employed within the two years
preceding the Executive's hiring or solicitation of such person by, the Company
and its affiliates or successors or encourage any such employee to leave his
employment. For this purpose, any person whose employment has been terminated
involuntarily by the Company shall be excluded from those persons protected by
this Section for the benefit of the Company.

            (d) Business Relationships. During the Restricted Period, the
Executive shall not, directly or indirectly, request or advise a person that has
a business relationship with the Company to curtail or cancel such person's
business relationship with the Company.

            (e) Rights and Remedies Upon Breach. If the Executive breaches,
threatens to commit a breach of, any of the provisions contained in Section 10
of this Agreement (the "Restrictive Covenants"), the Company shall have the
following rights and remedies, each of


                                       16


which rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity.

                  (i) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company.

                  (ii) Accounting. The right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Executive as
the result of any action constituting a breach of Restrictive Covenants.

            (f) Severability of Covenants. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in duration and
geographical scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect without regard to the invalid portions. The
provisions set forth in Section 10 above shall be in addition to any other
provisions of the business conduct and ethics policy applicable to employees of
the Company and its subsidiaries during the Employment Term.

            (g) Saving Clause. If the period of time or the area specified in
subsection (a) above should be adjudged unreasonable in any proceeding, then the
period of time shall be reduced by such number of months or the area shall be
reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If the Executive violates any of the restrictions contained in the
foregoing subsection (a), the restrictive period shall not run in favor of the
Executive from the time of the commencement of any such violation until such
time as such violation shall be cured by the Executive to the satisfaction of
Company.

      11. Executive's Representation and Warranties. Except for an Employment
and Confidentiality Agreement with Cardinal 401 and Cardinal Health, Inc., which
contains restrictions on Executive, the Executive represents and warrants that
he has the full right and authority to enter into this Agreement and fully
perform his obligations hereunder, that he is not


                                       17


subject to any non-competition agreement other than with the Company, and that
his past, present and anticipated future activities have not and will not
infringe on the proprietary rights of others. Executive further represents and
warrants that he is not obligated under any contract (including, but not limited
to, licenses, covenants or commitments of any nature) or other agreement or
subject to any judgment, decree or order of any court or administrative agency
which would conflict with his obligation to use his best efforts to perform his
duties hereunder or which would conflict with the Company's business and
operations as presently conducted or proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as officer and employee by Executive will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument to which Executive is currently a party.

      12. Miscellaneous.

            (a) Integration; Amendment. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters set forth
herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.

            (b) Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.

            (c) Waivers. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy hereunder, and any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right, power, or
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to other or further notice or demand in
similar or other circumstances.


                                       18


            (d) Power and Authority. The Company represents and warrants to the
Executive that it has the requisite corporate power to enter into this Agreement
and perform the terms hereof; that the execution, delivery and performance of
this Agreement by it has been duly authorized by all appropriate corporate
action; and that this Agreement represents the valid and legally binding
obligation of the Company and is enforceable against it in accordance with its
terms.

            (e) Burden and Benefit; Survival. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and assigns. In
addition to, and not in limitation of, anything contained in this Agreement, it
is expressly understood and agreed that the Company's obligation to pay
termination compensation as set forth herein shall survive any termination of
this Agreement.

            (f) Governing Law; Headings. This Agreement and its construction,
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of New Jersey, without regard to its
conflicts of law provisions. Headings and titles herein are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.

            (g) Arbitration; Remedies. Any dispute or controversy arising under
this Agreement or as a result of or in connection with Executive's employment
(other than disputes arising under Section 10) shall be arbitrated and settled
pursuant to the National Rules for the Resolution of Employment Disputes of the
American Arbitration Association which are then in effect in a proceeding held
in Bergen County, New Jersey. This provision shall also apply to any and all
claims that may be brought under any federal or state anti-discrimination or
employment statute, rule or regulation, including, but not limited to, claims
under: the National Labor Relations Act; Title VII of the Civil Rights Act;
Sections 1981 through 1988 of Title 42 of the United States Code; the Employee
Retirement Income Security Act; the Immigration Reform and Control Act; the
Americans With Disabilities Act; the Age Discrimination in Employment Act; the
Fair Labor Standards Act; the Occupational Safety and Health Act; the Family and
Medical Leave Act; and the Equal Pay Act. The decision of the arbitrator and
award, if any, is final and binding on the parties and the judgment may be
entered in any court having jurisdiction thereof.


                                       19


The parties will agree upon an arbitrator from the list of labor arbitrators
supplied by the American Arbitration Association. The parties understand and
agree, however, that disputes arising under Section 10 of this Agreement may be
brought in a court of law or equity without submission to arbitration.

            (h) Jurisdiction. Except as otherwise provided for herein, each of
the parties (a) submits to the exclusive jurisdiction of any state court sitting
in Bergen County, New Jersey or federal court sitting in New Jersey in any
action or proceeding arising out of or relating to this Agreement, (b) agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court, (c) agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court and (d) waives
any right such party may have to a trial by jury with respect to any action or
proceeding arising out of or relating to this Agreement. Each of the parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any other party with respect thereto. Any party may make service
on another party by sending or delivering a copy of the process to the party to
be served at the address and in the manner provided for giving of notices in
Section 12(i). Nothing in this Section, however, shall affect the right of any
party to serve legal process in any other manner permitted by law.

            (i) Notices. All notices called for under this Agreement shall be in
writing and shall be deemed given upon receipt if delivered personally or by
confirmed facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at their respective addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof) as set forth in the preamble to
this Agreement or to any other address or addressee as any party entitled to
receive notice under this Agreement shall designate, from time to time, to
others in the manner provided in this subsection 12(i) for the service of
notices.

            Any notice delivered to the party hereto to whom it is addressed
shall be deemed to have been given and received on the day it was received;
provided, however, that if such day is not a business day then the notice shall
be deemed to have been given and received on the business


                                       20


day next following such day. Any notice sent by facsimile transmission shall be
deemed to have been given and received on the business day next following the
day of transmission.

            (j) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.

      IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.


                                   ---------------------------------------------
                                   ALAN L. RUBINO

                                   PDI, INC.


                                   By:
                                       -----------------------------------------
                                       Steven Budd
                                       President,
                                       Global Sales and Marketing Services Group


                                       21

EX-10.14

                          SADDLE RIVER EXECUTIVE CENTRE
                               ONE ROUTE 17 SOUTH
                            SADDLE RIVER, NEW JERSEY

                              STANDARD OFFICE LEASE

1. Basic Lease Provisions.

     1.1. Parties: This Lease, dated for reference purposes only November 20,
          2003, is made by and between VRS SADDLE RIVER LLC, a Virginia limited
          liability company ("Landlord") and PDI, INC., a Delaware corporation
          ("Tenant"). The Tenant's Employer Identification Number is 22-2919486.

     1.2  Premises: Entire Third (3rd) Floor, portion of the Second (2nd) Floor
          and Entire First (1st) Floor, as shown on Exhibit A attached hereto
          and known as Suite 300.

     1.3. Rentable Area of Premises: Approximately 84,122 rentable square feet,
          consisting of 46,912 rentable square feet on the third (3rd) floor,
          21,190 rentable square feet on the second (2nd) floor and 16,020
          rentable square feet on the first (1st) floor.

     1.4. Building Address: One Route 17 South, Saddle River, Bergen County, New
          Jersey.

     1.5. Use: General administrative office use, subject to the requirements
          and limitations contained in Section 7.

     1.6. Term: Approximately twelve (12) years commencing on the Commencement
          Date, as defined below and expiring January 31, 2016, unless sooner
          terminated pursuant to the Term of the Lease.

     1.7. Possession Date/Commencement Date:

          a. Possession Date: The date that Landlord delivers possession of the
          Premises to Tenant for purposes of Tenant constructing the
          Improvements, as more particularly described in Schedule 1 attached
          hereto with Landlord's Work, as defined in Schedule 1-A, Substantially
          Completed, which is estimated to be on or about the date which is
          sixty (60) days following the date on which this Lease is executed by
          both Landlord and Tenant, whichever signs later.

          b. Commencement Date: The date Tenant commences the conduct of its
          business from the Premises.

          The period between the Possession Date and the Commencement Date shall
          be referred to herein as the Construction Period, as more particularly
          defined in Paragraph 4 of Schedule 1-B.

     1.8. Base Rent:

                                           
          Months:   Commencement Date-01/31/06   $24.75 per rentable square foot per annum
                             02/01/06-01/31/09   $25.75 per rentable square foot per annum
                             02/01/09-01/31/12   $26.75 per rentable square foot per annum
                             02/01/12-01/31/14   $27.75 per rentable square foot per annum
                             02/01/14-01/31/16   $28.75 per rentable square foot per annum





                            See Addendum Paragraph 1

     1.9. Base Rent Paid Upon the Commencement Date: Tenant will deposit with
          Landlord the sum of $173,501.62 for the Base Rent due for January,
          2005 and February, 2005.

     1.10. Security Deposit: $2,000,000.00.

                            See Addendum Paragraph 3

     1.11. Tenant's Share (i.e. proportionate share for purposes of Operating
          Expense Increases): 79.39%.

     1.12. Base Year is the calendar year 2004.

     1.13. Number of Parking Spaces: See Addendum Paragraph 6

     1.14. Initial Monthly Parking Rates Per Space: Reserved: $0.00; Unreserved:
          $0.00 .

     1.15. Real Estate Broker(s): Kwartler Associates, Inc. and CB Richard Ellis
          Real Estate Services, Inc.

     1.16. Attachments to Lease: Addendum; Exhibit A - "Premises", Exhibit A-1 -
          "Right of First Refusal Space", Exhibit A-2 - "Parking Plan", Exhibit
          A-3 - "Storage Space", Exhibit B - "Verification Letter", Exhibit C -
          "Rules and Regulations", Exhibit D - "HVAC Specifications", Exhibit E
          - "Cleaning Specifications", Exhibit F - "Building Holidays", Exhibit
          G - "License Agreement for Satellite Dish", Exhibit H - "Form of
          Letter of Credit", Exhibit I - "Memorandum of Lease", Exhibit J -
          "Discharge of Memorandum of Lease", Exhibit K - "Subordination,
          Non-Disturbance and Attornment Agreement", Schedule 1-A - "Landlord's
          Work", Schedule 1-B - "Work Letter Agreement"; Schedule 1-C -
          "Improvements to be removed by Tenant at end of Term", and Schedule
          1-D - "Electric Plans".

     1.17. Address for Notices:

                                                
          Landlord:   VRS Saddle River LLC            With Copy To:
                      c/o Kwartler Associates, Inc.   TA Associates Realty
                      2 North Street                  28 State Street
                      Waldwick, NJ 07463              Boston, MA 02109
                                                      Attn.: Mr. Christopher J. Good

          Tenant:     PDI, Inc.                       With Copy To (subject to the:
                      One Route 17 South              limitations contained in Section 40 below):
                      Saddle River, New Jersey        Greenbaum, Rowe, Smith,
                      Suite 300                       Ravin, Davis & Himmel LLP
                      Attn: Mr. Peter Lynch           Metro Corporate Campus One
                                                      99 Wood Avenue South
                                                      Iselin, New Jersey 08830-2712
                                                      Attn.: Steven C. Delinko, Esq.





     1.18. Agent for Service of Process: If Tenant is a corporation, the name
          and address of Tenant's registered agent for service of process is:

                         National Registered Agents, Inc.
                         9 East Lookerman Street, Suite 1B
                         Dover, Delaware  19901

     1.19. Tenant's Standard Industrial Classification (herein "SIC") Number:
          422990, as determined by reference to the SIC Manual and its
          operations shall consist of the Use described in Section 1.5.



2. Premises.

     2.1 Lease of Premises. The "Project" consists of one (1) building to be
built (hereinafter, the "Building"), the Common Areas (as defined below), the
land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, including all parking facilities. Landlord
hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the
conditions set forth herein, the Premises, together with the non-exclusive right
to use the Common Areas as hereinafter specified. The Premises shall not include
an easement for light, air or view.

     2.2 Calculation of Size of Building and Premises. All provisions included
in this Lease relating to the number of rentable square feet in the Premises,
including, but not limited to, Base Rent and Tenant's Share, shall reflect the
number of rentable square feet in the Premises and in the Building. The
calculation of the number of rentable square feet in the Premises is specified
in Section 1.3 hereinabove.

     2.3 Common Areas-Defined. The term "Common Areas" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
Project that are designated by Landlord from time to time for the general
non-exclusive use of Landlord, Tenant and the other tenants of the Project and
their respective employees, suppliers, customers and invitees, including, but
not limited to, common entrances, lobbies, corridors, stairwells, public
restrooms, elevators, parking areas, loading and unloading areas, roadways and
sidewalks. Landlord may also designate other land and improvements outside the
boundaries of the Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Project.

3. Term.

     3.1 Term and Commencement Date. The Term, Possession Date and Commencement
Date of this Lease are as specified in Sections 1.6 and 1.7. The Possession Date
set forth in Section 1.7 is an estimated Possession Date. Subject to the
limitations contained in Section 3.3 below, the actual Possession Date shall be
the date possession of the Premises is tendered to Tenant for purposes of Tenant
constructing the Improvements in accordance with Section 3.4 below. If the
Commencement Date is other than the first day of a month, then the Term of this
Lease shall commence on the Commencement Date but the Term of the Lease shall be
computed from the first day of the calendar month following the Commencement
Date. When the actual Commencement Date is established by Landlord, Tenant
shall, within five (5) days after Landlord's request, complete and execute the
letter attached hereto as Exhibit "B" (the "Verification Letter") and deliver it
to Landlord. Tenant's failure to execute the Verification Letter within said
five (5) day period shall be a material default hereunder and shall constitute
Tenant's acknowledgment of the truth of the facts contained in the Verification
Letter delivered by Landlord to Tenant. Tenant shall have the right to contest
in good faith the facts set forth in the Verification Letter sent to Tenant by
Landlord. Notwithstanding anything to the contrary contained herein, provided
that Tenant delivers written notice to Landlord stating with specificity the
nature of Tenant's dispute within such five (5) day period referenced above,
then Tenant's failure to execute the Verification Letter within such time period
shall not be considered to be a default hereunder. In the event Tenant delivers
written notice of a dispute regarding the Verification Letter to Landlord
pursuant to this provision, then the parties agree to negotiate in good faith in
order to resolve the dispute. If the parties are unable to come to an agreement
regarding the facts of the Verification Letter within thirty (30) days following
the date on which Tenant delivered its notice of dispute to Landlord, then the
matter shall be submitted to arbitration in accordance with the rules of the
American Arbitration Association, in a venue which is nearest to the location of
the Premises and mutually agreed upon by Landlord and Tenant.



     3.2 Delay in Possession. Notwithstanding the estimated Possession Date
specified in Section 1.7, if for any reason Landlord cannot deliver possession
of the Premises to Tenant on said date, Landlord shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Tenant hereunder or extend the Term hereof. If Landlord shall
not have tendered possession of the Premises to Tenant within one hundred twenty
(120) days following the estimated Possession Date specified in Section 1.7 for
any reason including a Force Majeure Event as hereinafter defined, Tenant may,
at Tenant's option, by notice in writing to Landlord within ten (10) days after
the expiration of the one hundred twenty (120) day period, terminate this Lease.
If Tenant terminates this Lease as provided in the preceding sentence, the
parties shall be discharged from all obligations hereunder, except that Landlord
shall return any money previously deposited with Landlord by Tenant. A Force
Majeure Event shall mean fire, earthquake, weather delays or other acts of God,
strikes, boycotts, war, riot, insurrection, embargoes, shortages of equipment,
labor or materials, delays in issuance of governmental permits or approvals, or
any other cause beyond the reasonable control of Landlord.

     3.3 Delays Caused by Tenant. [Intentionally omitted].

     3.4 Tender of Possession. Possession of the Premises shall be deemed
tendered to Tenant when Landlord's architect or agent has determined that (a)
Landlord's Work, as defined in Schedule 1-A is



substantially completed, (b) the Project utilities are ready for use in the
Premises, and (c) Tenant has reasonable access to the Premises.

     3.5 Early Possession. [Intentionally omitted].

4. Rent.

     4.1 Base Rent. Subject to adjustment as hereinafter provided in Section 5
of the Lease, Tenant shall pay to Landlord the Base Rent for the Premises set
forth in Section 1.8, without offset or deduction on the first day of each
calendar month commencing January 1, 2005. Tenant shall deposit with Landlord
the advance Base Rent described in Section 1.9 in accordance with Addendum
Paragraph 1. Base Rent for any period during the Term hereof which is for less
than one month shall be prorated based upon the actual number of days of the
calendar month involved. Base Rent and all other amounts payable to Landlord
hereunder shall be payable to Landlord in lawful money of the United States at
the address stated herein or to such other persons or at such other places as
Landlord may designate in writing.

                            See Addendum Paragraph 1

5. Adjustments in Rent (also referred to as "Additional Rent").

     5.1 Operating Expense Increases. Tenant shall pay to Landlord during the
Term hereof, in addition to the Base Rent, Tenant's Share of the amount by which
all Operating Expenses for each Comparison Year exceeds the amount of all
Operating Expenses for the Base Year. The Operating Expenses for the Base Year
shall be adjusted, if necessary, to a level of that of a 95% occupied and fully
operational office building at cost levels prevailing in the geographic market
in which the Building is located for an entire calendar year. This adjustment
shall include (a) when Building systems are under warranty during the Base Year,
an adjustment for the cost of service contracts and other expenses that would
have been incurred in the absence of such warranties; (b) an adjustment for all
other expenses that are not incurred if the Building is new and start-up
discounts or similar savings have been achieved; and (c) adjustments for all
other atypical costs that occur or do not occur during the Base Year other than
those costs which would occur in the Base Year in the ordinary course of
business. The purpose of these adjustments is to include in the Operating
Expenses for the Base Year all reasonable cost components that occur or are
likely to occur in later years. If a new category of expense is incurred after
the Base Year, the first full year's expense for such item shall be added to the



Building Operating Expenses for the Base Year commencing with the first full
calendar year that such expense is incurred, so that Tenant shall only be
required to pay subsequent increases in such expense. The expense incurred for
such item during the first year shall be subject to the adjustments described in
this paragraph.

     Tenant's Share of Operating Expense increases shall be determined in
accordance with the following provisions:

          (a) "Base Year" as used in this Section 5, shall mean the calendar
year (January through December) set forth in Section 1.12. "Base Year Expenses"
shall mean the Operating Expenses for the Base Year (as grossed up pursuant to
Section 5.1 above).

          (b) "Tenant's Share" is defined as the percentage set forth in Section
1.11, which percentage has been determined by dividing the number of rentable
square feet attributed to the Premises by the total number of rentable square
feet in the Building and multiplying the resulting quotient by one hundred
(100). In the event that the number of rentable square feet in the Building or
the Premises changes, Tenant's Share shall be adjusted in the year the change
occurs, and Tenant's Share for such year shall be determined on the basis of the
days during such year that each Tenant's Share was in effect.

          (c) "Comparison Year" is defined as each calendar year during the Term
of this Lease subsequent to the Base Year. "Comparison Expenses" are those
Operating Expenses occurring during a Comparison Year, to be compared to Base
Year Expenses. Tenant's Share of the Operating Expense increases for the last
Comparison Year of the Term shall be prorated according to that portion of such
Comparison Year as to which Tenant is responsible for a share of such increase.

          (d) "Operating Expenses" shall include all costs, expenses and fees
incurred by Landlord in connection with or attributable to the Project,
including but not limited to, the following items: (i) all costs, expenses and
fees associated with or attributable to the ownership, management, operation,
repair, maintenance, improvement, alteration and replacement of the Project, or
any part thereof, including but not limited to, the following: (A) all surfaces,
coverings, decorative items, carpets, drapes, window coverings, parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, stairways,
landscaped areas, striping, bumpers, irrigation systems, lighting facilities,
building exteriors and roofs, fences and gates; (B) all heating, ventilating and
air conditioning equipment ("HVAC"), plumbing, mechanical, electrical systems,
life safety systems and equipment, telecommunication equipment, elevators,
escalators, tenant directories, fire detection systems including sprinkler
system maintenance and repair; (ii) the cost of trash disposal, janitorial
services and security services and systems; (iii) the cost of all insurance
purchased by Landlord and enumerated in Section 9 of this Lease, including any
deductibles; (iv) the amount of the real property taxes to be paid by Landlord
under Section 5.2 hereof; (v) the cost of water, sewer, gas, electricity, and
other utilities available at the Project and paid by Landlord; (vi) the cost of
labor, salaries and applicable fringe benefits incurred by Landlord; (vii) the
cost of materials, supplies and tools used in managing, maintaining and/or
cleaning the Project; (viii) the cost of accounting fees, management fees, legal
fees and consulting fees attributable to the ownership, operation, management,
maintenance and repair of the Project plus the cost of any space occupied by the
property manager and leasing agent (if Landlord is the property manager,
Landlord shall be entitled to receive a fair market management fee); (ix) the
cost of replacing and/or adding improvements mandated by any law, statute,
regulation or directive of any governmental agency and any repairs or removals
necessitated thereby; (x) personal property taxes imposed upon the fixtures,
machinery, equipment, furniture and personal property used in connection with
the operation of the Project; (xi) payments made by Landlord under any easement,
license, operating agreement, declaration, restrictive covenant, or instrument
pertaining to the payment or sharing of costs among property owners; and (xii)
the cost of any other service provided by Landlord or any cost that is elsewhere
stated in this Lease to be an "Operating Expense." Landlord shall have the right
but not the obligation, from time to



time, to equitably allocate some or all of the Operating Expenses among
different tenants of the Project (the "Cost Pools"). Such Cost Pools may
include, but shall not be limited to, the office space tenants of the Project
and the retail space tenants of the Project.

                            See Addendum Paragraph 2

          (e) Operating Expenses shall not include: (i) any expenses paid by any
tenant directly to third parties, or as to which Landlord is otherwise
reimbursed (or entitled to be reimbursed regardless of whether or not Landlord
actually receives such reimbursement) by any third party or by insurance
proceeds; (ii) electricity paid for by any tenant of the Project as described in
Section 11.6 of the Lease; (iii) salaries for Landlord's executives above the
grade of building manager and/or any employee of Landlord not directly involved
with the Project; (iv) costs associated with Landlord's performance of work or
services solely for the benefit of other tenant(s) and not for the benefit of
the Tenant; (v) leasing commissions; and (vi) interest and amortization payments
on any mortgage or mortgages.

          (f) If the cost incurred in making an improvement or replacing any
equipment is not fully deductible as an expense in the year incurred in
accordance with generally accepted accounting principles, the cost shall be
amortized over the useful life of the improvement or equipment, as reasonably
determined by Landlord, together with an interest factor of ten percent (10%)
per annum on the unamortized cost of such item.

          (g) As soon as practicable after each calendar year, Landlord shall
furnish Tenant with a statement (the "Statement") which shall show the
Comparison Expenses for the preceding Comparison Year compared to the Base Year
Expenses. On the same day as the next payment of Base Rent is due following the
furnishing of such Statement: (1) Tenant shall pay to Landlord a sum (the
"Expense Increase") equal to Tenant's Share of the increase, if any, of the
Operating Expenses for the preceding Comparison Year over the Base Year Expenses
as determined by comparing the Comparison Expenses to the Base Year Expenses;
(2) Tenant shall pay to Landlord a sum equal to one-twelfth (1/12th) of the
Expense Increase multiplied by the number of months then elapsed commencing with
the first day of the then current Lease Year; (3) Tenant shall pay, in advance,
one-twelfth (1/12th) of the Expense Increase with respect to the then current
month and thereafter, each and every month, until a different Statement shall be
submitted to Tenant as provided hereinabove. Notwithstanding the above, if the
Landlord shall estimate that any Comparison Year's Operating Expenses shall be
in excess of those for the preceding Comparison Year, then the said monthly
installments of Expense Increase shall be increased to an amount equal to
Tenant's Share of one-twelfth (1/12th) of Landlord's estimate of said Comparison
Expenses. If Tenant's payments under this Section 5.1(g) during said Comparison
Year exceed Tenant's Share as indicated on the Statement, Tenant shall be
entitled to credit the amount of such overpayment against Tenant's Share of
Expense Increases next falling due. If Tenant's payments under this Section
5.1(g) during said Comparison Year were less than Tenant's Share as indicated on
the statement, Tenant shall pay to Landlord the amount of the deficiency within
thirty (30) days after delivery by Landlord to Tenant of the Statement. Landlord
and Tenant shall forthwith adjust between them by cash payment any balance
determined to exist with respect to that portion of the last Comparison Year for
which Tenant is responsible for Expense Increases, notwithstanding that the Term
of the Lease may have terminated before the end of such Comparison Year; and
this provision shall survive the expiration or earlier termination of the Lease.

          (h) The computation of Tenant's Share of Operating Expense increases
is intended to provide a formula for the sharing of costs by Landlord and Tenant
and will not necessarily result in the reimbursement to Landlord of the exact
costs it has incurred.

          (i) If Tenant disputes the amount set forth in the Statement, Tenant
shall have the right, at Tenant's sole expense, not later than one hundred
twenty (120) days following receipt of such Statement, to cause Landlord's books
and records in respect to the



calendar year which is the subject of the Statement to be audited by an
accountant mutually acceptable to Landlord and Tenant. The audit shall take
place at the offices of Landlord where its books and records are located at a
mutually convenient time during Landlord's regular business hours. Before
conducting any audit, Tenant must pay the full amount of Operating Expenses
billed. Tenant shall have no right to conduct an audit or to give Landlord
notice that it desires to conduct an audit at any time Tenant is in default
under the Lease after the expiration of any applicable notice and cure periods.
The accountant conducting the audit shall be compensated on an hourly basis and
shall not be compensated based upon a percentage of overcharges it discovers. No
subtenant shall have any right to conduct an audit, and no assignee shall
conduct an audit for any period during which such assignee was not in possession
of the Premises. Tenant's right to undertake an audit with respect to any
calendar year shall expire one hundred twenty (120) days after Tenant's receipt
of the Statement for such calendar year, and such Statement shall be final and
binding upon Tenant and shall, as between the parties, be conclusively deemed
correct, at the end of such one hundred twenty (120) day period, unless prior
thereto Tenant shall have given Landlord written notice of its intention to
audit Operating Expenses for the calendar year which is the subject of the
Statement. If Tenant gives Landlord notice of its intention to audit Operating
Expenses, it must commence such audit within sixty (60) days after such notice
is delivered to Landlord, and the audit must be completed within one hundred
twenty (120) days after such notice is delivered to Landlord. If Tenant does not
commence and complete the audit within such periods, the Statement which Tenant
elected to audit shall be deemed final and binding upon Tenant and shall, as
between the parties, be conclusively deemed correct. Tenant agrees that the
results of any Operating Expenses audit shall be kept strictly confidential by
Tenant and shall not be disclosed to any other person or entity except Tenant's
agents and consultants on an as-needed basis. If the parties agree to the
results of such audit, Tenant's Share of Operating Expenses shall be
appropriately adjusted based upon the results of such audit, and the results of
such audit shall be final and binding upon Landlord and Tenant. If the parties
do not agree upon the inclusion or amount of any Operating Expense charged by
Landlord, the sole remedy of Tenant shall be to conduct an audit within the time
specified in this Lease and, if still in disagreement with Landlord, to submit
the matter to arbitration within thirty (30) days after completion of the audit
to request an adjustment to any disputed Operating Expense item.

     5.2 Real Property Taxes.

          (a) Landlord shall pay the real property tax, as defined in Section
5.2(b), applicable to the Project, subject to reimbursement by Tenant of
Tenant's Share of increases in such Taxes in accordance with the provisions of
Section 5.1.

          (b) "Real property tax" shall include any form of real property tax or
assessment, general, special, or otherwise, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax levied upon or with respect
to the Building, the Project, and the Land, imposed upon or with respect to the
Building, the Project, and the Land, imposed by Federal, State and/or local
governments, as well as school districts and/or other taxing authorities (but
shall not include income, franchise, capital stock, estate or inheritance taxes
or taxes based upon receipts of rentals, unless the same be in substitution for
or in lieu of a real property tax or assessment), and any personal property
taxes imposed upon the fixtures, machinery, equipment. apparatus, systems and
appurtenances in, upon or used in connection with the Building and the Project
for the operation thereof. However, if, because of any change in the method of
taxation of real property, any other or additional tax or assessment is imposed
upon Landlord or upon or with respect to the Building, the Project, and/or the
Land or the rents or income therefrom, in addition to or in substitution for, or
in lieu of any tax or assessment which would otherwise be a real property tax,
or personal property tax of the type referred to above, such other tax or
assessment



shall also be deemed a real property tax. As used herein, the term "real
property tax" shall be deemed to include "real estate tax".

          (c) Tenant shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or related to Tenant's use of the
Premises. If any of Tenant's personal property shall be assessed with Landlord's
real property, Tenant shall pay to Landlord the taxes attributable to Tenant
within ten (10) days after receipt of a written statement from Landlord setting
forth the taxes applicable to Tenant's property.

          (d) From time to time Landlord may challenge the assessed value of the
Project as determined by applicable taxing authorities and/or Landlord may
attempt to cause the real property taxes to be reduced on other grounds. If
Landlord is successful in causing the real property taxes to be reduced or in
obtaining a refund, rebate, credit or similar benefit (hereinafter collectively
referred to as a "reduction"), Landlord shall, to the extent practicable, credit
the reduction(s) to real property taxes for the calendar year to which a
reduction applies and recalculate the Expense Increases owed by Tenant for years
after the year in which the reduction applies based on the reduced real property
taxes (if a reduction applies to Tenant's Base Year, the Base Year Expenses
shall be reduced by the amount of the reduction and Tenant's Share of Expense
Increases shall be recalculated for all Comparison Years following the year of
the reduction based on the lower Base Year amount). All costs incurred by
Landlord in obtaining the real property taxes reductions shall be considered an
Operating Expense and Landlord shall determine, in its sole discretion to which
years any reductions will be applied. In addition, all accounting and related
costs incurred by Landlord in calculating new Base Years for tenants and in
making all other adjustments shall be an Operating Expense.

6. Security Deposit. Tenant shall deliver to Landlord at the time it executes
this Lease the security deposit set forth in Section 1.10 as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails
to pay Base Rent or other charges due hereunder, or otherwise defaults with
respect to any provision of this Lease and such default continues after the
expiration of any applicable notice and cure periods, Landlord may use all or
any portion of said deposit for the payment of any Base Rent or other charge due
hereunder, to pay any other sum to which Landlord may become obligated by reason
of Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of said deposit, Tenant shall within ten (10) days after written demand therefor
deposit cash with Landlord in an amount sufficient to restore said deposit to
its full amount. Landlord shall not be required to keep said security deposit
separate from its general accounts. If Tenant performs all of Tenant's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Landlord, shall be returned, without payment of interest or
other amount for its use, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) at the expiration of the Term
hereof, and after Tenant has vacated the Premises. No trust relationship is
created herein between Landlord and Tenant with respect to said security
deposit. Tenant acknowledges that the security deposit is not an advance payment
of any kind or a measure of Landlord's damages in the event of Tenant's default.

                            See Addendum Paragraph 3



7. Use.

     7.1 Use. The Premises shall be used and occupied only for the purpose set
forth in Section 1.5 and for no other purpose. If Section 1.5 gives Tenant the
right to use the Premises for general office use, by way of example and not
limitation, general office use shall not include medical office use or any
similar use, laboratory use, classroom use, any use not characterized by
applicable zoning and land use restrictions as general office use, or any use
which would require Landlord or Tenant to obtain a conditional use permit or
variance from any federal, state or local authority. No exclusive use has been
granted to Tenant hereunder.

     7.2 Compliance with Law. Notwithstanding any permitted use inserted in
Section 1.5, Tenant shall not use the Premises for any purpose which would
violate the Project's certificate of occupancy, any conditional use permit or
variance applicable to the Project or violate any covenants, conditions or other
restrictions applicable to the Project. Tenant shall, at Tenant's expense,
promptly comply with all applicable laws, ordinances, rules, regulations,
orders, certificates of occupancy, conditional use permits, variances, covenants
and restrictions of record, and requirements of any fire insurance underwriters,
rating bureaus or government agencies, now in effect or which may hereafter come
into effect, whether or not they reflect a change in policy from that now
existing, during the Term or any part of the Term hereof, relating in any manner
to the Premises and the occupation and use by Tenant of the Premises. Tenant
shall conduct its business and use the Premises in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Project. Tenant shall obtain, at its sole expense, any permit or other
governmental authorization required to operate its business from the Premises.
Landlord shall not be liable for the failure of any other tenant or person to
abide by the requirements of this section or to otherwise comply with applicable
laws and regulations, and Tenant shall not be excused from the performance of
its obligations under this Lease due to such a failure.

     7.3 Condition of Premises. Except as otherwise provided in this Lease,
Tenant hereby accepts the Premises and the Project in their condition existing
as of the Possession Date, subject to all applicable federal, state and local
laws, ordinances, regulations and permits governing the use of the Premises, the
Project's certificate of occupancy, any applicable conditional use permits or
variances, and any easements, covenants or restrictions of record affecting the
use of the Premises or the Project. Tenant shall comply with all federal, state
and local laws and regulations governing occupational safety and health at
Tenant's sole cost and expense. Tenant acknowledges that it has satisfied itself
by its own independent investigation that the Premises and the Project are
suitable for its intended use, and that neither Landlord nor Landlord's agents
has made any representation or warranty as to the present or future suitability
of the Premises, or the Project for the conduct of Tenant's business.
Notwithstanding anything to the contrary contained in this Section 7.3, Landlord
warrants to Tenant that, to the best of Landlord's knowledge, the Building, in
the state existing on the Possession Date, but without regard to alterations or
improvements to be made by Tenant or the use for which Tenant will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such date.
Notwithstanding anything to the contrary contained in Section 7.2 above,
Landlord shall comply with all present and future applicable laws relating to
the Building and the operation of the Building generally as an office building.
Without limiting the generality of the foregoing, Landlord expressly
acknowledges that if, as a result of Tenant's construction of the Improvements
or its occupancy of the Premises, any work must be performed in the lavatories
or other Common Areas or public portions of the Building in order to comply with
ADA, then Landlord at its sole cost and expense shall promptly perform such work
to the extent that (i) the occupancy of the Premises by Tenant for its normal
conduct of business is affected by reason of the Building's failure to comply
with ADA, or (ii) the Landlord receives any notice from a governmental entity
that the Building is not in compliance with the ADA. To the extent



that such notice requires action within the Premises with regard to Tenant's
particular use of the Premises, Tenant shall be obligated to undertake such
action at Tenant's sole cost and expense. If Landlord incurs an expense to
comply with an amendment to the ADA that is enacted after the date of this
Lease, the foregoing provisions of this Section 7.3 shall not be construed to
prohibit Landlord from including such expense in Operating Expenses, to the
extent and in the manner prescribed by Article 5 above.

8. Maintenance, Repairs and Alterations.

     8.1 Landlord's Obligations. Landlord shall keep the Project, including
without limitation, the roof, structure, Building systems and Common Areas (but
excluding the interior of the Premises and space leased to other occupants of
the Project) in good condition and repair. Except as provided in Section 10.3,
there shall be no abatement of rent or liability to Tenant on account of any
injury or interference with Tenant's business with respect to any improvements,
alterations or repairs made by Landlord to the Project or any part thereof.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Project in good order, condition and repair.

     8.2  Tenant's Obligations.

          (a) Subject to the requirements of Section 8.3, Tenant shall be
responsible for payment of the cost of keeping the Premises in good condition
and repair, and if Landlord makes any repairs to the Premises, the cost thereof
shall be paid by Tenant to Landlord. Tenant shall be responsible for the cost of
painting, repairing or replacing wall coverings, and the cost of repairing or
replacing any improvements made to the Premises by Tenant. Landlord may, but
shall not be obligated to, enter the Premises at all reasonable times to make
such repairs, alterations, improvements and additions to the Premises or to any
equipment located therein as Landlord deems necessary, in its sole discretion.

          (b) Tenant is responsible for the maintenance of the lighting fixtures
in the Premises. At the option of Tenant, Landlord agrees to sell to Tenant,
replacement parts for the lighting fixtures, including lamps, ballasts,
starters, lenses and grills used in the Premises. In addition, if Landlord
provides replacement part installation and/or repair work, then in said event,
Tenant shall pay Landlord the cost of installation thereof.

          (c) Except as expressly provided to the contrary in Section 8.3 below,
on the last day of the Term hereof, or on any sooner termination, Tenant shall
surrender the Premises to Landlord in the same condition as received, ordinary
wear and tear excepted, clean and free of debris and Tenant's personal property.
Tenant shall repair any damage to the Premises occasioned by the installation or
removal of Tenant's trade fixtures, furnishings and equipment. Except as
otherwise stated in this Lease, Tenant shall leave the power panels, electrical
distribution systems, lighting fixtures, HVAC, window coverings, wall coverings,
carpets, wall paneling, ceilings and plumbing at the Premises and in good
operating condition.

     8.3  Alterations and Additions.

          (a) Tenant shall not, without Landlord's prior written consent, which
may be given or withheld in Landlord's sole discretion, make any alterations,
improvements, additions, utility installations or repairs (hereinafter
collectively referred to as "Alterations") in, on or about the Premises or the
Project. As used in this Lease, the term "utility installation" shall mean
carpeting or other floor covering, window and wall coverings, power panels,
electrical distribution systems, lighting fixtures, telephone or computer system
wiring, HVAC and plumbing. At the expiration of the Term, Landlord may require
the removal of any Alterations (including non-structural Alterations made
without Landlord's consent as more particularly described below) installed by
Tenant and the restoration of the Premises and the Project to their prior



condition, at Tenant's expense. To the extent Landlord's consent is required
pursuant to this Section 8.3(a), at the written request of Tenant, Landlord
agrees to notify Tenant concurrently with Landlord's consent to such Alteration
whether Landlord will require Tenant to remove such Alteration at the end of the
Term. Except as set forth on Schedule 1-C attached hereto, Tenant shall not be
obligated to remove the tenant improvements constructed in accordance with the
work letter agreement attached hereto as Schedule 1-B or any improvements
performed by Tenant in connection with its initial fit-out of the Premises.
Should Landlord permit Tenant to make its own Alterations, Tenant shall use only
such contractor as has been reasonably approved by Landlord. Should Tenant make
any Alterations without the prior approval of Landlord, or use a contractor not
approved by Landlord in its reasonable discretion, Landlord may, at any time
during the Term of this Lease, require that Tenant remove all or part of the
Alterations and return the Premises to the condition it was in prior to the
making of the Alterations. In the event Tenant makes any Alterations, Tenant
agrees to cause its contractor to obtain, prior to the commencement of any work,
"builders all risk" insurance in an amount approved by Landlord and workers
compensation insurance.

                            See Addendum Paragraph 4

          (b) Any Alterations in or about the Premises that Tenant shall desire
to make shall be presented to Landlord in written form, with plans and
specifications which are sufficiently detailed to obtain a building permit. If
Landlord consents to an Alteration, the consent shall be deemed conditioned upon
Tenant acquiring a building permit from the applicable governmental agencies,
furnishing a copy thereof to Landlord prior to the commencement of the work, and
compliance by Tenant with all conditions of said permit in a prompt and
expeditious manner. Tenant shall provide Landlord with as-built plans and
specifications for any Alterations made to the Premises.

          (c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or the Project, or any interest therein.
If Tenant shall, in good faith, contest the validity of any such lien, Tenant
shall furnish to Landlord a surety bond satisfactory to Landlord in an amount
equal to such contested lien claim or demand indemnifying Landlord against
liability arising out of such lien or claim. In addition, Landlord may require
Tenant to pay Landlord's reasonable attorneys' fees and costs in participating
in such action.

          (d) Tenant shall give Landlord not less than ten (10) days' advance
written notice prior to the commencement of any work in the Premises by Tenant,
and Landlord shall have the right to post notices of non-responsibility in or on
the Premises or the Project as provided by law.

          (e) All Alterations (whether or not such Alterations constitute trade
fixtures of Tenant) which may be made to the Premises by Tenant shall be made
and done in a good and workmanlike manner and with new materials satisfactory to
Landlord and shall be the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the Lease Term, unless
Landlord requires their removal pursuant to Section 8.3(a). Provided Tenant is
not in default, notwithstanding the provisions of this Section 8.3(e), Tenant's
personal property and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises or
the Project, shall remain the property of Tenant and may be removed by Tenant
subject to the provisions of Section 8.2(c). Notwithstanding anything to the
contrary contained herein, any Improvements made by and paid for by Tenant
pursuant to the Work Letter Agreement attached hereto as Schedule 1-B shall be
deemed



to be the property of Tenant until the expiration or earlier termination of the
Lease and, if set forth in Schedule 1-C attached hereto, Tenant shall, at
Tenant's sole cost and expense, remove such Improvements and repair any damage
caused by such removal.

     8.4 Failure of Tenant to Remove Property. If this Lease is terminated due
to the expiration of its Term or otherwise, and Tenant fails to remove its
property as required by Section 8.2(b), in addition to any other remedies
available to Landlord under this Lease, and subject to any other right or remedy
Landlord may have under applicable law, Landlord may remove any property of
Tenant from the Premises and store the same elsewhere at the expense and risk of
Tenant and at any time (before or after Landlord stores said property), Landlord
may sell any or all such property at public or private sale, in such a manner
and at such times and places as Landlord, in its sole discretion, may deem
proper, without notice to or demand upon Tenant. Landlord shall apply the
proceeds of such sale: first, to the cost and expenses of the sale, including
reasonable attorneys' fees actually incurred; second, to the payment of the cost
of or charges for storing any such property; third, to the payment of any other
sums of money which may then or thereafter be due to Landlord from Tenant under
this Lease; and fourth, the balance, if any, to Tenant.

9. Insurance.

     9.1  Insurance-Tenant.

          (a) During the Term of the Lease and at such other times as Tenant
occupies the Premises, Tenant shall keep in force at its expense "comprehensive
general liability" insurance including an ISO broad form endorsement or its
equivalent with respect to the Premises with limits of not less than One Million
Dollars ($1,000,000) combined single limit or such higher amount as Landlord may
reasonably require in writing from time to time. The insurance shall cover
liability arising out of Tenant's operations and liability arising out of work
performed at the Premises by other persons on behalf of Tenant, and shall
specifically include the contractual liability assumed by Tenant under this
Lease. Such coverage, if written on a claims-made basis, must provide for a
retroactive date which is prior to the date Tenant occupies the Premises, and
the same retroactive date shall continue during the entire Term of this Lease.

          (b) Tenant will also maintain "all risk" extended coverage property
insurance written on a one hundred percent (100%) replacement cost basis on
Tenant's personal property, all tenant improvements installed at the Premises
and paid for by Tenant, Tenant's trade fixtures and other property. Such
policies shall provide protection against any peril included within the
classification "fire and extended coverage," against vandalism and malicious
mischief, theft, sprinkler leakage and flood damage. If this Lease is terminated
as the result of a casualty in accordance with Section 10, the proceeds of said
insurance attributable to the replacement of all tenant improvements at the
Premises shall be paid to Landlord.

          (c) Tenant shall, at all times during the Term hereof, maintain in
effect workers' compensation insurance as required by applicable law .

     9.2  Insurance-Landlord.

          (a) Landlord shall obtain and keep in force a policy of comprehensive
general liability insurance with coverage against such risks and in such amounts
as Landlord deems reasonably advisable insuring Landlord against liability
arising out of the ownership, operation and management of the Project.

          (b) Landlord shall also obtain and keep in force during the Term of
this Lease a policy or policies of "all risk" insurance covering loss or damage
to the Project in the amount of not less than the full replacement cost thereof
(less foundations and



footings), as reasonably determined by Landlord from time to time. The terms and
conditions of said policies and the perils and risks covered thereby shall be
reasonably determined by Landlord, from time to time, in Landlord's sole
discretion. In addition, at Landlord's option, Landlord shall obtain and keep in
force, during the Term of this Lease, a policy of rental interruption insurance,
with loss payable to Landlord, which insurance shall, at Landlord's option, also
cover all Operating Expenses. Tenant will not be named as an additional insured
in any insurance policies carried by Landlord and shall have no right to any
proceeds therefrom. At Landlord's option, Landlord may obtain insurance
coverages and/or bonds related to the operation of the parking areas. At
Landlord's option, Landlord may obtain coverage for flood and earthquake
damages. In addition, Landlord shall have the right to obtain such additional
insurance as is customarily carried by owners or operators of other comparable
office buildings in the geographical area of the Project. The policies purchased
by Landlord shall contain such deductibles as Landlord may reasonably determine.
In addition to amounts payable by Tenant in accordance with Section 5, Tenant
shall pay any increase in the property insurance premiums for the Project over
what was payable immediately prior to the Commencement Date to the extent the
increase is specified by Landlord's insurance carrier as being caused by the
nature of Tenant's occupancy or any act or omission of Tenant.

     9.3 Insurance Policies. Tenant shall deliver to Landlord copies of the
certificates of insurance required under Section 9.1 within fifteen (15) days
prior to the Possession Date of this Lease, and Landlord shall have the right to
approve the terms and conditions of said policies. Tenant's insurance policies
shall not be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with renewals thereof. Tenant's insurance policies
shall be issued by insurance companies authorized to do business in the state in
which the Project is located, with a general policyholders rating of not less
than "A" and a financial rating of not less than "Class X," as rated in the most
recent edition of "Best Insurance Reports." Tenant's insurance policies shall be
issued as primary policies and not contributing with and not in excess of
coverage which Landlord may carry. Landlord, and at Landlord's option the holder
of any mortgage or deed of trust encumbering the Project, shall be named as an
additional insured on all insurance policies Tenant is obligated to obtain by
Section 9.1 above. Tenant's insurance policies shall not include deductibles in
excess of One Hundred Thousand Dollars ($100,000).

     9.4 Waiver of Subrogation. Tenant and Landlord each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by insurance carried by such party (or required to be carried by
such party by this Lease) to the extent of the insurance proceeds actually
received (or which would have been received had the party carried the insurance
required to be maintained by such party pursuant to this Section 9), whether due
to the negligence of Landlord or Tenant or their agents, employees, contractors
and/or invitees. Landlord and Tenant shall each cause the insurance policies
they obtain in accordance with this Section 9 to provide that the insurance
company waives all right of recovery by subrogation against either party in
connection with any damage covered by any policy.

     9.5 Coverage. Landlord makes no representation to Tenant that the limits or
forms of coverage specified above or approved by Landlord are adequate to insure
Tenant's property or Tenant's obligations under this Lease, and the limits of
any insurance carried by Tenant shall not limit its obligations under this
Lease.



10. Damage or Destruction.

     10.1 Effect of Damage or Destruction. If all or part of the Project is
materially damaged (as defined in Section 10.2 below) by fire, earthquake,
flood, explosion, the elements, riot or any other casualty, Landlord shall have
the right in its sole and complete discretion to repair or to rebuild the
Project or to terminate this Lease. Landlord shall within ninety (90) days after
the occurrence of such damage notify Tenant in writing of Landlord's intention
to repair or to rebuild or to terminate this Lease. Tenant shall in no event be
entitled to compensation or damages on account of annoyance or inconvenience in
making any repairs, or on account of construction, or on account of Landlord's
election to terminate this Lease. Notwithstanding the foregoing, if Landlord
shall elect to rebuild or repair the Project, but in good faith determines that
the Project cannot be rebuilt or repaired within two hundred seventy (270) days
after the date of the occurrence of the damage, without payment of overtime or
other premiums, and the damage to the Project has rendered the Premises
unusable, Landlord shall notify Tenant thereof in writing at the time of
Landlord's election to rebuild or repair, and Tenant shall thereafter have a
period of fifteen (15) days within which Tenant may elect to terminate this
Lease, upon written notice to Landlord. Tenant's termination right described in
this Section 10.1 shall not apply if the damage was caused by Tenant's willful
misconduct. Failure of Tenant to exercise said election within said period shall
constitute Tenant's agreement to accept delivery of the Premises under this
Lease whenever tendered by Landlord (provided the Premises have been
substantially completed and Landlord has obtained a temporary certificate of
occupancy ("TCO"), provided Landlord thereafter pursues reconstruction or
restoration diligently to completion, subject to delays beyond Landlord's
reasonable control; provided further, however, in the event Landlord pursues
reconstruction or restoration of the Project and such reconstruction and
restoration is not substantially complete due to delays within Landlord's
control within two hundred seventy (270) days after the date of the occurrence
of the damage, then Tenant shall have a further right to terminate this Lease
upon written notice to Landlord, so long as Tenant's written notice is delivered
to Landlord prior to Landlord's delivery of the Premises substantially completed
to Tenant together with delivery of a TCO. If Landlord is unable to repair the
damage to the Premises or the Project during such two hundred seventy (270) day
period due to a Force Majeure Event, the two hundred seventy (270) day period
shall be extended by the period of delay caused by the Force Majeure Event, not
to exceed forty-five (45) days following the expiration of such two hundred
seventy (270) day period.

     10.2 Definition of Material Damage. The damage shall be deemed material if,
(a) the Project cannot be repaired to substantially the same condition it was in
prior to the damage due to laws or regulations in effect at the time the repairs
will be made, (b) the holder of any mortgage or deed of trust encumbering the
Project requires that insurance proceeds available to repair the damage in
excess of Twenty-Five Thousand Dollars ($25,000) be applied to the repayment of
the indebtedness secured by the mortgage or the deed of trust, or (c) the damage
occurs during the last twelve (12) months of the Lease Term as extended unless
Tenant has exercised (or does exercise) its Option to renew the Lease pursuant
to Paragraph 8 of the Addendum, or (d) insurance proceeds are not available to
Landlord in an amount which is sufficient to pay the entire cost of repairing
all of the damage to the Project due to the casualty being an uninsured event
(assuming Landlord had carried the insurance required under Section 9.2 and such
event is not typically insured by comparable landlords of comparable properties
in the same geographic area). Notwithstanding the foregoing, upon the sale of
the Project by Landlord, Landlord agrees to endeavor to have language included
in any SNDA provided to Tenant pursuant to



Section 25 of the Lease requiring the lender to release the insurance proceeds
for restoration of any damage..

     10.3 Abatement of Rent. If Landlord elects to repair damage to the Project
and all or part of the Premises will be unusable or inaccessible to Tenant in
the ordinary conduct of its business until the damage is repaired, and the
damage was not caused by the willful misconduct of Tenant or its employees,
agents, contractors or invitees, Tenant's Base Rent and Tenant's Share of
Operating Expense increases shall be abated in proportion to the amount of the
Premises which is unusable or inaccessible to Tenant in the ordinary conduct of
its business until the repairs are completed.

     10.4 Tenant's Negligence. If such damage or destruction occurs as a result
of the willful misconduct of Tenant or Tenant's employees, agents, contractors
or invitees, and the proceeds of insurance which are actually received by
Landlord are not sufficient to repair all of the damage, Tenant shall pay, at
Tenant's sole cost and expense, to Landlord upon demand, the difference between
the cost of repairing the damage and the insurance proceeds received by
Landlord.

     10.5 Tenant's Property. Landlord shall not be required to repair any injury
or damage to, or to make any repairs or replacements of, any fixtures,
furniture, equipment or tenant improvements installed in the Premises, and
Tenant shall repair and restore all such property at Tenant's sole expense.

     10.6 Waiver. Landlord and Tenant hereby waive the provisions of any
statutes which relate to the termination of leases when leased property is
damaged or destroyed and agree that such event shall be governed by the terms of
this Lease.

11. Services Provided by Landlord. Landlord shall furnish, without charge to
Tenant (except where otherwise specified herein), the following services
("Building Services"):

     11.1 Air-Conditioning. Air-conditioning during Business Hours on Business
Days (as those terms are hereinafter defined) when, it may be required for the
comfortable occupancy of the Premises in accordance with the specifications set
forth in Exhibit D. At other times during Business Hours on Business Days,
Landlord shall provide ventilation for the Premises. Tenant at all times agrees
to cooperate fully with Landlord and to abide by all regulations and
requirements which Landlord may reasonably prescribe, for the proper functioning
and protection of its heating, ventilating and air-conditioning systems.
Landlord shall have free access to any and all mechanical installations of
Landlord, including but not limited to: air-conditioning, fans, ventilating and
machine rooms and electrical closets; and Tenant agrees that there shall be no
construction of partitions or other obstructions which might interfere with
Landlord's equipment to or from the enclosures containing said installations.
Tenant agrees that Tenant, its agents, employees or contractors shall not at any
time enter the said enclosures or tamper with, adjust, touch or otherwise in any
manner, affect Landlord's said mechanical installations.

     11.2 Heat. Heat, on Business Days during Business Hours in accordance with
the specifications set forth in Exhibit D.

     11.3 Water. Cold and hot water at standard building temperatures to all
lavatories, public or private, for ordinary drinking, cleaning, sanitary and
lavatory purposes.



     11.4 Janitorial and Maintenance Services. Janitorial and maintenance
services for the Premises as defined in Exhibit E. Tenant shall pay to Landlord
the cost incurred by Landlord, for the removal of any of Tenant's refuse and
rubbish which exceeds by quantity and nature, the daily refuse and rubbish that
might otherwise result from the daily use of such premises as offices. Bills for
the such additional cost shall be rendered by Landlord to Tenant and shall be
due and payable when rendered; and the amount of such bills shall be deemed to
be, and shall be paid as, Additional Rent. Alternately, Tenant shall use
Landlord's contractors or employees, at the option of Landlord, for the removal
of such excess rubbish and refuse and Tenant agrees to pay reasonable charges
therefor.

     11.5 Elevators. Automatic (non-attended) elevator facilities during
Business Hours on Business Days and at least one (1) automatic elevator
available at all other times.

     11.6 Electricity.

          (a) Electric current, with the understanding, however, that the Base
Rent does not include the cost of electricity consumed by Tenant in the
Premises; and Tenant shall, in addition to the Base Rent, be required to pay an
Electric Energy Charge as a condition for the Landlord to provide electric
current to the Premises. The Electric Energy Charge shall be paid monthly, as
Additional Rent, together with Base Rent for the Premises, based on Tenant's
actual electric consumption which shall be measured by a separate checkmeter,
installed by Landlord, at Landlord's sole expense, commencing on the
Commencement Date and throughout the Term and any renewals or extensions
thereof. The Electric Energy Charge shall be equal to the actual amount payable
by Landlord to the utility company without mark-up of any kind by Landlord.
Landlord will endeavor to obtain the lowest rates offered by the utility company
to similar landlords in comparable buildings in the same geographic area.

          (b) (i) [Intentionally omitted].

              (ii) [Intentionally omitted].

              (iii) [Intentionally omitted].

              (iv) [Intentionally omitted].



              (v) [Intentionally omitted].

          (c) [Intentionally omitted].

          (d) (i) [Intentionally omitted].

              (ii) [Intentionally omitted].

          (e) [Intentionally omitted].

          (f) Landlord shall not in any way be responsible or liable to Tenant
at any time for any loss, damage or expense resulting from any change in the
quantity or character of the electric service or for its being no longer
suitable for Tenant's requirements or from any cessation or interruption of the
supply or current; nor except as set forth in Section 11.10 herein, shall any
such loss, damage or expense, or non-supply of electric service or current in
any way affect the tenancy or in any way relieve Tenant of any obligation under
the terms of this Lease.

          (g) Tenant covenants and agrees that at all times its use of electric
current shall never exceed the capacity provided by Landlord pursuant to
subsection 11.6(g) and Schedule 1-A. Tenant shall make no changes, alterations,
additions, substitutions ("Changes") to any risers, conduits, meters, panel
boxes, switch gear, wiring, or any other part of the electric service without
the express prior written consent of Landlord. Any Changes requested by Tenant
shall be sent in writing to Landlord; and if, in the reasonable judgment of
Landlord, such Changes will not cause or create a dangerous or hazardous
condition or damage or injury to the Building, or entail excessive or
unreasonable alterations or repairs, or interfere with or disturb other tenants
or occupants and/or the electrical service then or thereafter to be supplied to
tenants or occupants, Landlord will, at the sole cost and expense of Tenant,
make such Changes. Tenant covenants and agrees to pay Landlord for such costs
and expenses as additional rent, upon the rendition of a bill indicating the
amount due therefor.

          (h) (i) Landlord reserves the right to terminate the furnishing of
electricity to the Premises at any time, upon no less than ninety (90) days'
written notice to the Tenant, in



which event, Tenant shall make immediate application directly to the utility
company servicing the Building for the Tenant's entire separate supply of
electric current; and Landlord shall permit its risers, wires, conduits and
other electrical equipment, to the extent available and safely capable, to be
used for such purpose. Any meters, and additional risers, wires, conduits and
equipment or connections necessary to enable Tenant to obtain electric current
directly from such utility company shall be installed at Tenant's sole cost and
expense if the termination of Landlord's service is legally required; otherwise,
they shall be installed at Landlord's sole cost and expense, and in compliance
with all applicable laws, ordinances and regulations and requirements of
insurance companies and fire underwriters.

               (ii) No alterations, modifications or changes shall be made by
the Tenant to any meters, risers, conduits or other equipment or connections in
the Building in a manner which would cause damage to the Building or interfere
with the use, enjoyment, occupancy or possession of the Building by Landlord and
its other tenants. Rigid conduit only, or such other type as may be specified by
Landlord, will be allowed.

               (iii) Tenant's liability for the Electric Energy Charge provided
for in this Lease shall terminate as of the date of discontinuance by Landlord
of the supplying of electric current, but this Lease shall otherwise remain in
full force and effect. Unless required by law, however, Landlord shall not
discontinue furnishing electricity to the Premises until after Tenant shall have
commenced receiving its electricity directly from the utility company unless
Tenant shall have failed to make such arrangements with due diligence.

     11.7 Building Services on Non-Business Days or Non-Business Hours.

          (a) Tenant acknowledges that Landlord is only required to provide the
Building Services specified in Sub-sections 11.1 through 11.6 hereinabove only
during Business Hours on Business Days and in addition, access to electricity,
water and one (1) automatic elevator, during Non-Business Hours on Non-Business
Days as well. Anything to the contrary notwithstanding, Landlord shall provide
Tenant reasonable access to the Common Areas of the Project and Building and to
the Premises, twenty-four (24) hours a day, seven (7) days per week, subject to
such security procedures, restrictions and regulations which Landlord may
reasonably promulgate.

          (b) Landlord shall use its best efforts to provide HVAC to Tenant at
times other than those set forth above subject to (i) the payment by Tenant of
Landlord's standard charge, as determined by Landlord from time to time, in
Landlord's sole discretion, for after hours HVAC and (ii) Tenant providing to
Landlord at least one (1) Business Day's advance written notice of Tenant's need
for Non-Business Hours and/or Non-Business Day HVAC service. As of the date of
this Lease, and subject to future increases in accordance with the terms of this
subsection, the standard charge for after hours HVAC is Fifty Dollars ($50.00)
per hour with a four (4) hour minimum, unless such overtime usage is continuous
to the Business Hours, in which case no hourly minimum will be required. The
standard charge shall be increased by a percentage equal to the percentage
increase in utility charges during the Term of this Lease. For example, if the
usage charge for electricity increases from twenty-five cents ($.25) per
Kilowatt-Hour (KWHR) to thirty cents ($.30) KWHR, then the after hours HVAC
charge shall increase by twenty percent (20%) to Sixty Dollars ($60.00) per
hour. Tenant shall pay all after hours HVAC charges to Landlord within thirty
(30) days after Landlord bills Tenant for said charges.

     11.8 Definition of Business Days and Business Hours of Building Services.
"Business Days" as defined herein, shall be Monday through Friday from 8:00 A.M.
to 6:00 PM and Saturdays from 8:00 A.M. to 1:00 P.M., excluding all days
observed as non-working (vacation) holidays by the State and/or Federal
government ("Holidays") as listed on Exhibit F attached hereto. "Business Hours"
as defined herein, shall mean 8:00 A.M. and 6:00 P.M. on



Monday through Friday, excluding Holidays, and Saturday, from 8:00 A.M. to 1:00
P.M., excluding Holidays.

     11.9 Excess Usage by Tenant. Notwithstanding the use set forth in Section
1.5 and/or Section 11 and its sub-sections, Tenant shall not use Building
utilities or services in excess of those used by the average office building
tenant using its premises for ordinary office use.

     11.10 Interruptions. Tenant agrees that Landlord shall not be liable to
Tenant for its failure to furnish utilities or other Building Services when such
failure is occasioned, in whole or in part, by repairs, replacements, or
improvements, by any strike, lockout or other labor trouble, by inability to
secure electricity, gas, water, or other fuel at the Project after reasonable
effort to do so, by any accident or casualty whatsoever, by act or default of
Tenant or other parties, or by any other cause beyond Landlord's reasonable
control, and such failures shall never be deemed to constitute an eviction or
disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying rent or performing any of its obligations under this Lease.
Furthermore, Landlord shall not be liable under any circumstances for loss of
property or for injury to, or interference with, Tenant's business, including,
without limitation, loss of profits, however occurring, through or in connection
with or incidental to a failure to furnish any of the Building Services or
utilities as set forth in this Section 11 and its sub-sections. Landlord may
comply with voluntary controls or guidelines promulgated by any governmental
entity relating to the use or conservation of energy, water, gas, light or
electricity or the reduction of automobile or other emissions without creating
any liability of Landlord to Tenant under this Lease. Notwithstanding anything
contained herein to the contrary, if any interruption of utilities or services
or inability of Tenant to gain access to the Premises shall continue for more
than seven (7) consecutive business days and shall render all or any portion of
the Premises unusable for the normal conduct of Tenant's business, and if Tenant
does not in fact so use or occupy such portion of the Premises, then all Base
Rent and additional rent payable hereunder with respect to such portion of the
Premises which Tenant does not so occupy shall be abated from and after such
seventh (7th) business day until full use of such portion of the Premises is
restored to Tenant. In the event any such interruption of services continues for
more than two hundred seventy (270) days, the Premises are unusable or
inaccessible to Tenant in the ordinary conduct of its business during such
period and Tenant does not, in fact, use the Premises for the conduct of its
business during such period, Tenant shall have the same termination rights
afforded to Tenant pursuant to Section 10 hereinabove.

     11.11 Services Exclusive to Tenant. Tenant shall pay for all water, gas,
heat, electricity, telephone and other utilities and services supplied and/or
metered exclusively to the Premises or to Tenant, together with any taxes
thereon. If any such services are not separately metered to the Premises, Tenant
shall pay, at Landlord's option, either Tenant's Share or a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises in the Project.

     Landlord agrees to permit Tenant to install, operate and maintain
supplementary HVAC units ("Supplemental HVAC") subject to Tenant's satisfaction
of the following conditions: (i) Tenant shall obtain all necessary approvals,
permits and licenses from all governmental authorities having jurisdiction over
such matters; and (ii) Tenant shall



obtain Landlord's prior approval of Tenant's plans, which such plans shall
include the location and size of the Supplemental HVAC and such other
information as Landlord deems necessary. Landlord shall have the right to have a
representative present at the time of such installation. Landlord reserves the
right to require Tenant to remove the Supplemental HVAC at the expiration of the
Term or earlier termination of the Lease and to restore the Premises to its
prior condition, provided that Landlord agrees to notify Tenant at such time as
Landlord approves Tenant's plans, at the written request of Tenant, whether or
not Landlord will require Tenant to remove such Supplemental HVAC at the
expiration or earlier termination of the Lease. Tenant understands that such
usage shall be separately submetered and that Tenant shall pay all costs
associated with the use of such Supplemental HVAC.

12. Assignment and Subletting.

     12.1 Landlord's Consent Required. Tenant shall not voluntarily or by
operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises (hereinafter collectively a "Transfer"), without Landlord's prior
written consent, which shall not be unreasonably withheld. Landlord shall
respond to Tenant's written request for consent hereunder within fifteen (15)
business days after Landlord's receipt of the written request from Tenant. Any
attempted Transfer without such consent shall be void and shall constitute a
material default and breach of this Lease. Tenant's written request for
Landlord's consent shall include, and Landlord's fifteen (15) business day
response period referred to above shall not commence, unless and until Landlord
has received from Tenant, all of the following information: (a) financial
statements for the proposed assignee or subtenant for the past three (3) years
prepared in accordance with generally accepted accounting principles, (b)
federal tax returns for the proposed assignee or subtenant for the past three
(3) years, (c) a TRW credit report or similar report on the proposed assignee or
subtenant, (d) a detailed description of the business the assignee or subtenant
intends to operate at the Premises, (e) the proposed effective date of the
assignment or sublease, (f) a copy of the proposed sublease or assignment
agreement which includes all of the terms and conditions of the proposed
assignment or sublease, and (g) a detailed description of any ownership or
commercial relationship between Tenant and the proposed assignee or subtenant.
If the obligations of the proposed assignee or subtenant will be guaranteed by
any person or entity, Tenant's written request shall not be considered complete
until the information described in (a), (b) and (c) of the previous sentence has
been provided with respect to each proposed guarantor. "Transfer" shall also
include the transfer (a) if Tenant is a corporation, and Tenant's stock is not
publicly traded over a recognized securities exchange, of more than twenty five
percent (25%) of the voting stock of such corporation during the term of this
Lease (whether or not in one or more transfers) or the dissolution or merger of
the corporation, or (b) if Tenant is a partnership or other entity, of more than
twenty five percent (25%) of the profit and loss participation in such
partnership or entity during the term of this Lease (whether or not in one or
more transfers) or the dissolution or liquidation of the partnership.

                            See Addendum Paragraph 5

     12.2 Standard For Approval. Landlord shall not unreasonably withhold its
consent to a Transfer provided that Tenant has complied with each and every
requirement, term and condition of this Section 12. Tenant acknowledges and
agrees that each requirement, term and condition in this Section 12 is a
reasonable requirement, term or condition. It shall be deemed reasonable for
Landlord to withhold its consent to a Transfer if any requirement, term or
condition of this Section 12 is not complied with or: (a) the Transfer would
cause Landlord to be in violation of its obligations under another lease or
agreement to which Landlord is a party; (b) a proposed assignee has sufficient
assets to meet the remaining obligations of Tenant under the Lease, in
Landlord's reasonable judgment



; (c) a proposed assignee's or subtenant's business will impose a burden on the
Project's parking facilities, elevators, Common Areas or utilities that is
greater than the burden imposed by Tenant, in Landlord's reasonable judgment;
(d) the terms of a proposed assignment or subletting will allow the proposed
assignee or subtenant (other than a Permitted Transferee as that term is defined
in Paragraph 5 of the Addendum) to exercise a right of renewal, right of
expansion, right of first offer, right of first refusal or similar right held by
Tenant; (e) a proposed assignee does not, in Landlord's reasonable judgment,
have a good credit rating; (f) [intentionally omitted] ; (g) a proposed assignee
or subtenant refuses to enter into a written assignment agreement or sublease,
reasonably satisfactory to Landlord, which provides that it will abide by and
assume all of the terms and conditions of this Lease for the term of any
assignment or sublease and containing such other terms and conditions as
Landlord reasonably deems necessary; (h) the use of the Premises by the proposed
assignee or subtenant will not be identical to the use permitted by this Lease;
(i) ) Landlord is marketing space in the Project at the time of Tenant's request
and is able to accommodate such person or entity with the space Landlord has
available and the proposed assignee or subtenant is then currently a tenant of
the Landlord at the Project; (j) Landlord has ever evicted or been involved in
litigation with the proposed assignee or subtenant; (k) any guarantor of this
Lease refuses to consent to the Transfer or to execute a written agreement
reaffirming the guaranty; (l) Tenant is in default after expiration of any
applicable notice and cure periods at the time of the request; (m) if requested
by Landlord, the assignee or sublessee refuses to sign a non-disturbance and
attornment agreement in favor of Landlord's lender; (n) [intentionally omitted]
; or (o) the proposed assignee or subtenant is a person or entity then, or
during the prior six (6) months, negotiating with Landlord for the lease of
space in the Project unless Landlord is unable to accommodate such person or
entity with the space Landlord has available in the Project at the time of
Tenant's request.

     12.3 Additional Terms and Conditions. The following terms and conditions
shall be applicable to any Transfer:

          (a) Regardless of Landlord's consent, no Transfer shall release Tenant
from Tenant's obligations hereunder or alter the primary liability of Tenant to
pay the rent and other sums due Landlord hereunder and to perform all other
obligations to be performed by Tenant hereunder or release any guarantor from
its obligations under its guaranty.

          (b) Landlord may accept rent from any person other than Tenant pending
approval or disapproval of an assignment or subletting.

          (c) Neither a delay in the approval or disapproval of a Transfer, nor
the acceptance of rent, shall constitute a waiver or estoppel of Landlord's
right to exercise its rights and remedies for the breach of any of the terms or
conditions of this Section 12.

          (d) The consent by Landlord to any Transfer shall not constitute a
consent to any subsequent Transfer by Tenant or to any subsequent or successive
Transfer by an assignee or subtenant. However, Landlord may consent to
subsequent Transfers or any amendments or modifications thereto without
notifying Tenant or anyone else liable on the Lease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease.

          (e) In the event of any default under this Lease, Landlord may proceed
directly against Tenant, any guarantors or anyone else responsible for the
performance of this Lease, including any subtenant or assignee, without first
exhausting Landlord's remedies against any other person or entity responsible
therefor to Landlord, or any security held by Landlord.



          (f) Landlord's written consent to any Transfer by Tenant shall not
constitute an acknowledgment that no default then exists under this Lease nor
shall such consent be deemed a waiver of any then existing default.

          (g) The discovery of the fact that any financial statement relied upon
by Landlord in giving its consent to an assignment or subletting was materially
false shall, at Landlord's election, render Landlord's consent null and void.

          (h) Landlord shall not be liable under this Lease or under any
assignment or sublease to any assignee or subtenant.

          (i) No assignment or sublease may be modified or amended without
Landlord's prior written consent.

          (j) Tenant or its agent shall not advertise the Premises for lease,
sublet or assignment for less Rent than the then current asking rent for space
in the Project.

     12.4 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Tenant of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

          (a) Tenant hereby absolutely and unconditionally assigns and transfers
to Landlord all of Tenant's interest in all rentals and income arising from any
sublease entered into by Tenant, and Landlord may collect such rent and income
and apply same toward Tenant's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Tenant's obligations
under this Lease which continues after the expiration of any applicable notice
and cure period, Tenant may receive, collect and enjoy the rents accruing under
such sublease. Landlord shall not, by reason of this or any other assignment of
such rents to Landlord nor by reason of the collection of the rents from a
subtenant, be deemed to have assumed or recognized any sublease or to be liable
to the subtenant for any failure of Tenant to perform and comply with any of
Tenant's obligations to such subtenant under such sublease, including, but not
limited to, Tenant's obligation to return any security deposit. Tenant hereby
irrevocably authorizes and directs any such subtenant, upon receipt of a written
notice from Landlord stating that a default exists in the performance of
Tenant's obligations under this Lease, to pay to Landlord the rents due as they
become due under the sublease. Tenant agrees that such subtenant shall have the
right to rely upon any such statement and request from Landlord, and that such
subtenant shall pay such rents to Landlord without any obligation or right to
inquire as to whether such default exists and notwithstanding any notice from or
claim from Tenant to the contrary.

          (b) In the event Tenant shall default in the performance of its
obligations under this Lease, Landlord at its option and without any obligation
to do so, may require any subtenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Landlord shall not be liable for any prepaid rents or
security deposit paid by such subtenant to Tenant or for any other prior
defaults of Tenant under such sublease.

     12.5 Transfer Premium from Assignment or Subletting. Landlord shall be
entitled to receive from Tenant (as and when received by Tenant) as an item of
additional rent fifty percent (50%) of all amounts received by Tenant from such
assignee or subtenant in excess of the amounts payable by Tenant to Landlord
hereunder (the "Transfer Premium"). "Transfer Premium" shall mean all Base Rent,
additional rent or other consideration of any type whatsoever payable by the
assignee or subtenant in excess of the Base Rent and additional rent payable by
Tenant under this Lease. If less than all of the Premises is transferred,



the Base Rent and the additional rent shall be determined on a per rentable
square foot basis. The Transfer Premium shall be reduced by the bona fide third
party transaction costs actually paid by Tenant in order to assign the Lease or
to sublet a portion of the Premises. "Transfer Premium" shall also include, but
not be limited to, key money and bonus money paid by the assignee or subtenant
to Tenant in connection with such Transfer, and any payment in excess of fair
market value for services rendered by Tenant to the assignee or subtenant or for
assets, fixtures, inventory, equipment, or furniture transferred by Tenant to
the assignee or subtenant in connection with such Transfer. For purposes of
calculating the Transfer Premium, expenses will be amortized over the life of
the sublease. The provisions of this Section 12.5 shall not apply with respect
to a Permitted Transfer (as that term is defined in Paragraph 5 of the
Addendum).

     12.6 Landlord's Option to Recapture Space. Notwithstanding anything to the
contrary contained in this Section 12, if Tenant shall request (i) to assign
this Lease, or (ii) sublease space in the Premises, the term of which sublease
shall expire during the last twelve (12) months of the Term, then Landlord shall
have the option, by giving written notice to Tenant ("Recapture Notice") within
thirty (30) days after receipt of Tenant's request for consent to such sublease
or assignment, to terminate this Lease and recapture the Premises. Tenant shall
have five (5) business days after receipt of such Recapture Notice to notify
Landlord of its intention to withdraw its request to assign or sublease the
Premises. If Tenant does not withdraw its request to assign or sublease the
Premises, then Landlord may terminate this Lease as of the commencement date of
the proposed sublease or assignment and recapture the Premises, whereupon this
Lease shall terminate. If Tenant so withdraws its request to assign or sublease
the Premises, then this Lease shall continue in full force and effect. Tenant
acknowledges that the purpose of this Section 12.6 is to enable Landlord to
receive profit in the form of higher rent or other consideration to be received
from an assignee or sublessee, to give Landlord the ability to meet additional
space requirements of other tenants of the Project and to permit Landlord to
control the leasing of space in the Project. Tenant acknowledges and agrees that
the requirements of this Section 12.6 are commercially reasonable and are
consistent with the intentions of Landlord and Tenant. The provisions of this
Section 12.6 shall not apply with respect to a Permitted Transfer.

     12.7 Landlord's Expenses. In the event Tenant shall assign this Lease or
sublet the Premises or request the consent of Landlord to any Transfer, then
Tenant shall pay Landlord's reasonable costs and expenses incurred in connection
therewith, including, but not limited to, attorneys', architects', accountants',
engineers' or other consultants' fees.

13. Default; Remedies.

     13.1 Default by Tenant. Landlord and Tenant hereby agree that the
occurrence of any one or more of the following events is a material default by
Tenant under this Lease and that said default shall give Landlord the rights
described in Section 13.2. Landlord or Landlord's authorized agent shall have
the right to serve any notice of default, notice to pay rent or quit or similar
notice.

          (a) Tenant's failure to make any payment of Base Rent, Electric Energy
Charge, Tenant's Share of Operating Expense increases, parking charges, charges
for after hours HVAC, late charges, or any other payment required to be made by
Tenant hereunder, as and when due, where such failure shall continue for a
period of five (5) business days after written notice thereof from Landlord to
Tenant. In the event that Landlord serves Tenant with a notice to pay rent or
quit pursuant to applicable unlawful detainer statutes, such notice shall also
constitute the notice required by this Section 13.1(a).

          (b) The abandonment of the Premises by Tenant in which event Landlord
shall not be obligated to give any notice of default to Tenant, unless expressly
required by law.



          (c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
(other than those referenced in Sections 13.1(a) and (b), above), where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's non-performance is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. In the event that Landlord serves
Tenant with a notice to quit pursuant to applicable unlawful detainer statutes,
said notice shall also constitute the notice required by this Section 13.1(c).

          (d) (i) The making by Tenant or any guarantor of any general
arrangement or general assignment for the benefit of creditors; (ii) Tenant or
any guarantor becoming a "debtor" as defined in 11 U.S.C. 101 or any successor
statute thereto (unless, in the case of a petition filed against Tenant or
guarantor, the same is dismissed within sixty (60) days); (iii) the institution
of proceedings seeking the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days or the institution of a foreclosure proceeding against
Tenant's real or personal property; or (iv) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within thirty (30) days. In the event that any provision of this Section 13.1(e)
is contrary to any applicable law, such provision shall be of no force or
effect.

          (e) The discovery by Landlord that any financial statement,
representation or warranty given to Landlord by Tenant, or by any guarantor of
Tenant's obligations hereunder, is or was materially false.

          (f) If Tenant is a corporation, limited liability company or a
partnership, the dissolution or liquidation of Tenant.

     13.2 Remedies.

          (a) In the event of any material default or breach of this Lease by
Tenant, Landlord may, at any time thereafter, with or without notice or demand,
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have by reason of such default:

               (i) Terminate Tenant's right to possession of the Premises. Upon
any such termination, Tenant shall immediately surrender possession of the
Premises to Landlord. Landlord reserves all rights and remedies available to it
pursuant to the terms and conditions of this Lease as well as under applicable
law. Tenant hereby grants Landlord the full and free right to enter the Premises
with process of law. Tenant releases Landlord of any liability for any damage
resulting therefrom and waives any right to claim damage for such re-entry.
Tenant also agrees that Landlord's right to re-lease or any other right given to
Landlord as a consequence of Tenant's default hereunder or by operation of law
is not relinquished. On termination of Tenant's right of possession, Landlord
shall be entitled to recover from Tenant: (i) the unpaid rent which had been
earned at the time of the termination; (ii) the amount by which the unpaid rent
which would have been earned after termination until the time of the award
exceeds the amount of any rental, if any, received for the Premises during such
time period; (iii) the amount by which the unpaid rent for the balance of the
Term of the Lease after the time of award exceeds the amount of any rent to be
received (net of re-letting expenses as described below) from any replacement
tenant occupying the Premises at the time of the award, or, if the Premises are
not occupied at the time of the award by a rent-paying replacement tenant, the
full amount of the rent to be earned hereunder for the balance of the Term of
the Lease discounted to



net present value assuming a discount rate of one percent (1%) above the
discount rate of the Federal Reserve Bank of New York in effect at the time of
the award; and provided further, however, that Landlord shall repay to Tenant
the excess of the foregoing amount over any rent received for the Premises
during the balance of the Term of the Lease (net of reletting expenses as
described below) similarly discounted; and (iv) at the time of the award any
other amount necessary to compensate Landlord for all the damage proximately
caused by Tenant's failure to perform its obligations under this Lease or which
in the ordinary course of events would likely result therefrom, including but
not limited to, all costs and expenses attributable to recovering possession of
the Premises, re-letting expenses (including the costs and expenses of any
necessary repairs, renovations and alterations to the Premises (collectively,
the "Costs of Reletting"), provided that in the event the relet term extends
beyond the date this Lease would have terminated in the absence of such default,
then the Costs of Reletting shall be prorated based upon the period of time in
the remaining Term of this Lease in relationship to the relet term under the
relet lease), costs of carrying the Premises (including but not limited to,
Landlord's payment of real property taxes and insurance premiums), actual legal
fees and associated costs and expenses. Landlord shall use commercially
reasonable efforts to relet the Premises. The phrase "reasonable efforts" as it
relates to Landlord's duty to attempt to relet the Premises, shall require
Landlord to do only the following: (i) notify Landlord's leasing agent in
writing of the availability of the Premises for reletting, (ii) post Landlord's
leasing contact telephone number in the Project management office, (iii) show
the Premises to any prospective tenant who requests to see the Premises and to
any prospective tenant specifically referred to Landlord by Tenant, and (iv)
show the "vacant" status of the Premises in posters and information brochures
used at leasing trade meetings and conventions. Landlord shall not be required
to relet the Premises before reletting any comparable space in the Project not
producing any income to Landlord and Landlord shall be entitled to consider
tenant quality, tenant-mix, and the nature of the Project and office centre in
making any leasing decision. If Landlord shall substantially perform the
foregoing then, anything in this Lease, or any statute or common law rule to the
contrary notwithstanding, Landlord shall be deemed to have met its duty to
mitigate its damages hereunder.

               (ii) maintain Tenant's right of possession in which event
Landlord shall have the remedy which permits Landlord to continue this Lease in
effect after Tenant's breach and abandonment and recover rent as it becomes due.
Acts of maintenance or preservation, efforts to relet the Premises, or removal
or storage of Tenant's personal property, shall not constitute a termination of
Tenant's right to possession or act as an acceptance of any surrender of the
Premises. Landlord shall not be required to relet any or all of the Premises
prior to leasing other vacant space at the Project, nor shall Landlord be
required to accept a tenant: (i) that does not otherwise meet Landlord's
financial and other criteria, nor (ii) a tenant who intends to make a use other
than the use permitted by the Lease.

               (iii) collect sublease rents (or appoint a receiver to collect
such rent) and otherwise perform Tenant's obligations at the Premises, it being
agreed, however, that the appointment of a receiver for Tenant shall not
constitute an election by Landlord to terminate this Lease.

               (iv) pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Premises
are located.



          (b) No remedy or election hereunder shall be deemed exclusive, but
shall, wherever possible, be cumulative with all other remedies at law or in
equity. The expiration or termination of this Lease and/or the termination of
Tenant's right to possession of the Premises shall not relieve Tenant of
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the Term hereof or by reason of Tenant's occupancy of the
Premises.

          (c) If Tenant abandons the Premises, Landlord may re-enter the
Premises and such re-entry shall not be deemed to constitute Landlord's election
to accept a surrender of the Premises or to otherwise relieve Tenant from
liability for its breach of this Lease. No surrender of the Premises shall be
effective against Landlord unless Landlord has entered into a written agreement
with Tenant in which Landlord expressly agrees to (i) accept a surrender of the
Premises and (ii) relieve Tenant of liability under the Lease. The delivery by
Tenant to Landlord of possession of the Premises shall not constitute the
termination of the Lease or the surrender of the Premises.

     13.3 Default by Landlord. Landlord shall not be in default under this Lease
unless Landlord fails to perform obligations required of Landlord within thirty
(30) days after written notice by Tenant to Landlord and to the holder of any
mortgage or deed of trust encumbering the Project whose name and address shall
have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for its cure, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently pursues the same to completion. This Lease and the obligations of
either party hereunder shall not be affected or impaired because such party is
unable to fulfill any of its obligations hereunder (other than the payment of
monetary obligations hereunder) or is delayed in doing so, if such inability or
delay is caused by reason of strike or other labor problems, acts of God, riot,
insurrection, governmental actions or requirements, or any other cause beyond
the reasonable control of such party (hereinafter, a "Force Majeure Event") ,
and the time for such party's performance shall be extended for the period of
any such delay. Financial inability of any party shall not be considered to be a
Force Majeure Event suffered by such party.

     13.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of Base Rent, Tenant's Share of Operating Expense increases, parking
charges, after hours HVAC charges, or other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed encumbering the
Project. Accordingly, if any installment of Base Rent, Tenant's Share of
Operating Expense increases, parking charges, after hours HVAC charges or any
other sum due from Tenant shall not be received by Landlord when such amount
shall be due, then, without any requirement for notice to Tenant, Tenant shall
pay to Landlord a late charge equal to six percent (6%) of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder including
the assessment of interest under Section 13.5. Notwithstanding anything to the
contrary in this Section 13.4, Landlord agrees to waive imposition of such late
charge on the first (1st) occasion in any twelve (12) month period, provided the
overdue payment is made within five (5) business days after Landlord gives
Tenant written notice that the payment was not made when due.

     13.5 Interest on Past-due Obligations. Except as expressly herein provided,
any amount due to Landlord that is not paid when due shall bear interest at the
lesser of two percent (2%) per annum over the "prime rate" as established by
Citibank, N.A., or the maximum rate



permitted by applicable law. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Tenant nor on any amounts upon which
late charges are paid by Tenant.

     13.6 Payment of Rent after Default. If Tenant fails to pay Base Rent,
Tenant's Share of Operating Expense increases, parking charges or any other
monetary obligation due hereunder on the date it is due, after Tenant's third
failure to pay any monetary obligation on the date it is due, at Landlord's
option, all monetary obligations of Tenant hereunder shall thereafter be paid by
cashiers check. If Landlord has required Tenant to make said payments by
cashiers check, Tenant's failure to make a payment by cashiers check shall be a
material default hereunder.

14. Landlord's Right to Cure Default; Payments by Tenant. All covenants and
agreements to be kept or performed by Tenant under this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to perform any of its obligations under this Lease, within
a reasonable time after such performance is required by the terms of this Lease,
Landlord may, but shall not be obligated to, after three (3) days' prior written
notice to Tenant, make any such payment or perform any such act on Tenant's
behalf without waiving its rights based upon any default of Tenant and without
releasing Tenant from any obligations hereunder. Tenant shall pay to Landlord,
within thirty (30) days after delivery by Landlord to Tenant of statements
therefor, an amount equal to the expenditures reasonably made by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of this Section 14.

15. Condemnation. If any portion of the Premises or the Project are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs; provided that if so much of the
Premises or Project are taken by such condemnation as would substantially and
adversely affect the operation and profitability of Tenant's business conducted
from the Premises, and said taking lasts for ninety (90) days or more, Tenant
shall have the option, to be exercised only in writing within thirty (30) days
after Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within thirty (30) days after the condemning authority
shall have taken possession), to terminate this Lease as of the date the
condemning authority takes such possession. If a taking lasts for less than
ninety (90) days, Tenant's rent shall be abated during said period but Tenant
shall not have the right to terminate this Lease. If Tenant does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Tenant's Share of Operating Expenses shall be reduced in the proportion
that the usable floor area of the Premises taken bears to the total usable floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Tenant and no reduction of rent shall occur with respect thereto or by
reason thereof. Landlord shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning authority,
by giving written notice to Tenant of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Project. Any award for the taking of all or any part of the Premises or
the Project under the power of eminent domain or any payment made under threat
of the exercise of such power shall be the property of Landlord, whether such
award shall be made as compensation for diminution in value of the leasehold or
for the taking of the fee, as severance damages, or as damages for tenant
improvements; provided, however, that Tenant shall be entitled to any separate
award for loss of or damage to Tenant's trade fixtures and removable personal
property and any award available for the relocation of Tenant's business. In the
event that this Lease is not terminated by reason of such condemnation, and
subject to the requirements of any lender that has made a loan to Landlord
encumbering the Project, Landlord shall to the extent of severance damages
received by Landlord in connection with such condemnation, repair any damage to
the Project caused by such condemnation except to the extent that Tenant has
been reimbursed therefor by the condemning authority. Tenant shall pay



any amount in excess of such severance damages required to complete such repair.
Except as set forth in this Section 15, Landlord shall have no liability to
Tenant for interruption of Tenant's business upon the Premises, diminution of
Tenant's ability to use the Premises, or other injury or damage sustained by
Tenant as a result of such condemnation.

16. Vehicle Parking.

     16.1 Use of Parking Facilities. During the Term and subject to the rules
and regulations attached hereto as Exhibit "C" as modified by Landlord from time
to time (the "Rules"), Tenant shall be entitled to use the number of parking
spaces set forth in Section 1.13 in the parking facility of the Project .
Landlord reserves the right at any time to relocate Tenant's reserved and
unreserved parking spaces, provided such new spaces shall be located in the same
general area as the original parking spaces and Landlord does not reduce
Tenant's covered "reserved" spaces. The foregoing notwithstanding, Landlord
shall not have the right to relocate Tenant's reserved parking spaces designated
as not being subject to relocation on Exhibit A-2 unless required by law. If
Tenant commits or allows in the parking facility any of the activities
prohibited by the Lease or the Rules, then Landlord shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Tenant, which
cost shall be immediately payable by Tenant upon demand by Landlord. Tenant's
parking rights are the personal rights of Tenant and Tenant shall not transfer,
assign, or otherwise convey its parking rights separate and apart from this
Lease.

                            See Addendum Paragraph 6

     16.2 Parking Charges. [Intentionally omitted].

17. Broker's Fee. Tenant and Landlord each represent and warrant to the other
that neither has had any dealings or entered into any agreements with any
person, entity, broker or finder other than the persons, if any, listed in
Section 1.15, in connection with the negotiation of this Lease, and no other
broker, person, or entity is entitled to any commission or finder's fee in
connection with the negotiation of this Lease, and Tenant and Landlord each
agree to indemnify, defend and hold the other harmless from and against any
claims, damages, costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings, actions or agreements of the
indemnifying party. Landlord shall pay any commission(s) due Broker identified
in Section 1.15, according to separate agreement between Broker and Landlord.

18. Estoppel Certificate.

     18.1 Delivery of Certificate.
Tenant shall at any time upon not less than ten (10) days' prior written notice
from Landlord execute, acknowledge and deliver to Landlord a statement in
writing certifying such information as Landlord may reasonably request
including, but not limited to, the following: (a) that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) (b) the date to which the



Base Rent and other charges are paid in advance and the amounts so payable, (c)
that there are not, to Tenant's knowledge, any uncured defaults or unfulfilled
obligations on the part of Landlord, or specifying such defaults or unfulfilled
obligations, if any are claimed, and (d) that all tenant improvements to be
constructed by Landlord, if any, have been completed in accordance with
Landlord's obligations and Tenant has taken possession of the Premises. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Project.

     18.2 Failure to Deliver Certificate. At Landlord's option, the failure of
Tenant to deliver such statement within such time shall constitute a material
default of Tenant hereunder.

     18.3 Financial Information. If Landlord desires to finance, refinance, or
sell the Project, or any part thereof, Tenant hereby agrees to deliver, and to
cause any guarantor of Tenant's obligations to deliver, to any lender or
purchaser designated by Landlord such financial statements of Tenant or any
guarantor and other information as may be reasonably required by such lender or
purchaser. All such financial statements shall be received by Landlord and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.

19. Landlord's Liability. Tenant acknowledges that Landlord shall have the right
to transfer all or any portion of its interest in the Project and to assign this
Lease to the transferee. Tenant agrees that in the event of such a transfer
Landlord shall automatically be released from all liability under this Lease
accruing from and after the date of such transfer provided such transferee has
assumed in writing all of Landlord's obligations hereunder; and Tenant hereby
agrees to look solely to Landlord's transferee for the performance of Landlord's
obligations hereunder after the date of the transfer. Upon such a transfer,
Landlord shall, at its option, return Tenant's security deposit to Tenant or
transfer Tenant's security deposit to Landlord's transferee and, in either
event, Landlord shall have no further liability to Tenant for the return of its
security deposit. Subject to the rights of any lender holding a mortgage or deed
of trust encumbering all or part of the Project, Tenant agrees to look solely to
Landlord's equity interest in the Project (including any condemnation awards,
insurance or sales proceeds, or rental income attributable to the Project) for
the collection of any judgment requiring the payment of money by Landlord
arising out of (a) Landlord's failure to perform its obligations under this
Lease or (b) the negligence or willful misconduct of Landlord, its partners,
employees and agents. No partner, employee or agent of Landlord shall be
personally liable for the performance of Landlord's obligations hereunder or be
named as a party in any lawsuit arising out of or related to, directly or
indirectly, this Lease and the obligations of Landlord hereunder. The
obligations under this Lease do not constitute personal obligations of the
individual partners of Landlord and Tenant shall not seek recourse against the
individual partners of Landlord or their assets.

20. Indemnity. Except as set forth in Section 9.4 of the Lease, Tenant hereby
agrees to indemnify, defend and hold harmless Landlord and its employees,
partners, agents, lenders and ground lessors (said persons and entities are
hereinafter collectively referred to as the "Landlord Indemnified Parties") from
and against any and all liability, loss, cost, damage, claims, loss of rents,
liens, judgments, penalties, fines, settlement costs, investigation costs, the
cost of consultants and experts, attorneys' fees, court costs and other legal
expenses, the effect of environmental contamination, the removal, remediation
and/or abatement of Hazardous Substances (as said term is defined in Section 22
of the Lease) and other expenses (hereinafter collectively referred to as
"Damages") arising out of or related to a "Landlord Indemnified Matter," as
defined below. For purposes of this Paragraph 20, a "Landlord Indemnified
Matter" shall mean any matter for which one or more of the Landlord Indemnified
Parties incurs liability or Damages if the liability or Damages arise out of or
involve, i) Tenant or its employees or agents, (all of said persons



or entities are hereinafter collectively referred to as "Tenant Parties"),
negligent use of the Premises or the Project; ii) any negligent act or omission
of a Tenant Party; iii) Tenant's failure to perform any of its obligations under
the Lease; iv) the existence, use or disposal of any Hazardous Substance brought
on to the Project by a Tenant Party; or v) any other matter for which Tenant has
agreed to indemnify Landlord pursuant to any other provision of this Lease.
Except as set forth in Section 9.4 of the Lease, Landlord hereby agrees to
indemnify, defend and hold harmless Tenant and its shareholders, affiliated
entities, employees, partners, agents, and lenders (said persons and entities
are hereinafter collectively referred to as the "Tenant Indemnified Parties")
from and against any and all Damages arising out of or related to "Tenant
Indemnified Matters," as defined below. For purposes of this Paragraph 20, a
"Tenant Indemnified Matter" shall mean any matter for which one or more of the
Tenant Indemnified Parties incurs liability or Damages if the liability or
Damages arise out of or involve, i) Landlord or its employees, partners, agents,
lenders and ground lessors (said persons are hereinafter collectively referred
to as "Landlord Parties") negligent use, occupancy or operation of the Project;
ii) any negligent act or omission of a Landlord Party; iii) Landlord's failure
to perform any of its obligations under the Lease or the Work Letter Agreement;
iv) the existence, use or disposal of any Hazardous Substances brought on to the
Project by a Landlord Party; or v) any other matters for which Landlord has
agreed to indemnify Tenant pursuant to any other provisions of this Lease.
Landlord's and Tenant's obligations hereunder shall include, but shall not be
limited to i) compensating the Landlord Indemnified Parties or the Tenant
Indemnified Parties, as the case may be, for damages arising out of Landlord
Indemnified Matters or Tenant Indemnified Matters and ii) providing defense,
with counsel reasonably satisfactory to the indemnified party, at the other
party's sole expense, of any claims, actions or proceedings arising out of or
relating to a Landlord Indemnified Matter or a Tenant Indemnified Matter, as the
case may be, whether or not litigated or reduced to judgment and whether or not
well founded. The indemnified parties need not first pay any Damages to be
indemnified hereunder. This indemnity is intended to apply to the fullest extent
permitted by applicable law. The parties' obligations under this Paragraph shall
survive the expiration or termination of the Lease.

21. Exemption of Landlord from Liability. Landlord shall not be liable for
injury to Tenant's business or any loss of income therefrom or for loss of or
damage to the goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers, or any other person in or about the Project, nor
shall Landlord be liable for injury to the person of Tenant, Tenant's employees,
agents or contractors, whether such damage or injury is caused by or results
from any cause whatsoever including, but not limited to, theft, criminal
activity at the Project, negligent security measures, bombings or bomb scares,
hazardous waste (except as otherwise set forth in Section 22(p), fire, steam,
electricity, gas, water or rain, breakage of pipes, sprinklers, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said damage
or injury results from conditions arising upon the Premises or upon



other portions of the Project, or from other sources or places, or from new
construction or the repair, alteration or improvement of any part of the
Project, or of the equipment, fixtures or appurtenances applicable thereto,
unless the cause of the damage or injury arises out of Landlord's or its
employees or agents willful misconduct. Landlord shall not be liable for any
damages arising from any act or neglect of any other tenant, occupant or user of
the Project, nor from the failure of Landlord to enforce the provisions of the
lease of any other tenant of the Project. Notwithstanding anything to the
contrary contained in this Section 21, nothing in this Section 21 shall relieve
Landlord from liability to the extent resulting from (x) the willful misconduct
of Landlord or any of its agents, partners or employees, or (y) a breach of this
Lease by Landlord. Tenant, as a material part of the consideration to Landlord
hereunder, hereby assumes all risk of damage to property of Tenant or injury to
persons, in, upon or about the Project arising from any cause, except as
otherwise set forth in this Section 21 and Tenant hereby waives all claims in
respect thereof against Landlord, its agents, partners and employees. Landlord,
as a material part of the consideration to Tenant hereunder, hereby agrees that
Tenant shall not be liable for injury to Landlord's business or for loss of or
damage to the goods, wares, merchandise or other property of Landlord or
Landlord's employees, unless due to or caused by the willful misconduct of
Tenant, its employees or agents, and Landlord hereby waives all claims in
respect thereof against Tenant, its employees and agents. The foregoing
notwithstanding, nothing herein shall relieve Tenant from liability to the
extent resulting from (x) the willful misconduct of Tenant or any of its agents,
partners or employees, or (y) a breach of this Lease by Tenant.

22. Environmental Provisions.

          (a) For purposes of this lease, the following additional definitions
shall apply:

               (i) "Hazardous Substances" shall include any pollutants,
petroleum products, dangerous substances, toxic substances, hazardous wastes,
hazardous materials, or hazardous substances as defined in or pursuant to the
Industrial Site Recovery Act and all rules, regulations, orders, directives and
opinions promulgated thereunder ("ISRA") N.J.S.A. 13:1K-6 et seq.; the Spill
Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. and all rules,
regulations, orders, directives and opinions promulgated thereunder ("Spill
Act"); the Solid Waste Management Act, N.J.S.A. 13:1E-1 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. 9601 et seq.
and all rules, regulations, orders, directives and opinions promulgated
thereunder ("CERCLA"); or any other Federal, State or Local environmental law or
ordinance; and all rules, regulations, orders, directives and opinions
promulgated under the foregoing, any amendments to any of the foregoing and any
successor legislation to any of the foregoing (collectively "Environmental
Laws");

               (ii) "Release" means releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping;

               (iii) "Notice" means any summons, citation, directive, order,
claim, litigation, investigation, proceeding, judgment, letter, submission or
other communication, written or oral, actual or threatened, from the New Jersey
Department of Environmental Protection ("DEP"), the United States Environmental
Protection Agency ("EPA"), any other Federal, State or Local agency or authority
or any other entity or any individual, concerning any act or omission resulting
or which may result in the Release of Hazardous Substances into the waters or
onto the lands of the State of New Jersey or into waters outside the
jurisdiction of the State of New Jersey or into the "environment" as such terms
are defined in CERCLA, or otherwise related to any Environmental Law or Tenant's
obligations pursuant to this Section 22. "Notice" shall include the imposition
of any liens of any real or personal property or revenues of Tenant including,
but not limited to, Tenant's interest in the Premises or any of Tenant's
property located thereon, pursuant



to or resulting from the violation of any Environmental Law, or any other
governmental actions, orders or permits or any knowledge after due inquiry and
investigation of any facts which could give rise to any of the above.

          (b) To the extent that Tenant may be permitted under applicable law to
use the Premises and/or the Project for the generating, manufacturing, refining,
transporting, treating, storing, handling, disposing, transferring or processing
of Hazardous Substances, Tenant shall ensure that said use shall be conducted at
all times strictly in accordance with applicable Environmental Law. Tenant shall
not cause nor permit as a result of any intentional or unintentional act or
omission, a Release of Hazardous Substances. If any intentional or unintentional
act or omission results in any actual or alleged Release of Hazardous
Substances, Tenant promptly shall conduct necessary sampling and cleanup and
remediate such Release in accordance with applicable Environmental Laws.

          (c) Tenant shall not operate any business at the Premises which shall
be subject to ISRA. Tenant hereby represents that its Standard Industrial
Classification (herein "SIC") Number is 422990 as determined by reference to the
SIC Manual and its operations shall consist of the Use described in Section 1.5.
Notwithstanding any provision of ISRA to the contrary, if the Tenant's
operations become subject to ISRA, Tenant, at Tenant's own expense, shall do
whatever is necessary to comply with ISRA whenever an obligation to do so
arises. If Landlord reasonably suspects that Tenant's operations may be subject
to ISRA or if Landlord needs a letter from DEP on behalf of Tenant in connection
with a sale or refinancing of the Project, then if requested to do so by
Landlord, but no more often than once per year, Tenant shall obtain a letter
from DEP or any successor agency confirming that ISRA does not apply to Tenant's
operations. If such letter is obtained due to Landlord's belief that Tenant's
operations are subject to ISRA, Tenant shall bear all costs of obtaining such
letter. If, however, such letter is requested due to a sale or refinancing of
the Project, Landlord shall bear the costs of obtaining such letter. At no
expense to Landlord, Tenant promptly shall provide all information requested by
Landlord regarding or in furtherance of ISRA compliance. Tenant shall sign any
affidavit concerning compliance with Environmental Laws submitted by Landlord
which is true, accurate and complete; if an affidavit is not true, accurate and
complete, Tenant shall provide the necessary information to make it true,
accurate or complete and then shall sign same.

          (d) Tenant promptly shall furnish Landlord with true copies of any
Notices of any nature made by Tenant to, or received by Tenant from DEP, EPA, or
any local, state or federal authority.

          (e) Notwithstanding anything in this Lease to the contrary, and
without limiting any other provisions of this Section 22, Tenant, at its sole
cost and expense, shall observe, comply and fulfill all of the terms and
provisions of all applicable Environmental Laws, as the same may be amended from
time to time, as they relate to Tenant's use and occupancy of the Premises
during the term of this Lease.

     Without limiting the foregoing, Tenant agrees:

               (i) That it shall not do or omit to do nor suffer the commission
or omission of any act, the commission or omission of which is prohibited by or
may result in liability pursuant to any Environmental Law, including without
limitation, the Release of Hazardous Substances;

               (ii) Unless such event is triggered by the act of Landlord,
whenever the provisions of any Environmental Law requires the "owner or
operator" of the Premises to do any act, Tenant on behalf of Tenant and/or
Landlord, as the case may be, shall do such act at its sole cost and expense,
including the making of all submissions and the providing of all information, it
being the intention of the parties hereto that Landlord shall be free



of all expenses and obligations arising from or in connection with compliance
with Environmental Laws relating to the Premises and that Tenant shall fulfill
all such obligations and pay all such expenses.

          (f) In the event there shall be filed a lien against the Premises
and/or the Project arising out of a claim(s) by DEP pursuant to the provisions
of the Spill Act or by EPA pursuant to the provisions of CERCLA, Tenant
immediately either shall: 1) pay the claim and remove the lien from the Premises
and/or the Project; or, ii) furnish a bond, cash receipt or other security
satisfactory to Landlord sufficient to discharge the claim out of which the lien
arises.

          (g)  (i) Tenant promptly shall provide Landlord with all documentation
and correspondence provided to DEP pursuant to the Worker and Community Right to
Know Act, N.J.S.A. 34:5A-1 et seq., and all rules, regulations, orders,
directives and opinions promulgated thereunder.

               (ii) Tenant promptly shall supply Landlord all reports and
notices made by Tenant pursuant to the Hazardous Substance Discharge Reports and
Notices Act, N.J.S.A. 13:1K-15, et seq. and all rules, regulations, orders,
directives and opinions promulgated thereunder.

               (iii) Tenant promptly shall provide Landlord with a copy of all
permits obtained pursuant to any Environmental Law.

          (h) Tenant acknowledges that for Landlord to comply with the
requirements of Environmental Laws, Landlord from time to time, may have to
enter the Premises. Landlord and/or its agents shall have an irrevocable license
and right to enter the Premises for such purposes. All such entry by Landlord
and/or its agents shall be upon reasonable notice to Tenant.

          (i) Tenant agrees to cooperate with Landlord to provide any
information necessary to Landlord in order to effect compliance with any
Environmental Law and to execute any documents requested by Landlord in
connection with compliance with any Environmental Law.

          (j) Tenant shall cooperate fully in allowing, from time to time, such
examinations, tests, inspections and reviews of the Premises as Landlord, in its
sole and absolute discretion, shall determine to be advisable in order to
evaluate any potential environmental problems or Tenant's compliance with
Environmental Laws.

          (k) Tenant shall indemnify, defend and hold Landlord harmless from any
and all fines, suits, procedures, claims, liabilities, costs and actions of any
kind, including counsel fees (including those incurred to enforce this indemnity
or for any other purpose) arising out of or in any way related to (1) any spills
or discharges of Hazardous Substances at the Premises and/or Project caused by
Tenant or (2) Tenant's failure to comply with the provisions of this Lease.
Tenant's obligations and liabilities pursuant to this Lease shall continue for
so long as Landlord remains responsible or liable under Environmental Laws or
otherwise for any spills or discharges of Hazardous Substances and/or for any
violations of Environmental Laws which occur during Tenant's possession of the
Premises. Tenant's failure to abide by the terms of this Section shall be
enforceable by injunction.

          (l) Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be responsible for complying with any Environmental Law in
connection with any spill or Release of Hazardous Substances which shall have
occurred prior to the Possession Date of this Lease.



          (m) In the event Tenant shall fail to comply in full with this
Section, Landlord, at its option, may perform any and all of Tenant's
obligations as aforesaid, and all costs and expenses so incurred by Landlord
shall be deemed a claim against Tenant as Additional Rent payable on demand.

          (n) In no event shall Landlord be liable or responsible to Tenant or
anyone claiming through or under Tenant for the failure of any other tenant or
other person to comply with any Environmental Law and Tenant shall not be
excused from the performance of any obligation hereunder due to such failure.

          (o) The provisions of this Section 22 shall survive the expiration or
earlier termination of this Lease, regardless of the reason for such termination
and compliance with the provisions of this Section 22 may require Tenant to
expend funds or perform acts after the expiration or termination of this Lease.
Tenant agrees to expend such funds and/or perform such acts and shall not be
excused therefrom notwithstanding any expiration or termination of this Lease,
it being agreed and acknowledged that Landlord would not have entered into this
Lease but for the provisions of this Section 22.

          (p) Landlord represents and warrants that, as of the date of this
Lease, to the best of its knowledge and belief there are no Hazardous Materials
on, in or under the Premises or the Building. Tenant shall have no liability
arising from the existence or disposal of Hazardous Material brought into the
Building by anyone other than Tenant. Landlord shall indemnify, defend and hold
harmless Tenant from and against any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses which arise solely as a result of
the existence or disposal of Hazardous Material brought on, in or under the
Premises, the Building or the Project caused by Landlord, its employees or
agents. Landlord's covenants shall survive the expiration or earlier termination
of the Lease. Notwithstanding the foregoing, both parties hereto recognize and
acknowledge that the other party or their respective agents may use and store
within the Building reasonable quantities of customary office and cleaning
supplies; provided such items are stored, used and disposed of in accordance
with applicable federal, state or local law.

23. Medical Waste Disposal. If Tenant produces medical waste, Landlord may, at
its option, provide medical waste disposal services to Tenant. If Landlord
elects to provide such services, Landlord may require Tenant to use said
services. Landlord, at its option, may bill Tenant directly for such services,
which amounts shall then constitute additional rent hereunder, or Landlord may
include the cost of providing such services in Operating Expenses. Tenant waives
its right to the fullest extent allowed by law to assert any claim against
Landlord in connection with the negligent provision of medical waste disposal
services by Landlord. In the event Landlord is unable or chooses not to provide
such disposal services to Tenant, Tenant shall arrange for the disposal of its
medical waste and such disposal shall be done in compliance with all applicable
laws. Tenant hereby agrees to indemnify, defend and hold harmless Landlord
against any cost, loss, liability, action, suit or expense (including attorneys'
fees) arising out of or relating to the existence of or the disposal of medical
waste produced by Tenant at the Premises.

24. Tenant Improvements. Landlord shall perform "Landlord's Work" in accordance
with Paragraph 7 of the Addendum. Except as expressly provided herein to the
contrary, Tenant acknowledges and agrees that Landlord shall not be obligated to
construct any tenant improvements on behalf of Tenant. Except as set forth in
Paragraph 7 of the Addendum, it is specifically understood and agreed that
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, the Project, or any part thereof, or
to provide any allowance for such purposes, and that no representations
respecting the condition of the Premises or the Project have been made by
Landlord to Tenant.



                            See Addendum Paragraph 7

25. Subordination.

     25.1 Effect of Subordination. This Lease, and any Option (as defined in
Section 26 below) granted hereby shall be subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation or security now or hereafter
placed upon the Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Tenant's right to quiet possession
of the Premises shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. In
the event of a foreclosure of any such mortgage or the termination of this
Lease, Tenant will, upon request of any person or party succeeding to the
interest of Landlord as a result of such foreclosure or termination,
automatically become the Tenant of such successor in interest without change in
the terms or other provisions of this Lease. Upon request by Landlord's
mortgagee or such successor in interest, Tenant shall execute and deliver, on
terms and conditions reasonably acceptable to the parties, an instrument or
instruments confirming the attornment herein provided for. If any mortgagee,
trustee or ground lessor shall elect to have this Lease and any Options granted
hereby prior to the lien of its mortgage, deed of trust or ground lease, and
shall give written notice thereof to Tenant, this Lease and such Options shall
be deemed prior to such mortgage, deed of trust or ground lease, whether this
Lease or such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof. In the
event that the Project shall become subject to any lien of any mortgage, deed of
trust or any other hypothecation or security after the date hereof, then
Tenant's agreement to subordinate set forth herein shall be conditioned upon
Landlord obtaining a subordination, non-disturbance and attornment agreement on
such lender's standard form on behalf of Tenant. Landlord agrees to endeavor to
have such lender agree to add language to such subordination, non-disturbance
and attornment agreement requiring the lender to release the insurance proceeds
for restoration of any damage.

     25.2 Execution of Documents. Tenant agrees to execute and acknowledge any
documents required to effectuate an attornment, a subordination, or to make this
Lease or any Option granted herein prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be. Tenant's failure to execute such
documents within ten (10) days after written demand shall constitute a material
default by Tenant hereunder.

     25.3 Obligations of Mortgagee. Anything herein contained to the contrary
notwithstanding, under no circumstances shall any mortgagee or purchaser upon
foreclosure, or any assignee or lessee of such mortgagee or purchaser, as the
case may be, whether or not it shall have succeeded to the interests of the
Landlord under this Lease, be:

          (a) Liable for any act, omission or default of any prior landlord
(except in the event of a default which continues after the date of such
transfer) or for the return of any security deposit or part thereof not actually
received by such lessor, mortgagee, purchaser, assignee, or lessee, as the case
may be; or

          (b) subject to any offsets, claims or defenses that the Tenant might
have against any prior landlord; or



          (c) bound by any Base Rent or other payment required to be made by
Tenant hereunder that Tenant might have paid to any prior landlord for more than
one month in advance or for more than three months in advance where such rent
payments are payable at intervals of more than one month; or

          (d) bound by any modification, amendment or abridgment of the Lease,
or any cancellation or surrender of the same (except any such cancellation made
by Landlord as a result of a default by Tenant), made without its prior written
approval.

     25.4 Condition of Subordination. Notwithstanding anything to the contrary
contained herein, Landlord and Tenant acknowledge that Tenant is subordinating
its interest in this Lease, and executing and delivering this Lease to Landlord
conditionally upon the receipt by Tenant of a subordination, non-disturbance and
attornment agreement (hereinafter the "SNDA"), duly executed by Landlord's
current mortgagee (Fleet National Bank, as Agent) and the parties hereto, in
form and substance as set forth on Exhibit K attached hereto. In the event
Tenant does not receive a fully executed counterpart of the SNDA within
forty-five (45) days of the date hereof, Tenant shall have the right to
terminate this Lease upon written notice to Landlord. In the event of such
termination, Landlord shall return to Tenant the Letter of Credit delivered
herewith, and any other monies deposited hereunder, and thereafter, neither
party shall have any further obligations to the other with respect to this
Lease."

26. Options.

     26.1 Definition. As used in this Lease, the word "Option" has the following
meaning: (1) the right or option to extend the Term of this Lease or to renew
this Lease, and (2) the option or right of first refusal to lease the Premises
or the right of first offer to lease the Premises or the right of first refusal
to lease other space within the Project or the right of first offer to lease
other space within the Project. Any Option granted to Tenant by Landlord must be
evidenced by a written option agreement attached to this Lease as a rider or
addendum or said option shall be of no force or effect.

     26.2 Options Personal. Each Option granted to Tenant in this Lease (other
than the Option to Renew contained in Paragraph 8 of the Addendum), if any, is
personal to the original Tenant and any Permitted Transferee as defined in
Paragraph 5 of the Addendum, and may be exercised only by the original Tenant or
Permitted Transferee while occupying the entire Premises and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Tenant, including, without limitation, any permitted
transferee as defined in Section 12. The Options, if any, herein granted to
Tenant are not assignable separate and apart from this Lease, nor may any Option
be separated from this Lease in any manner, either by reservation or otherwise.
If at any time an Option is exercisable by Tenant, the Lease has been assigned,
or a sublease exists as to any portion of the Premises other than to a Permitted
Transferee, the Option shall be deemed null and void and neither Tenant nor any
assignee or subtenant shall have the right to exercise the Option.

     26.3 Multiple Options. In the event that Tenant has multiple Options to
extend or renew this Lease a later Option cannot be exercised unless the prior
Option to extend or renew this Lease has been so exercised.

     26.4 Effect of Default on Options. Tenant shall have no right to exercise
an Option (i) during the time commencing from the date Landlord gives to Tenant
a notice of default pursuant to Section 13.1 and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) if Tenant is
in default of any of the terms, covenants or conditions of this Lease. The
period of time within which an Option may be exercised shall not be extended or
enlarged by reason of Tenant's inability to exercise an Option because of the
provisions of this Section 26.4.



     26.5 Limitations on Options. [Intentionally omitted]

                       See Addendum Paragraphs 8, 9 and 10

27. Landlord Reservations. Landlord shall have the right: (a) to change the name
and address of the Project or Building upon not less than ninety (90) days prior
written notice if, and only if, directed to do so by a governmental or other
authority having jurisdiction thereover; (b) to provide and install Building
standard graphics on or near the door of the Premises and such portions of the
Common Areas as Landlord shall determine, in Landlord's sole discretion it being
agreed that the expense of installing such Building standard graphics shall be
considered an Operating Expense, as and to the extent provided in Section 5.1);
(c) to permit any tenant the exclusive right to conduct any business as long as
such exclusive right does not conflict with any rights expressly given herein;
and (d) subject to the rights granted to Tenant pursuant to Paragraph 11 of the
Addendum, to place signs, notices or displays upon the roof, interior, exterior
or Common Areas of the Project. Tenant shall not use a representation
(photographic or otherwise) of the Building or the Project or their name(s) in
connection with Tenant's business or suffer or permit anyone, except in an
emergency, to go upon the roof of the Building. Landlord reserves the right to
use the exterior walls of the Premises, and the area beneath, adjacent to and
above the Premises together with the right to install, use, maintain and replace
equipment, machinery, pipes, conduits and wiring through the Premises, which
serve other parts of the Project provided that Landlord's use does not
unreasonably interfere with Tenant's use of the Premises. Notwithstanding
Landlord's limited right to change the name of the Building as set forth in
subsection (a) above, Landlord shall have the right, at any time during the Term
of the Lease, to place signage containing the Building address on the exterior
of the Building at the front entrance (i.e., canopy or glass doors).

28. Changes to Project. Landlord shall have the right, in Landlord's sole
discretion, from time to time, to make changes to the size, shape, location,
number and extent of the improvements comprising the Project (hereinafter
referred to as "Changes") including, but not limited to, the Project interior
and exterior, the Common Areas, elevators, escalators, restrooms, HVAC,
electrical systems, communication systems, fire protection and detection
systems, plumbing systems, security systems, parking control systems, driveways,
entrances, parking spaces, parking areas and landscaped areas so long as such
Changes do not have a permanent material adverse effect on Tenant's use and
enjoyment of or access to the Premises. In connection with the Changes, Landlord
may, among other things, erect scaffolding or other necessary structures at the
Project, limit or eliminate access to portions of the Project, including
portions of the Common Areas, or perform work in the Building, which work may
create noise, dust or leave debris in the Building. Tenant hereby agrees that
such Changes and Landlord's actions in connection with such Changes shall in no
way constitute a constructive eviction of Tenant or entitle Tenant to any
abatement of rent. Landlord shall have no responsibility or for any reason be
liable to Tenant for any direct or indirect injury to or interference with
Tenant's business arising from the Changes, nor shall Tenant be entitled to any
compensation or damages from Landlord for any inconvenience or annoyance
occasioned by such Changes or Landlord's actions in connection with such
Changes.

29. Substitution of Other Premises. [Intentionally omitted].



30. Holding Over. If Tenant remains in possession of the Premises or any part
thereof after the expiration or earlier termination of the Term hereof, such
occupancy shall be a tenancy from month to month upon all the terms and
conditions of this Lease pertaining to the obligations of Tenant, except that
(i) for the first three (3) months following the expiration or earlier
termination of the Term, the Base Rent payable shall be one hundred twenty-five
percent (125%) of the Base Rent payable immediately preceding the termination
date of this Lease, (ii) for the fourth through sixth months following the
expiration or earlier termination of the Lease, the Base Rent payable shall be
one hundred fifty percent (150%) of the Base Rent payable immediately preceding
the termination date of the Lease, and (iii) thereafter, the Base Rent payable
shall be two hundred percent (200%) of the Base Rent payable immediately
preceding the termination date of the Lease, and all Options, if any, shall be
deemed terminated and be of no further effect. Nothing contained herein shall be
construed to constitute Landlord's consent to Tenant holding over at the
expiration or earlier termination of the Lease Term. In the event Tenant remains
in possession of the Premises or any part thereof for more than two hundred
seventy (270) days after the expiration or earlier termination of the Term
hereof, Tenant hereby agrees to indemnify, hold harmless and defend Landlord
from any cost, loss, claim or liability (including attorneys' fees) Landlord may
incur as a result of Tenant's failure to surrender possession of the Premises to
Landlord on or before the two hundred seventieth (270th) day following the
expiration or earlier termination of the Term hereof.

31. Landlord's Access.

     31.1 Access. Landlord and Landlord's agents and employees shall have the
right to enter the Premises at reasonable times and upon reasonable notice to
Tenant for the purpose of inspecting the Premises, performing any services
required of Landlord, showing the Premises to prospective purchasers, lenders,
or tenants, undertaking safety measures and making



alterations, repairs, improvements or additions to the Premises or to the
Project. In the event of an emergency, Landlord may gain access to the Premises
by any reasonable means without notice, and Landlord shall not be liable to
Tenant for damage to the Premises or to Tenant's property resulting from such
access. Landlord may at any time place on or about the Building for sale or for
lease signs and Landlord may at any time during the last one hundred twenty
(120) days of the Term (or the Option terms as applicable if Tenant exercises
its Options to renew pursuant to Paragraph 8 of the Addendum) hereof place on or
about the Premises for lease signs.

     31.2 Keys. Landlord shall have the right to retain keys to the Premises and
to unlock all doors at the Premises, and in the case of emergency to enter the
Premises by any reasonably appropriate means, and any such entry shall not be
deemed a forcible or unlawful entry or detainer of the Premises or an eviction.
Tenant waives any claims for damages or injuries or interference with Tenant's
property or business in connection therewith. Tenant shall provide Landlord with
one key for each lock in the Premises.

32. Security Measures. The parties hereby acknowledge that the Building shall be
equipped with a magnetic lock card key access system. Tenant hereby
acknowledges, however, that Landlord shall have no obligation whatsoever to
provide guard service or other security measures for the benefit of the Premises
or the Project, and Landlord shall have no liability to Tenant due to its
failure to provide such services. Tenant assumes all responsibility for the
protection of Tenant, its agents, employees, contractors and invitees and the
property of Tenant and of Tenant's agents, employees, contractors and invitees
from acts of third parties. Nothing herein contained shall prevent Landlord, at
Landlord's sole option, from implementing security measures for the Project or
any part thereof, in which event Tenant shall participate in such security
measures and the cost thereof shall be included within the definition of
Operating Expenses. Landlord shall have the right, but not the obligation, to
require all persons entering or leaving the Project to identify themselves to a
security guard and to reasonably establish that such person should be permitted
access to the Project. At Tenant's election and at Tenant's sole cost and
expense, Tenant shall have the right to connect any security system for the
Premises to the Building security system provided Tenant's system is compatible
and shall not interfere with the Building security system and subject to
Landlord's reasonable approval and all applicable laws, codes, regulations and
ordinances. Landlord's agreement set forth in the foregoing sentence is subject
to Tenant's agreement that Landlord shall not be liable for any costs or
maintenance of Tenant's security system or any loss or damage sustained by
Tenant or its employees, agents or contractors or any other entity claiming by
or through Tenant in connection with Tenant's use of the Building security
system and Tenant hereby agrees to indemnify Landlord against any loss or damage
arising in connection with Tenant's use of the Building security system. Tenant
shall coordinate any such installation and monitoring with the contractor
providing such services for the Building.

33. Easements. Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not adversely
interfere with the use of the Premises by Tenant. Tenant shall sign any of the
aforementioned documents within ten (10) days after Landlord's request and
Tenant's failure to do so shall constitute a material default by Tenant. The
obstruction of Tenant's view, air, or light by any structure erected in the
vicinity of the Project, whether by Landlord or third parties, shall in no way
affect this Lease or impose any liability upon Landlord.

34. Transportation Management. Tenant shall fully comply with all present or
future programs implemented or required by any governmental or
quasi-governmental entity or Landlord to manage parking, transportation, air
pollution, or traffic in and around the Project or the metropolitan area in
which the Project is located.



35. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.

36. Time of Essence. Time is of the essence with respect to each of the
obligations to be performed by Landlord and Tenant under this Lease.

37. Definition of Additional Rent. All monetary obligations of Tenant to
Landlord under the terms of this Lease, including, but not limited to, Base
Rent, Tenant's Share of Operating Expenses, parking charges and charges for
after hours HVAC shall be deemed to be rent.

38. Incorporation of Prior Agreements. This Lease and the attachments listed in
Section 1.16 contain all agreements of the parties with respect to the lease of
the Premises and any other matter mentioned herein. No prior or contemporaneous
agreement or understanding pertaining to any such matter shall be effective.
Except as otherwise stated in this Lease, Tenant hereby acknowledges that no
real estate broker nor Landlord or any employee or agents of any of said persons
has made any oral or written warranties or representations to Tenant concerning
the condition or use by Tenant of the Premises or the Project or concerning any
other matter addressed by this Lease.

39. Amendments. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification.

40. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by certified mail, return receipt requested, personal
delivery, Federal Express or other delivery service. Any notice given to either
party hereunder shall be deemed given on the date the notice is actually
received or upon receipt or rejection of receipt, as the case may be. Either
party may by notice to the other specify a different address for notice
purposes. Notwithstanding the address set forth in Section 1.17 for Tenant, upon
Tenant's taking possession of the Premises, the Premises shall constitute
Tenant's address for notice purposes. A copy of all notices required or
permitted to be given to Landlord hereunder shall be concurrently transmitted to
such party or parties at such addresses as Landlord may from time to time
designate by notice to Tenant. Landlord agrees to also transmit a copy of any
notices of default given to Tenant to Tenant's attorney at the address set forth
in Section 1.17 hereinabove or such other address that Tenant may from time to
time designate by written notice to Landlord, provided, no failure on the part
of the Landlord to furnish Tenant's attorney with a copy of any such notice to
Tenant shall (i) affect the validity of any default declared against Tenant
pursuant to the terms and conditions of this Lease or extend any time periods
set forth in Section 13.1 hereinabove, or (ii) be considered a default by
Landlord of any of the conditions or agreements contained in this Lease.

41. Waivers. No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. No waiver by Tenant of any
provision hereof shall be deemed a waiver of any other provision hereof or any
subsequent breach by Landlord of the same or any other provision. Tenant's
consent to, or approval of any act shall not be deemed to render unnecessary the
obtaining of Tenant's consent or approval, if required, of any subsequent act by
Landlord. The acceptance of rent hereunder by Landlord shall not be a waiver of
any preceding breach by Tenant of any provision hereof, other than the failure
of Tenant to pay the



particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent.

No acceptance by Landlord of partial payment of any sum due from Tenant shall be
deemed a waiver by Landlord of its right to receive the full amount due, nor
shall any endorsement or statement on any check or accompanying letter from
Tenant be deemed an accord and satisfaction. Tenant hereby waives for Tenant and
all those claiming under Tenant all rights now or hereafter existing to redeem
by order or judgment of any court or by legal process or writ, Tenant's right of
occupancy of the Premises after any termination of this Lease.

42. Covenants. This Lease shall be construed as though the covenants contained
herein are independent and not dependent and Tenant hereby waives the benefit of
any statute to the contrary.

43. Binding Effect; Choice of Law. Subject to any provision hereof restricting
assignment or subletting by Tenant, this Lease shall bind the parties, their
heirs, personal representatives, successors and assigns. This Lease shall be
governed by the laws of the state in which the Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Project is located.

44. Attorneys' Fees. If Landlord or Tenant brings an action to enforce the terms
hereof or declare rights hereunder, the prevailing party in any such action, or
appeal thereon, shall be entitled to its reasonable attorneys' fees and court
costs to be paid by the losing party as fixed by the court in the same or
separate suit, and whether or not such action is pursued to decision or
judgment. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all reasonable
attorneys' fees and court costs reasonably incurred in good faith. Landlord
shall be entitled to reasonable attorneys' fees and all other costs and expenses
incurred in the preparation and service of notices of default and consultations
in connection therewith, whether or not a legal action is subsequently commenced
in connection with such default.

45. Auctions. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas.
The holding of any auction on the Premises or Common Areas in violation of this
Section 45 shall constitute a material default hereunder.

46. Signs. Tenant shall not place any sign upon the Premises (including on the
inside or the outside of the doors or windows of the Premises) or the Project
without Landlord's prior written consent, which may be given or withheld in
Landlord's sole discretion. Landlord shall have the right to place any sign it
deems appropriate on any portion of the Project except the interior of the
Premises.

                            See Addendum Paragraph 11

47. Merger. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not result in
the merger of Landlord's and Tenant's estates, and shall, at the option of
Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.

48. Quiet Possession. Provided Tenant is not in default hereunder, Tenant shall
have quiet possession of the Premises for the entire term hereof subject to all
of the provisions of this Lease.

49. Authority. If Tenant is a corporation, trust, or general or limited
partnership, Tenant, and each individual executing this Lease on behalf of such
entity, represents and warrants that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity, that said



entity is duly authorized to enter into this Lease, and that this Lease is
enforceable against said entity in accordance with its terms. If Tenant is a
corporation, trust or partnership, Tenant shall deliver to Landlord upon demand
evidence of such authority satisfactory to Landlord.

50. Conflict. Except as otherwise provided herein to the contrary, any conflict
between the printed provisions, Exhibits, Addenda or Riders of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

51. Multiple Parties. If more than one person or entity is named as Tenant
herein, the obligations of Tenant shall be the joint and several responsibility
of all persons or entities named herein as Tenant. Service of a notice in
accordance with Section 40 on one Tenant shall be deemed service of notice on
all Tenants.

52. Interpretation. This Lease shall be interpreted as if it was prepared by
both parties and ambiguities shall not be resolved in favor of Tenant because
all or a portion of this Lease was prepared by Landlord. The captions contained
in this Lease are for convenience only and shall not be deemed to limit or alter
the meaning of this Lease. As used in this Lease the words tenant and landlord
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine gender. Notwithstanding anything to the
contrary contained in this Lease, if the Term of the Lease has not commenced
within twenty-one (21) years after the date of this Lease, this Lease shall
automatically terminate on the twenty-first (21st) anniversary of such date. The
sole purpose of this provision is to avoid any interpretation of this Lease as a
violation of the Rule Against Perpetuities, or any other rule of law or equity
concerning restraints on alienation.

53. Prohibition Against Recording. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant. Landlord shall have the
right to record a memorandum of this Lease, and Tenant shall execute,
acknowledge and deliver to Landlord for recording any memorandum prepared by
Landlord. Notwithstanding anything to the contrary contained herein, Tenant
shall have the right to record a memorandum of lease in the form attached hereto
as Exhibit I (the "Memorandum of Lease"), provided Tenant hereby agrees (i) to
pay all fees associated with the recordation and release of such Memorandum of
Lease including, but not limited to, all recordation and transfer taxes imposed,
and (ii) to deliver a Discharge of Memorandum of Lease in the form attached
hereto as Exhibit J in recordable form prior to the recordation of any
memorandum of lease which such release shall be held in escrow by Landlord (or
by Landlord's successor in interest) until such time as the Term of this Lease
expires or is earlier terminated at which time Landlord (or its successor in
interest) is authorized to date same and record same.

54. Relationship of Parties. Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the relationship
of principal and agent, partnership, joint -venture or any association between
Landlord and Tenant.

55. Rules and Regulations. Tenant agrees to abide by and conform to the Rules
and to cause its employees, suppliers, customers and invitees to so abide and
conform. Landlord shall have the right, from time to time, to modify, amend and
enforce the Rules. Landlord shall not be responsible to Tenant for the failure
of other persons including, but not limited to, other tenants, their agents,
employees and invitees to comply with the Rules.

56. Right to Lease. Landlord reserves the absolute right to effect such other
tenancies in the Project as Landlord in its sole discretion shall determine, and
Tenant is not relying on any representation that any specific tenant or number
of tenants will occupy the Project.



57. Security Interest. In consideration of the covenants and agreements
contained herein, and as a material consideration to Landlord for entering into
this Lease, Tenant hereby unconditionally grants to Landlord a continuing
security interest in and to all money and property of any kind or description,
including, without limitation, any personal property left by Tenant at the
Premises and the security deposit, if any. The security interest granted to
Landlord hereunder secures payment and performance of all obligations of Tenant
under this Lease now or hereafter arising or existing, whether direct or
indirect, absolute or contingent, or due or to become due. In the event of a
default under this Lease which is not cured within the applicable grace period,
if any, Landlord is and shall be entitled to all the rights, powers and remedies
granted a secured party under the State of New Jersey Commercial Code and
otherwise available at law or in equity, including, but not limited to, the
right to retain as damages the personal property and security deposit held by
Landlord, without additional notice or demand regarding this security interest.
Tenant agrees that it will execute such other documents or instruments as may be
reasonably necessary to carry out and effectuate the purpose and terms of this
Section, or as otherwise reasonably requested by Landlord, including without
limitation, execution of a UCC-1 financing statement. Landlord's rights under
this Section are in addition to Landlord's rights under Sections 5 and 13.
Notwithstanding anything to the contrary contained in Section 57 of this Lease,
the security interest granted by Tenant to Landlord shall be automatically
subordinated to the security interest, if any, granted to Tenant's lenders in
the ordinary course of Tenant's business. At Tenant's request, Landlord shall
execute a lien waiver, the form of which shall be reasonably satisfactory to
Landlord, waiving Landlord's security interest in the collateral described in
any such lien waiver (which collateral shall exclude any tenant improvements and
any fixtures installed in the Premises).

58. Security for Performance of Tenant's Obligations. [Intentionally omitted].

59. Financial Statements. From time to time but not more than twice in any
twelve (12) month period, at Landlord's request, Tenant shall cause the
following financial information to be delivered to Landlord, at Tenant's sole
cost and expense, upon not less than ten (10) days' advance written notice from
Landlord: (a) a current financial statement for Tenant and Tenant's financial
statements for the previous two accounting years, (b) a current financial
statement for any guarantor(s) of this Lease and the guarantor's financial
statements for the previous two accounting years and (c) such other financial
information pertaining to Tenant or any guarantor as Landlord or any lender or
purchaser of Landlord may reasonably request. All financial statements shall be
prepared in accordance with generally accepted accounting principals
consistently applied and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant. Notwithstanding anything
to the contrary contained herein, so long as Tenant is a publicly traded
company, Tenant need only to submit its annual report upon request by Landlord
to comply with the provisions of this Section 59.

60. Attachments. The items listed in Section 1.16 are a part of this Lease and
are incorporated herein by this reference.

                      See Addendum Paragraphs 12 through 17

61. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM,



COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT
BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER
WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.

LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS
LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS
LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN
THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS
EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND
SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE
THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE
PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD AND TENANT ONLY WHEN
FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED
ORIGINAL OF THIS LEASE TO TENANT.

                         [Signatures on following page]



LANDLORD                                TENANT

VRS SADDLE RIVER LLC,                   PDI, INC.,
a Virginia limited liability company    a Delaware corporation


By: VRS/TA Associates LLC, a Virginia
    limited liability company,
    sole member


    By: TA Rich LLC, a Massachusetts    By:
        limited liability company,          ------------------------------------
        Manager
                                            ------------------------------------
                                                        (print name)


        By: Realty Associates
            Advisors Trust, a           Its:
            Massachusetts business           -----------------------------------
            trust, sole Member                          (print title)


            By:
                ---------------------
                      (Officer)

Date:                                   Date:
      -------------------------------         ----------------------------------
      DATE OF EXECUTION                       DATE OF EXECUTION

VRS/TA ASSOCIATES, by its signature
below, joins herein not as a party,
but for the sole purpose of the
statement contained in Paragraph 7c
of the Addendum

VRS/TA ASSOCIATES LLC,
A Virginia limited liability company


    By: TA Rich LLC, a Massachusetts
        limited liability company,
        Manager


        By: Realty Associates
            Advisors Trust, a
            Massachusetts business
            trust, sole Member


            By:
                ---------------------
                      (Officer)

Date:
      -------------------------------
      DATE OF EXECUTION


                                    ADDENDUM

     THIS ADDENDUM (the "Addendum") is attached to the Lease dated as of
November 20, 2003, by and between VRS SADDLE RIVER LLC, a Virginia limited
liability company ("Landlord") and PDI, INC., a Delaware corporation ("Tenant")
and incorporated herein by reference thereto. To the extent that there are any
conflicts between the provisions of the Lease and the provisions of this
Addendum, the provisions of this Addendum shall supersede the conflicting
provisions of the Lease.

     1. Rent Abatement. Landlord hereby agrees to conditionally waive (i) the
Base Rent due from the Commencement Date through and including December 31,
2004, and (ii) one-half (1/2) of the Base Rent due for each of the months of
January through March, 2005. No other amounts due to Landlord under this Lease
other than the Base Rent shall be abated, except as expressly provided herein.
In the event Tenant defaults hereunder and fails to cure such default within any
applicable notice or cure period, Tenant shall not be entitled to any further
abatement of Base Rent. Nothing contained in this Paragraph shall be construed
to relieve Tenant of (i) the obligation set forth in Section 4.1 of the Lease to
deposit with Landlord the Base Rent due for the months of January, 2005 and
February, 2005 on the earlier to occur of (a) the Commencement Date, and (b) May
1, 2004, or (ii) the obligation to pay all Electric Energy Charges incurred by
Tenant.

     2. Operating Expense Increases. Notwithstanding anything to the contrary
contained in the definitions of Operating Expenses set forth in Section 5.1(d)
of the Lease, Operating Expenses shall not include the following:

          (a) costs associated with leasing space in the Building, including,
     without limitation, advertising and marketing, commissions or any amounts
     paid for or on behalf of tenants such as space planning, moving costs,
     rental and other tenant concessions;

          (b) costs of electricity sold to tenants of the Building by Landlord
     or any other special service or benefit to the tenants or service or
     benefit in excess of that furnished to Tenant whether or not Landlord
     receives reimbursement from such tenants as an additional charge;

          (c) any amounts which would otherwise be included in Operating
     Expenses paid to any person, firm or corporation related or otherwise
     affiliated with Landlord or any general partner, officer or director of
     Landlord or any of its general partners, to the extent same exceeds
     arms-length competitive prices paid in the Saddle River, New Jersey area
     for the services or goods provided (i.e., that portion of the costs and
     expenses for such services that exceed the competitive rate shall not be
     included in Operating Expenses);

          (d) costs of renovating or otherwise improving space for new tenants
     or in renovating space vacated by any tenant;

          (e) Landlord's general corporate overhead and general and
     administrative expenses except as it relates specifically to the actual
     management of the Project;

          (f) any depreciation, interest and principal payments due under any
     security interest encumbering the Project;

          (g) legal expenses and professional fees incurred in connection with
     leasing space in the Project or disputes with tenants, other occupants or
     prospective tenants, lenders, ground lessors, employees or agents of
     Landlord;

          (h) costs incurred by Landlord for capital improvements, except for
     the cost incurred for such capital improvements made: (a) to conform with
     laws (which are amended, become effective, or are interpreted or enforced
     differently after the date of this Lease); (b) to provide or maintain
     Building standards (other than Building standard tenant improvements); or
     (c) with the intention of promoting safety or reducing or controlling
     increases in Operating Expenses, such as lighting retrofit and installation
     of energy management systems (but only to the extent any such capital
     improvement (i) actually reduces Operating Expenses, or (ii) does not
     exceed what Tenant would have paid prior to such capital improvement);

          (i) salaries, wages and benefits of any employee above the level of
     property manager; or any salary, wages, or other compensation or benefits
     for off-site employees applicable to the time spent working at other
     buildings, other than the Building manager (provided that with respect to
     each employee that services the Building and other buildings, a pro rata
     portion of such employee's salary shall be included in Operating Expenses);

          (j) ground rent;

          (k) costs incurred to correct violations by Landlord of any law, rule,
     order or regulation which was in effect as of the date hereof;

          (l) costs relating to maintaining Landlord's existence, either as a
     corporation, partnership, trust or other entity, such as trustee's fees,
     annual fees, partnership organization or administration expenses, deed
     recordation expenses, legal and accounting fees (other than with respect to
     Building operations);

          (m) any expense for which Landlord is reimbursed or entitled to be
     reimbursed from any tenant, or under the terms of any insurance policy,
     warranty, or condemnation award;


                                      Add-1


          (n) depreciation and amortization of the Building or any equipment,
     machinery, fixtures or improvements therein except for amortization of
     capital improvements specifically permitted in the Lease;

          (o) bad debt or rent loss or reserves for bad debts or rent loss;

          (p) costs incurred in connection with the sale, selling or change of
     ownership of the Building, including brokerage commissions, attorneys' and
     accountants' fees, closing costs, title insurance premiums, transfer taxes
     and interest charges;

          (q) fines, penalties or interest for Landlord's failure to make any
     tax payment in a timely fashion;

          (r) any compensation paid to clerks, attendants or other persons in
     commercial concessions operated by Landlord or any affiliate of Landlord;

          (s) costs of acquisition of sculpture, paintings, or other objects of
     art;

          (t) costs of repairs, restoration, replacements or other work
     occasioned by fire, windstorm or other casualty required to be insured by
     Landlord under this Lease;

          (u) Landlord's net income, transfer, excise, capital stock, estate,
     succession and franchise taxes;

          (v) costs directly resulting from the gross negligence or willful
     misconduct of Landlord or its agents, contractors or employees;

          (w) costs of rentals and other related expenses, if any, incurred in
     leasing capital items to the extent that such expense exceeds the
     amortization of the same items under this Lease if purchased (i.e., that
     portion of the costs and expenses that exceed the amortization of the same
     items under this Lease shall not be included in Operating Expenses);

          (x) costs of services provided and costs incurred in connection with
     any specialty operations in the Building including any retail health club
     or restaurant in the Building, if any; and

          (y) costs incurred to contain, abate, remove or otherwise clean up the
     Building or the Land required as a result of the presence of Hazardous
     Materials in, about or below the Building or the Land.

     3. Security Deposit. Section 6 of the Lease is hereby amended by adding the
following at the end of Section 6:

          a. The security deposit shall be in the form of an irrevocable letter
     of credit (the "Security Deposit L/C") in the amount set forth in Section
     1.10 as security for Tenant's full and faithful performance of Tenant's
     obligations hereunder. The Security Deposit L/C shall be delivered to
     Landlord at Tenant's sole cost and expense. The Security Deposit L/C shall
     be issued by and drawn on Commerce Bank or any other bank reasonably
     acceptable to Landlord, in Landlord's sole discretion, and shall name
     Landlord as Beneficiary. The Security Deposit L/C shall be substantially in
     the form attached hereto as Exhibit H. If the maturity date of the Security
     Deposit L/C is prior to the end of the Term of the Lease, Tenant shall
     renew the Security Deposit L/C as often as is necessary with the same bank
     or financial institution (or a similar bank or financial institution
     reasonably acceptable to Landlord) and upon the same terms and conditions,
     not less than thirty (30) days prior to the purported expiration date of
     the Security Deposit L/C. In the event that Tenant fails to timely renew
     the Security Deposit L/C as aforesaid, Landlord shall be entitled to draw
     against the entire amount of the Security Deposit L/C. The Security Deposit
     L/C shall be assignable by Landlord and upon such assignment to any party
     assuming in writing the lessor interest in this Lease, Landlord shall be
     relieved from all liability to Tenant therefor.

          b. Upon the occurrence of any default by Tenant in the payment of Base
     Rent or upon the occurrence of the events described in Section 13.1 of the
     Lease or in the event that Landlord terminates this Lease in accordance
     with the terms hereof following a default by Tenant after the expiration of
     any applicable notice and cure period, Landlord shall have the right to
     draw the entire amount of the Security Deposit L/C. Landlord agrees to copy
     Tenant on any notice to the issuing bank requesting a draw against the
     Security Deposit L/C. In the event that Tenant defaults after the
     expiration of any applicable notice and cure period in making any money
     payment required to be made by Tenant under the terms of this Lease other
     than the payment of Base Rent, then Landlord shall be entitled to draw upon
     so much of the Security Deposit L/C as equals the defaulted payment(s),
     plus any interest or other charges due thereon in accordance with this
     Lease. If Landlord elects to make a partial draw upon the Security Deposit
     L/C, Tenant shall promptly restore the Security Deposit L/C to its original
     amount within ten (10) days after written demand therefor. Landlord's
     election to make a partial draw upon the Security Deposit L/C shall in no
     event prejudice or waive Landlord's right to terminate this Lease if
     permitted under applicable provisions of this Lease, nor shall such
     election prejudice or waive any other remedy of Landlord reserved under the
     terms of this Lease, including the right to draw the entire amount of the
     Security Deposit L/C, if applicable. The Security Deposit L/C shall be
     available for payment against the presentation of a sight draft by the
     Landlord (with simultaneous notice to Tenant) together with a certificate
     from Landlord that Tenant is in default of its obligations hereunder beyond
     expiration of any applicable notice and cure periods and that Landlord is
     entitled, by the terms of this Lease, to draw upon the Security Deposit
     L/C. The proceeds of the Security Deposit L/C, if drawn by Landlord
     pursuant to the terms hereof, shall be held by Landlord and applied to
     reduce any amount owed by Tenant to Landlord. Interest shall be payable on
     any proceeds held on account at the interest rate being paid by a standard
     commercial depository account.

          c. In the event that (i) Landlord draws the full amount of the
     Security Deposit L/C as a result of a default by Tenant, (ii) this Lease is
     not terminated by Landlord as a result of such default, (iii) such default
     is fully cured by Tenant, and (iv) there is no outstanding uncured default
     by Tenant, then the balance of the sums drawn


                                      Add-2


     (after the payment of any sums related to the curing of any defaults) shall
     be applied first to obtain a replacement letter of credit as security for
     Tenant's performance hereunder, and the remaining balance, if any, will be
     refunded to Tenant. Upon the termination of this Lease and the payment in
     full to Landlord of all damages, costs and expenses to which Landlord is
     entitled, the balance of any funds drawn from the Security Deposit L/C
     after satisfying such obligations in full shall be refunded to Tenant.

          d. To the extent that the Security Deposit L/C is either lost or the
     issuing bank will not honor the Security Deposit L/C, Tenant personally
     guarantees the proceeds of the Security Deposit L/C and will immediately
     remit to Landlord the amount of the Security Deposit in cash to be held in
     accordance with this Section 6 of the Lease.

          e. Notwithstanding anything to the contrary contained in Section 6 of
     the Lease, provided Tenant has not been in default under the Lease beyond
     the expiration of any applicable notice and cure periods at any time during
     the Term of the Lease, Landlord shall permit the Security Deposit L/C to be
     amended (at Tenant's sole cost and expense) to reduce the face amount of
     the Security Deposit L/C according to the following schedule:

- --------------------------------------------------------------------------------
Date of Reduction                                New Security Deposit L/C Amount
- --------------------------------------------------------------------------------
February 1, 2006                                           $1,825,000.00
- --------------------------------------------------------------------------------
February 1, 2007                                           $1,650,000.00
- --------------------------------------------------------------------------------
February 1, 2008                                           $1,475,000.00
- --------------------------------------------------------------------------------
February 1, 2009                                           $1,300,000.00
- --------------------------------------------------------------------------------
February 1, 2010                                           $1,125,000.00
- --------------------------------------------------------------------------------
February 1, 2011                                             $950,000.00
- --------------------------------------------------------------------------------
February 1, 2012                                             $775,000.00
- --------------------------------------------------------------------------------
February 1, 2013                                             $600,000.00
- --------------------------------------------------------------------------------

In no event shall a reduction to the amount of the Security Deposit L/C be
deemed to have occurred absent an amendment to the Security Deposit L/C in
writing by the issuing bank. It shall be Tenant's sole obligation to obtain such
written amendment from the issuing bank. The remaining Six Hundred Thousand and
00/100 Dollars ($600,000.00) shall be held as the Security Deposit during the
initial Term of the Lease. Tenant shall be required to maintain an amount equal
to one (1) month of the then-escalated Base Rent at the commencement of the
Option term as a Security Deposit during the Option Terms set forth in Paragraph
8 below. Tenant shall have the option at any time after February 1, 2010, as
long as Tenant is not in default under the Lease and has not been in default
under the Lease for the prior twenty-four (24) months of the Term of the Lease,
to convert the Security Deposit to cash. If Tenant elects to convert the
Security Deposit to cash, such Security Deposit shall still be subject to
reduction in accordance with the above-referenced terms and conditions. If
Tenant is in default beyond the expiration of any applicable notice and cure
period prescribed under the Lease at any time during the Term of this Lease,
then Tenant's right thereafter to reduce the amount of the Security Deposit L/C
(or the cash Security Deposit) pursuant to this subparagraph (e) shall no longer
apply and shall become null and void and of no further force and effect."

     4. Alterations. Notwithstanding anything to the contrary in the Lease,
Tenant shall have the right to make non-structural Alterations to the Premises
without obtaining Landlord's prior written consent, provided that (i) such
Alterations do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) in cost
in any one instance; (ii) Tenant provides Landlord with prior written notice of
its intention to make such Alterations together with the plans and
specifications for the same; (iii) except in the event of an emergency, Tenant
provides Landlord a reasonable period of time to review Tenant's plan of
Alteration; (iv) any such Alteration to the Premises does not affect the
structural integrity of the Building or adversely effect any of the Building
systems; (v) such Alterations are not visible from the Common Areas; (vi) such
Alterations do not adversely affect the proper functioning of any of the base
Building systems; (vii) such Alterations will not result in Tenant drawing
services from the base Building systems at greater levels than the levels
permitted under the Lease; (viii) Tenant adheres to all applicable government
regulations, including the Americans with Disabilities Act ("ADA"), and obtains
any necessary permits in making such Alterations; and (ix) all work is performed
in a good and workmanlike manner. To the extent that Landlord's consent is
required pursuant to the Lease, Landlord agrees to notify Tenant concurrently
with Landlord's consent of any such Alterations whether Landlord will require
Tenant to remove such Alterations at the end of the Lease Term. For purposes of
the Lease, it shall be deemed reasonable for Landlord to require Tenant to
perform Alterations during non-business hours if such Alterations will create
unreasonable noise, noxious fumes or otherwise interfere with the quiet
enjoyment of the other tenants of the Building.

     5. Assignment and Subletting. Notwithstanding anything to the contrary
contained in Section 12 of the Lease, provided Tenant is not in default after
expiration of all applicable notice and cure periods, Tenant shall have the
right, without Landlord's consent, upon thirty (30) days advance written notice
to Landlord, to assign the Lease or sublet the whole or any part of the Premises
(a) to any entity or entities which are owned by Tenant, or which owns Tenant,
(b) in connection with the sale or transfer of substantially all of the assets
of the Tenant or the sale or transfer of substantially all of the outstanding
ownership interests in Tenant, or (c) in connection with a merger, consolidation
or other corporate reorganization of Tenant (each of the transactions referenced
in the above subparagraphs (a), (b), and (c) are hereinafter referred to as a
"Permitted Transfer," and each surviving entity shall hereinafter be referred to
as a "Permitted Transferee"); provided, that such assignment or sublease is
subject to the following conditions:

          (i) Tenant shall remain fully liable under the terms of the Lease;

          (ii) such Permitted Transfer shall be subject to all of the terms,
     covenants and conditions of the Lease;


                                      Add-3


          (iii) such Permitted Transferee has sufficient assets to meet Tenant's
     then remaining obligations under this Lease from and after the date of such
     Permitted Transfer; and

          (iv) such Permitted Transferee shall expressly assume the obligations
     of Tenant under the Lease from and after the date of such Permitted
     Transfer by a document reasonably satisfactory to Landlord.

     6. Parking. Tenant shall be entitled to use Tenant's prorata share of
unassigned parking around the Building and reserved/covered spaces within the
Building. A parking plan showing the location of the reserved/covered spaces is
attached hereto as Exhibit A-2.

     7. Tenant Improvements.

          a. On or before the Possession Date, Landlord shall, at Landlord's
     sole cost and expense, complete the items set forth on Schedule 1-A
     attached hereto ("Landlord's Work"). With respect to item 5 on Schedule
     1-A, Tenant shall be responsible for coordinating the installation of the
     fiber with Verizon. Landlord shall reimburse Tenant for the cost charged by
     Verizon in connection with such installation, such reimbursement to be made
     within thirty (30) days of receipt of an invoice from Verizon detailing the
     work done. Landlord shall use commercially reasonable efforts to
     substantially complete Landlord's Work on or before the date set forth in
     Section 1.7 ("Landlord's Work Completion Date"). If Landlord fails to
     deliver the Premises to Tenant with Landlord's Work substantially completed
     on or before Landlord's Work Completion Date, then, provided Tenant has
     obtained a building permit to begin construction of the Improvements,
     Tenant shall be entitled to one (1) day of Base Rent abatement (from and
     after December 31, 2004) for each day after Landlord's Work Completion
     Date, until such time as Landlord delivers the Premises to Tenant with
     Landlord's Work substantially completed.

          b. Tenant shall construct improvements ("Improvements") for the
     Premises in accordance with the Work Letter Agreement attached hereto as
     Schedule 1-B (the "Work Letter Agreement"). In connection thereto, Landlord
     hereby grants to Tenant an "Improvement Allowance" of Fifty-Two and 75/100
     Dollars ($52.75) per square foot of space in the Premises (i.e., 84,122
     square feet multiplied by $52.75 = $4,437,435.50) (the "Improvement
     Allowance"), which Improvement Allowance shall be used only for the items
     specified in the Cost Breakdown, as that term is defined in the Work Letter
     Agreement.

          c. VRS/TA Associates LLC by its signature to this Lease hereby agrees
     to guaranty payment of the Improvement Allowance when, if and as it becomes
     due in accordance with the terms of the Lease, including the Work Letter
     Agreement.

          d. The Improvement Allowance is for the construction on behalf of
     Landlord, of the Improvements, which Improvements are being made for the
     purpose of constructing/improving the Premises for use in Tenant's
     business. Except as specifically provided in this Paragraph, upon
     completion, the Improvements, together with any replacements thereof, shall
     become the property of Landlord subject to use of same by Tenant during the
     Term of this Lease, in accordance with the terms and conditions of this
     Lease. Except as specifically provided in this Paragraph, Landlord alone
     shall be entitled to depreciate the Improvements as an asset for tax
     purposes, and Tenant shall not recognize income with respect to the
     Improvement Allowance. Tenant shall be responsible for, and agrees to pay,
     all costs of the Improvements in excess of the Improvement Allowance. The
     improvements represented by such excess costs paid by Tenant, together with
     any replacements thereof, shall be and remain the property of Tenant
     throughout the Term; and Tenant alone shall be entitled to the benefits of
     ownership thereof, including without limitation, depreciation of same as an
     asset for tax purposes.

     8. Option to Renew.

          a. Subject to the provisions of Section 26 of the Lease, and provided
     that Tenant is not in default beyond any applicable cure period at the time
     of Tenant's exercise of the Option or, provided Tenant is not in default
     under Section 13.1(a) of the Lease beyond any applicable cure period at the
     commencement of the Option term, Tenant shall have two (2) five (5) year
     options to renew this Lease. Tenant shall provide to Landlord on a date
     which is prior to the date that each Option period would commence (if
     exercised) by at least two hundred seventy (270) days and not more than
     three hundred sixty (360) days, a written notice of the exercise of the
     Option to extend the Lease for the additional option term, time being of
     the essence. Such notice shall be given in accordance with Section 40 of
     the Lease. If notification of the exercise of either Option is not so given
     and received, all options granted hereunder shall automatically expire.
     Base Rent applicable to the Premises for each Option Term shall be equal to
     the Fair Market Rental, as determined in accordance with subparagraph (c)
     below. All other terms and conditions of the Lease shall remain the same.

          b. If the Tenant exercises the Option, the Landlord shall determine
     the Fair Market Rental by using its good faith judgment. Landlord shall
     provide Tenant with written notice of such amount within fifteen (15) days
     after Tenant exercises its Option. Tenant shall have fifteen (15) days
     ("Tenant's Review Period") after receipt of Landlord's notice of the new
     base rent within which to accept such rental. In the event Tenant fails to
     accept in writing such rental proposal by Landlord, then such proposal
     shall be deemed rejected and Landlord and Tenant shall attempt to agree
     upon such Fair Market Rental, using their best good faith efforts. If
     Landlord and Tenant fail to reach agreement within fifteen (15) days
     following Tenant's Review Period ("Outside Agreement Date") then the
     parties shall each within ten (10) days following the Outside Agreement
     Date appoint a real estate broker who shall be licensed in the State of New
     Jersey and who specializes in the field of commercial office space leasing
     in the Saddle River, New Jersey market, has at least ten (10) years of
     experience and is recognized within the field as being reputable and
     ethical. If one party does not timely appoint a broker, then the broker
     appointed by the other party shall promptly appoint a broker for such
     party. Such two individuals shall each determine within ten (10) days after
     their appointment such base rent. If such individuals do not agree on Fair
     Market Rental, then the two individuals shall, within five (5) days, render
     separate written reports of their determinations and together appoint a
     third similarly qualified individual having the qualifications described
     above. If the two brokers are unable to agree upon a third broker, the
     third broker shall be appointed by the President of the Bergen County Board
     of Realtors. In the event the


                                      Add-4


     Bergen County Board of Realtors is no longer in existence, the third broker
     shall be appointed by the President of its successor organization. If no
     successor organization is in existence, the third broker shall be appointed
     by the Chief Judge of the Circuit Court of Bergen County, New Jersey. The
     third individual shall within ten (10) days after his or her appointment
     make a determination of such Fair Market Rental. The third individual shall
     determine which of the determinations of the first two individuals is
     closest to his own and the determination that is closest shall be final and
     binding upon the parties, and such determination may be enforced in any
     court of competent jurisdiction. Landlord and Tenant shall each bear the
     cost of its broker and shall share equally the cost of the third broker.
     Upon determination of the base rent payable pursuant to this Section, the
     parties shall promptly execute an amendment to this Lease stating the rent
     so determined.

          c. The term "Fair Market Rental" shall mean the annual amount per
     rentable square foot that a willing, comparable renewal tenant would pay
     and a willing, comparable landlord of a similar office building in the same
     geographic area would accept at arm's length for similar space, giving
     appropriate consideration to all relevant factors, including without
     limitation, the following matters: (i) annual rental rates per rentable
     square foot; (ii) the type of escalation clauses (including, without
     limitation, operating expenses, real estate taxes, and CPI) and the extent
     of liability under the escalation clauses (i.e., whether determined on a
     "net lease" basis or by increases over a particular base year or base
     dollar amount); (iii) rent abatement provisions reflecting free rent and/or
     no rent during the lease term; (iv) length of lease term; (v) size and
     location of premises being leased; and (vi) other generally applicable
     terms and conditions of tenancy for similar space. The Fair Market Rental
     may also designate periodic rental increases, a new Base Year and similar
     economic adjustments. The Fair Market Rental shall be the Fair Market
     Rental in effect as of the beginning of the Option period, even though the
     determination may be made in advance of that date, and the parties may use
     recent trends in rental rates in determining the proper Fair Market Rental
     as of the beginning of the Option period.

     9. Right of First Offer. Subject to the provisions of Section 26 of the
Lease and provided Tenant is not in default under the Lease beyond any
applicable cure period at the time of Tenant's exercise of the Option or
provided Tenant is not in default under Section 13.1(a) of the Lease, beyond any
applicable cure period at the commencement of the Option term and subject to all
other options held by tenants of the Building as of the date of this Lease, then
at any time after the initial leasing of the Option Space, Tenant shall have the
right of first offer with respect to any space that becomes available in the
Building (the "Option Space"). Prior to leasing any of the Option Space,
Landlord shall give Tenant written notice of its intent to lease the Option
Space and the material terms and conditions under which Landlord would agree to
lease the Option Space, including, without limitation, rent, escalations, term,
tenant allowance, concessions and security, if applicable. Tenant may exercise
such right only as to all of the Option Space described in the Landlord's notice
and on all of the terms set forth in Landlord's notice, and not to merely a part
of such Option Space or some of such terms. Tenant shall have fifteen (15) days
in which to provide Landlord with written notice of its election to exercise
such right and ten (10) business days thereafter to execute an amendment
incorporating the terms set forth in Landlord's notice and such other terms as
are acceptable to Landlord. Such notice shall be given in accordance with
Section 40 of the Lease. If Tenant does not give Landlord written notice of its
election to lease such Option Space on such terms within the fifteen (15) day
period or if Tenant fails to execute an amendment in form and substance
acceptable to Landlord within the ten (10) business day period described above,
Landlord shall thereafter be free to lease such Option Space to a third party on
substantially the same economic terms (e.g., rent, tenant improvements) that
Landlord offered to Tenant, with no further obligation to Tenant. If Landlord
offers the Option Space to a third party on economic terms that are not
substantially similar to those offered to Tenant, then Landlord shall again be
obligated to offer the Option Space to Tenant in accordance with the provisions
of this Paragraph 9. In the event that Landlord offers any space to Tenant
pursuant to this right of first offer, and Tenant elects not to lease the space,
the space so offered shall no longer be subject to this right of first offer,
and thereafter Landlord shall not be obligated to offer said space to Tenant
until such time as the Option Space again becomes available for leasing
following the expiration of a lease for such Option Space to a third party
tenant.

     10. Right of First Refusal. Subject to the provisions of Section 26 of the
Lease and provided Tenant is not in default under the Lease beyond any
applicable cure period at the time Tenant exercises the Option or provided
Tenant is not in default under Section 13.1(a) of the Lease, beyond any
applicable cure period at the commencement of the Option term and subject to all
other options held by tenants of the Building as of the date of this Lease,
Tenant shall have the right of first refusal to lease certain space on the
second (2nd) floor of the Building containing approximately Four Thousand Six
Hundred Eighty (4,680) rentable square feet and shown on Exhibit A-1 attached
hereto and made a part hereof (the "Right of First Refusal Space"). Prior to
entering into a lease of any of the Right of First Refusal Space, Landlord shall
give Tenant written notice of all the terms and conditions of a bona fide
third-party offer ("Offered Terms") Landlord has received for the Right of First
Refusal Space. Tenant may exercise such right only as to all of the Right of
First Refusal Space and all of the Offered Terms described in the Landlord's
notice, and not to merely a part of such Right of First Refusal Space or such
Offered Terms. Tenant shall have fifteen (15) days in which to provide Landlord
with written notice of its election to exercise this Right of First Refusal and
ten (10) business days thereafter to execute an amendment incorporating the
Offered Terms. If Tenant does not give Landlord written notice of its election
to lease such Right of First Refusal Space on such terms within the fifteen (15)
day period or if Tenant fails to execute an amendment in form and substance
acceptable to Landlord within the ten (10) business day period described above,
Landlord shall thereafter be free to lease such Right of First Refusal Space to
any third-party on economic terms and conditions which are substantially similar
to the Offered Terms, with no further obligation to Tenant. If Landlord offers
the Right of First Refusal Space to a third party on economic terms that are not
substantially similar to the Offered Terms, then Landlord shall again be
obligated to offer the Right of First Refusal Space to Tenant in accordance with
the provisions of this Paragraph 10. In the event that Landlord offers any space
to Tenant pursuant to this right of first refusal, and Tenant elects not to
lease the space, the space so offered shall no longer be subject to this right
of first refusal, and thereafter Landlord shall not be obligated to offer said
space to Tenant. Landlord agrees to notify Tenant if Landlord has entered into
such lease of the Right of First Refusal Space (or not entered into, as the case
may be).

     11. Signage.

          a. Section 46 of the Lease is hereby modified by adding the following
     to the end of Section 46: "Landlord will provide, at Landlord's sole cost
     and expense, Building directory signage on the main floor and on


                                      Add-5


     Tenant's floor of the Building. Tenant shall have the right to install
     suite entry signage with Tenant's logo on the entrance door of the
     Premises. The design, size, location and materials of such signage shall be
     in accordance with Landlord's standard Building signage package. The cost
     of any changes in the Building standard graphics on the door to the
     Premises or the Building directory following their initial installation are
     subject to Landlord's approval and shall be paid by Tenant, at Tenant's
     sole cost and expense."

          b. In addition, Landlord shall, at Tenant's sole cost and expense,
     provide Tenant with signage with Tenant's logo on a monument sign
     ("Monument Sign") at the entrance to the Building, subject to all
     applicable codes and regulations and Landlord's signage and design
     criteria, and otherwise subject to Landlord's prior approval, including,
     but not limited to, Landlord's approval of the size, location and
     installation. The foregoing notwithstanding, Landlord shall be responsible,
     at Landlord's sole cost and expense, to construct and install the Monument
     Sign. Landlord shall have the right to choose the language with regard to
     Building identification information to be placed on the Monument Sign, as
     well as the right to place other tenants' names on the Monument Sign;
     provided, however, that as long as: (i) Tenant is the single largest Tenant
     in the Building; (ii) Tenant is in occupancy of at least fifty thousand
     (50,000) square feet of the Premises; and (iii) Tenant has not been in
     monetary default under the Lease beyond the expiration of any applicable
     notice and cure period at any time during the Term of the Lease (the
     "Conditions Precedent"), Tenant's name will be listed above all other
     tenants. In addition, as long as Tenant is leasing more than Fifty Thousand
     (50,000) square feet and the Conditions Precedent have been met, Tenant
     shall be the only Tenant listed on the Monument Sign.

          c. Anytime after the Commencement Date, or earlier at Landlord's
     option, and provided the Conditions Precedent have been met, Tenant shall
     have the right (unless Landlord elects to do so, at Landlord's election) to
     obtain all necessary approvals to place a monument sign with mutually
     agreed to Building identification language and the Tenant's name, in a
     location that has visibility from Route 17, which such location shall be
     mutually agreed upon by Landlord and Tenant (the "Exclusive Route 17
     Monument Sign"). All costs for obtaining the approvals, as well as the cost
     of installation of the Exclusive Route 17 Monument Sign, shall be paid by
     Tenant. All costs of maintaining the Exclusive Route 17 Monument Sign shall
     be included in Operating Expenses, reimbursable by Tenant in accordance
     with the provisions of Section 5.1 hereinabove. Tenant shall have the final
     decision whether or not it will pay for the Exclusive Route 17 Monument
     Sign. If Tenant chooses not to pay for the Exclusive Route 17 Monument
     Sign, Tenant forfeits its rights to the Exclusive Route 17 Monument Sign.

          d. If Tenant is permitted to have the exclusive rights to the Monument
     Sign, or to have Tenant's name listed above all other tenants names, and/or
     to have the Exclusive Route 17 Monument Sign pursuant to this Paragraph 11
     and thereafter fails to meet the Conditions Precedent set forth
     hereinabove, Landlord shall have the right to require Tenant to remove
     Tenant's name from such signage at Tenant's sole cost and expense and all
     of Landlord's restrictions with respect to any such signage shall be null
     and void.

          e. The signage rights granted to Tenant in this Section 11 are
     personal to the original Tenant and any Permitted Transferee and may not be
     assigned by or to any person or entity other than Tenant or a Permitted
     Transferee.

     12. Roof-top Access. Landlord hereby agrees that Tenant shall have, subject
to the rights of other roof-top users in the Building at the time Tenant
exercises a license agreement for such use, non-exclusive access to and use of a
portion of the Building roof for Tenant to install, maintain and operate up to
five (5) satellite dishes or antennae (including appropriate conduit and
utilities for the operation thereof), the location of which shall be reasonably
agreed upon by Landlord and Tenant, such use by Tenant to be free of charge
during the initial Term hereof and any renewal terms pursuant to Paragraph 8 of
this Addendum. In the event Tenant wishes to place communication equipment on
the roof, it shall be (i) screened in a manner and design acceptable to Landlord
in its sole but reasonable discretion, (ii) installed and maintained in
compliance in all aspects with all applicable codes, and (iii) at Tenant's sole
cost and expense. Prior to installing any such equipment on the roof of the
Building, Tenant shall execute a license agreement substantially in the form
attached to this Lease as Exhibit G.

     13. Storage Space.

          (a) In addition to the Premises defined in Section 1.2 above, Landlord
     desires to lease to Tenant and Tenant desires to lease from Landlord
     additional space comprising approximately Five Hundred Fifty-Nine (559)
     rentable square feet of below grade space in the Building as shown on
     Exhibit A-3 attached hereto (hereinafter referred to as the "Storage
     Space"), on the all of the terms and conditions of the Lease applicable to
     the Premises except as specifically set forth in this Paragraph 13.

          (b) Tenant shall pay to Landlord Ten and No/100 Dollars ($10.00) per
     rentable square foot of space in the Storage Space with respect to the
     Storage Space throughout the Term of the Lease. Such monthly installments
     of storage rent shall hereinafter be referred to as "Monthly Storage Space
     Rent". The Monthly Storage Space Rent will constitute Additional Rent (as
     defined in the Lease) and shall be due and payable, without deduction or
     set off, on the first (1st) day of each calendar month during the Term of
     the Lease commencing January 1, 2005. Tenant's obligation to pay Monthly
     Storage Space Rent hereunder shall be abated from the period commencing on
     the Commencement Date and continuing until December 31, 2004. No other
     amounts other than Monthly Storage Space Rent shall be abated except as
     expressly provided elsewhere in the Lease. If Tenant defaults under the
     Lease after the expiration of any applicable notice and cure period prior
     to January 1, 2005, then Tenant shall no longer be entitled to any further
     abatement of Monthly Storage Space Rent. Monthly Storage Space Rent for any
     period during the term hereof which is for less than one (1) month shall be
     prorated based upon the actual number of days of the calendar month
     involved.

          (c) Notwithstanding anything to the contrary contained in the Lease or
     herein, (i) the Base Rent payable with respect to the Premises set forth in
     Section 1.8 of the Lease shall not be applicable to the Storage Space; (ii)
     Monthly Storage Space Rent payable with respect to the Storage Space shall
     not be subject to annual escalations; (iii) neither Operating Expense
     increases as set forth in Section 5 of the Lease nor the Electric Energy
     Charge as set forth in Section 11.6 of the Lease shall be payable with
     respect to the Storage Space.


                                      Add-6


          (d) Tenant shall use the Premises solely for storage of office
     supplies, files, UPS battery packs and product samples and for no other
     purposes whatsoever.

          (e) All property placed in the Storage Space by Tenant, its agents, or
     any other persons, shall be and remain at the sole risk of Tenant, its
     agents or other persons. Landlord shall not be liable for any damage to, or
     theft or loss of, such property, whether or not caused by the act or
     omission of any person, including Landlord or its agent, or by the
     bursting, leaking or overflowing of water, sewer or sprinkler pipes,
     plumbing fixtures, or any other act or thing, unless such damage to, or
     theft or loss of, such property results directly from the negligence or
     willful misconduct of Landlord and then only to the extent that Tenant, its
     agents or any other persons, are not compensated therefor by Tenant's
     insurance. In no event shall Landlord or its agent be liable for
     consequential damages.

          (f) Landlord shall deliver the Storage Space with full height walls,
     sprinklers, appropriate lighting and a secure locked door. Except as
     specifically provided herein, Tenant hereby agrees to accept the Storage
     Space in its "as is" condition existing on the Commencement Date and
     Landlord shall have no obligation to construct any tenant improvements to
     the Storage Space on behalf of Tenant. Tenant is not entitled to any
     improvement allowance pursuant to the terms of the Lease. Landlord will not
     provide heat, air conditioning, water, char service or any other utility or
     service to the Premises and the provisions of Section 11 of the Lease shall
     not apply to the Storage Space.

          (g) Notwithstanding any provision herein or in the Lease to the
     contrary, the Storage Space shall not be counted in connection with, or
     applied to, the calculation of Tenant's Share set forth in Section 1.11 of
     the Lease nor the calculation of the number of parking spaces Landlord
     shall allocate to Tenant pursuant to Section 1.13 of the Lease.

     14. Relocation of Existing Tenant. Tenant hereby acknowledges that Landlord
has entered into a lease with another tenant ("Existing Tenant") for
approximately Eight Thousand Six Hundred (8,600) rentable square feet on the
first floor of the Building ("First Floor Premises"). Landlord has the right, at
Landlord's sole cost and expense, to relocate the Existing Tenant to other space
in the Building. In partial consideration of Tenant's willingness to enter into
this Lease, Landlord has agreed to relocate the Existing Tenant. Tenant hereby
agrees to pay one-half (1/2) of the actual third-party costs of preparing a
second set of space plans and working drawings for the Existing Tenant for the
alternate space, provided that in no event will Tenant's costs in connection
with such plans exceed Ten Thousand and No/100 Dollars ($10,000.00) ("Tenant's
Contribution"). Tenant's Contribution shall be deducted from the Improvement
Allowance. In addition, if at such time as this Lease is executed, Landlord has
commenced construction of the First Floor Premises for the existing tenant,
and/or has completed construction of the First Floor Premises and/or the
Existing Tenant has moved into the First Floor Premises, Tenant shall be
responsible for all costs incurred by Landlord in connection with such
construction of the First Floor Premises, as well as all costs associated with
relocating the Existing Tenant to such alternate space.

     15. UPS/Generator.

          (a) Landlord agrees to permit Tenant, at Tenant's sole cost and
     expense, to install, operate, maintain and replace an uninterrupted power
     source, stationary batteries, chargers and/or generators and related
     above-ground fuel tanks (collectively, the "Equipment") adjacent to the
     Building in a location designated by Landlord in its sole discretion,
     provided Tenant obtains all necessary approvals, permits and licenses from
     all governmental authorities having jurisdiction over such matters. Tenant
     shall install the Equipment in a good and safe manner in accordance with
     the terms and conditions of this Lease, including, without limitation, all
     of the provisions contained in Section 8.3 of the Lease. Tenant shall
     provide reasonable notice to Landlord of the time and date upon which it
     desires to install the Equipment. Landlord shall have the right to have a
     representative present at the installation of the Equipment in order to
     approve the method of installation and performance thereof. The Equipment
     shall be screened in a manner and design acceptable to Landlord in its sole
     but reasonable discretion. Tenant shall bear all costs and expenses
     associated with the installation of such Equipment and Tenant shall be
     responsible for and shall bear all costs and expenses associated with the
     operation, maintenance, replacement and removal of said Equipment upon the
     expiration or earlier termination of the Lease. Tenant understands and
     acknowledges that Landlord shall not be responsible for the operation of
     any such back-up power facility. At the expiration or earlier termination
     of the Lease, the Equipment shall be removed from its location at Tenant's
     sole cost and Tenant shall restore such area to the condition existing
     prior to such installation, and any damage caused by such removal shall be
     repaired at Tenant's sole cost. If Tenant fails to so remove the Equipment
     within ten (10) days of the termination of this Lease, Tenant hereby
     authorizes Landlord to remove and dispose of the Equipment and charge
     Tenant for all costs and expenses incurred. Tenant agrees that Landlord
     shall not be liable for any property disposed of or removed by Landlord.
     Tenant's obligation to perform and observe this covenant shall survive the
     expiration or earlier termination of the Lease. If the proposed Equipment
     are placed in the parking lot, Tenant's allotted parking spaces shall be
     reduced by the amount of spaces required to accommodate such Equipment.

          (b) Further, Tenant shall construct, operate and maintain such
     Equipment in accordance with all applicable laws, including all
     environmental laws, ordinances, rules and regulations and in compliance
     with the reasonable requirements of the insurers of the Building. Tenant
     hereby agrees to indemnify Landlord from and against any breach by Tenant
     of the obligations stated in the preceding sentence, and agrees to defend
     and hold Landlord harmless from and against any and all claims, judgments,
     damages, penalties, fines, costs, liabilities, or losses (including,
     without limitation, diminution in value of the Building, damages for the
     loss or restriction or use of rentable space or of any amenity of the
     Building, damages arising from any adverse impact on marketing of space in
     the Building, sums paid in settlement of claims, reasonable attorneys'
     fees, consultant fees and expert fees) which arise during or after the Term
     of this Lease as a result of such breach.

          (c) Tenant shall indemnify, defend and hold Landlord, its principals,
     officers, directors, agents, employees and servants harmless from and
     against any liability, loss, costs, claims, damage and expense of whatever
     kind arising directly or indirectly from the installation, operation,
     maintenance, repair, and removal of such Equipment, including, but not
     limited to, attorneys' fees and court costs.


                                      Add-7


          (d) Tenant shall pay all taxes of any kind or nature whatsoever levied
     upon such Equipment and all licensing fees, franchise fees and other taxes,
     expenses and other costs of any nature whatsoever relating to the
     construction, ownership, maintenance and operation of said Equipment.

     16. Telecom/Broadband Access. Tenant will be requiring fiber connection
with a minimum capacity of an OC-3 sonet ring for its exclusive use. As part of
Landlord's Work as referenced in Schedule 1-A herein, Landlord, at Landlord's
sole cost and expense, will provide dual (divergent) paths from the street to
the Building demarcation room, as reviewed with Verizon engineers and pursuant
to plans and specifications to be approved by Tenant and Landlord. Tenant shall
be responsible for delivery of Telecom/Broadband to the Premises and shall have
the right to create two (2) divergent paths from the Building demarcation room
to the Premises, at Tenant's sole cost and expense, subject to Landlord's
consent, which shall not be unreasonably withheld or delayed. Tenant shall have
the right to utilize existing floor penetrations for telecom subject to Landlord
consent, which shall not be unreasonably withheld or delayed.

     17. Food Services. Landlord shall contract with a food service vendor who
will operate a small cafe in the Building to sell continental breakfast fare,
lunch, salads, sandwiches, soups, specialty items and snacks to occupants of the
Building. Landlord shall use commercially reasonable efforts to enter into such
contract within three (3) months following the Commencement Date. The prices
charged and services provided by any such food service vendor shall be
comparable to the services and prices offered by other food service vendors in
similar Buildings located in the same geographic area as the Building


                                      Add-8

EX-14.1

                                                                    Exhibit 14.1

PDI, INC.

CODE OF BUSINESS CONDUCT



Dear Colleagues:

            The good name and reputation of PDI, Inc. ("PDI" or the "Company")
are a result of the dedication and hard work of all of us. Together, we are
responsible for preserving and enhancing PDI's reputation, a task that is
fundamental to our continued well-being. Our goal is not just to comply with the
laws and regulations that apply to our business; we also strive to abide by the
highest standards of business conduct.

            We set forth in the succeeding pages the Company's Code of Business
Conduct (the "Code"), which has been approved by our Board of Directors. The
purpose of the Code is to reinforce and enhance the Company's commitment to an
ethical way of doing business. The contents of the Code are not new, however.
The policies set forth here are part of PDI's long-standing tradition of high
ethical standards.

            All employees, including part-time field representatives,
consultants, officers and directors are expected to comply with the policies set
forth in this Code. The Code should also be provided to and followed by the
Company's agents and representatives.

            Read the Code carefully and make sure that you understand it, the
consequences of non-compliance, and the Code's importance to the success of the
Company. If you have any questions, speak to your supervisor, the Legal
Department or any of the other resources identified in this booklet. The Code
cannot and is not intended to cover every applicable law or provide answers to
all questions that might arise; for that we must ultimately rely on each
person's good sense of what is right, including a sense of when it is proper to
seek guidance from others on the appropriate course of conduct.

            PDI is committed to providing the best and most competitive service
to our customers. Adherence to the policies set forth in the Code will help us
achieve this goal.

                            Sincerely,


                            Charles T. Saldarini
                            Vice Chairman of the Board & Chief Executive Officer



Table of Contents                                                           Page

PUTTING THE CODE TO WORK.......................................................1
     About the Code of Business Conduct........................................1
     Meeting Our Shared Obligations............................................1
RESPONSIBILITY TO OUR ORGANIZATION.............................................1
     Conflicts of Interest.....................................................1
         Improper Personal Benefits from the Company...........................1
         Financial Interests in Other Businesses...............................2
         Business Arrangements with the Company................................2
         Outside Employment or Activities with a Competitor....................2
         Outside Employment with a Customer or Supplier........................2
         Corporate Opportunities...............................................2
         Family Members Working in the Industry................................3
     Entertainment, Gifts and Gratuities.......................................3
         Receipt of Gifts and Entertainment....................................3
         Offering Gifts and Entertainment......................................3
     Protection and Proper Use of Company Assets...............................4
     Expense Reimbursement Reporting...........................................4
     Record Retention..........................................................5
     Confidential Information..................................................5
     Trademarks and Copyrights.................................................6
         Trademarks............................................................6
         Copyright Compliance..................................................6
     Computer and Communication Resources......................................6
     Insider Trading...........................................................7
     External Communications...................................................8
FAIR DEALING...................................................................9
     Antitrust Laws...........................................................10
     Conspiracies and Collaborations Among Competitors........................10
     Penalties................................................................10
RESPONSIBILITY TO OUR PEOPLE..................................................11
     Respecting One Another...................................................11
     Privacy..................................................................11
     Equal Employment Opportunity and Nondiscrimination.......................11
     Sexual and Other Forms of Harassment.....................................12
         Other Forms of Harassment............................................12
         Reporting Responsibilities and Procedures............................12
     Safety in the Workplace..................................................13
         Weapons and Workplace Violence.......................................13
         Drugs and Alcohol....................................................13
INTERACTING WITH GOVERNMENT...................................................13
     Prohibition on Gifts to Government Officials and Employees...............13
     Political Contributions and Activities...................................13
     Bribery of Foreign Officials.............................................14
IMPLEMENTATION OF THE CODE....................................................14


                                       i


     Seeking Guidance.........................................................14
     Reporting Violations.....................................................15
     Investigations of Suspected Violations...................................15
     Reports Regarding Accounting Issues......................................15
     Discipline for Violations................................................16
     A Framework for Approaching Questions and Problems.......................16
     Waivers of the Code......................................................17
     No Rights Created........................................................17


                                     ii


PUTTING THE CODE TO WORK

About the Code of Business Conduct

PDI is committed to the highest standards of business conduct in our
relationships with each other and with our clients, shareholders and others. The
Company's Code helps us in this endeavor by providing a statement of the
fundamental principles and key policies and procedures that govern the conduct
of our business.

Our business depends on the reputation of all of us for integrity and principled
business conduct. Thus, in many instances, the policies referenced in this Code
go beyond the requirements of the law.

The Code is a statement of policies for individual and business conduct and does
not, in any way, constitute an employment contract or an assurance of continued
employment.

Meeting Our Shared Obligations

Each of us is responsible for knowing and understanding the policies and
guidelines contained in the following pages. If you have questions, ask them; if
you have ethical concerns, raise them. The Legal Department, which is
responsible for overseeing and monitoring compliance with this Code, and the
other resources identified in this Code is available to answer your questions
and provide guidance and for you to report suspected misconduct. Our conduct
should reflect the Company's values, demonstrate ethical leadership, and promote
a work environment that upholds the Company's reputation for integrity, ethical
conduct and trust.

RESPONSIBILITY TO OUR ORGANIZATION

We are all expected to dedicate our best efforts to advancing the Company's
interests and to make decisions that affect the Company using objective and
independent standards.

Conflicts of Interest

A conflict of interest occurs when your private interests interfere in any way,
or even appear to interfere, with the interests of the Company. A conflict
situation can arise when you take actions or have interests that make it
difficult for you to perform your Company work objectively and effectively. Your
obligation to conduct the Company's business in an ethical manner includes the
ethical handling of actual or apparent conflicts of interest between personal
and business relationships, including full disclosure of such conflicts.
Although we cannot list every conceivable conflict, following are some common
examples that illustrate actual or apparent conflicts of interest:

Improper Personal Benefits from the Company

Conflicts of interest arise when you or a member of your family receives
improper personal benefits as a result of your position in the Company. You may
not accept any benefits from the Company that have not been duly authorized and
approved in writing pursuant to Company policy and procedure or by your
supervisor, the Vice President of Human Resources and the



Legal Department, including any advances of payroll, Company loans or guarantees
of your personal obligations.

Financial Interests in Other Businesses

Subject to the last sentence of this section, (1) you may not own an interest in
a company that competes with PDI; (2) you may not own an interest in a company
that does business with PDI (such as a PDI customer or supplier) without the
prior written approval of the Legal Department; and (3) executive officers and
members of the Board of Directors must obtain the written approval of the
chairman of the Nominating and Corporate Governance Committee of the Board of
Directors (the "Governance Committee") before making any such investment.
However, it is not typically considered a conflict of interest (and therefore,
prior approval is not required) to make investments of no more than 1% of the
outstanding securities of competitors, customers or suppliers that are public
companies (in other words, companies with stock listed on a national or
international securities exchange), so long as the interest is not so
significant that it would affect your decisions on behalf of PDI.

Business Arrangements with the Company

Without prior written approval from the Chief Executive Officer ("CEO"), you may
not participate in a joint venture, partnership or other business arrangement
with the Company. Executive officers and members of the Board of Directors must
obtain the written approval of the Chairman of the Governance Committee before
participating in such an arrangement.

Outside Employment or Activities with a Competitor

Simultaneous employment with or serving as a director of a competitor of the
Company is strictly prohibited, as is any activity that is intended to or that
you should reasonably expect to advance a competitor's interests. You may not
market products or services in competition with the Company's current or
potential business activities. It is your responsibility to consult with the
Legal Department to determine whether a planned activity will compete with any
of the Company's business activities before you pursue the activity in question.

Outside Employment with a Customer or Supplier

Without prior written approval from the Legal Department, you may not be a
customer or be employed by, serve as a director of or represent a customer of
the Company. Similarly, without prior written approval from the Legal
Department, you may not be a supplier or be employed by, serve as a director of
or represent a supplier to the Company. Executive officers and members of the
Board of Directors must obtain the written approval of the chairman of the
Governance Committee before participating in such an arrangement.

Corporate Opportunities

We each owe a duty to the Company to advance its legitimate interests when the
opportunity to do so arises. If you learn of a business or investment
opportunity through the use of Company property or information or your position
at the Company, such as from a competitor or actual or potential customer,
supplier or business associate of the Company, you may not participate in the
opportunity or make the investment without the prior written approval of the
Legal Department. Such an opportunity should be considered an investment
opportunity for the Company in the first instance. (Directors' duties to present
corporate opportunities to the Company are more extensive than as set forth
above.)


                                       2


Family Members Working in the Industry

You may find yourself in a situation where your spouse or significant other,
your children, parents, or in-laws, or someone else with whom you have a
familial relationship is a competitor, supplier or customer of the Company or is
employed by one. Such situations are not prohibited, but they call for extra
sensitivity to security, confidentiality and conflicts of interest. You must
disclose any such situation to the Legal Department to assess the nature and
extent of any concern and how it can be resolved. In some instances, any risk to
the Company's interests is sufficiently remote that the Legal Department may
only remind you to guard against inadvertently disclosing PDI's confidential
information and not to be involved in decisions on behalf of PDI that involve
the other company.

Entertainment, Gifts and Gratuities

Receipt of Gifts and Entertainment

When you are involved in making business decisions on behalf of the Company,
your decisions must be based on uncompromised, objective judgment. When
interacting with any person who has business dealings with the Company
(including suppliers, customers, competitors, contractors and consultants), you
must conduct such activities in the best interest of the Company, using
consistent and unbiased standards. You must never accept gifts or other benefits
if your business judgment or decisions would be affected.

You must never request or ask for gifts, entertainment or any other business
courtesies from people doing business with the Company. Unsolicited gifts and
business courtesies, including meals and entertainment, are permissible if they
are customary and commonly accepted business courtesies; not excessive in value;
and given and accepted without an express or implied understanding that you are
in any way obligated by your acceptance of the gift. Gifts that are extravagant
in value or unusual in nature should not be accepted without the prior written
approval of the Legal Department.

Gifts of cash or cash equivalents (including gift certificates, securities,
below-market loans, etc.) in any amount are prohibited and must be returned
promptly to the donor.

Offering Gifts and Entertainment

The purpose of business entertainment and gifts is to create good will and sound
working relationships, not to gain unfair advantage with customers. When you are
providing a gift or entertainment in connection with Company business, you must
do so in a manner that is in good taste and without excessive expense. You may
not furnish or offer to furnish any gift that is of more than token value or
that goes beyond the common courtesies associated with accepted business
practices.

Many of our customers and suppliers likely have gift and entertainment policies
of their own. You must be careful never to provide a gift or entertainment that
violates the other company's gift and entertainment policy.

What is acceptable in the commercial business environment may be entirely
unacceptable in dealings with the government. There are strict laws that govern
providing gifts, including meals,


                                       3


entertainment, transportation and lodging, to government officials and
employees. You are prohibited from providing gifts or anything of value to
government officials or employees or members of their families in connection
with Company business without prior written approval from the Legal Department.
For more information, see the section of this Code regarding Interacting with
Government.

Giving or receiving any payment or gift in the nature of a bribe or kickback is
absolutely prohibited.

Protection and Proper Use of Company Assets

We each have a duty to protect the Company's assets and ensure their efficient
use. Theft, carelessness and waste have a direct impact on the Company's
profitability. You should take measures to prevent damage to and theft or misuse
of Company property. Any suspected incidents of fraud or theft should be
immediately reported to the Legal Department for investigation.

When you leave the Company, all Company property must be returned to PDI. Except
as specifically authorized, Company assets, including Company time, equipment,
materials, resources and proprietary information, must be used for legitimate
business purposes only, though incidental personal use (such as, for example, of
Company telephones) may be permitted.

Expense Reimbursement Reporting

The Company requires honest and accurate recording and reporting of information
in order to make responsible business decisions. You must complete all Company
documents accurately, truthfully, and in a timely manner, including all travel
and expense reports. When using business expense accounts, you must document and
record all information accurately. If you are not sure whether a certain expense
is legitimate, ask your supervisor or the Chief Financial Officer.

Company Books and Records

When applicable, documents must be properly authorized. You must record the
Company's financial activities in compliance with all applicable laws and
accounting practices and the Company's system of internal controls. The making
of false or misleading entries, records or documentation is strictly prohibited.
You must never create a false or misleading report or make a payment or
establish an account on behalf of the Company with the understanding that any
part of the payment or account is to be used for a purpose other than as
described by the supporting documents.

Business records and communications often become public, and we should avoid
exaggeration, derogatory remarks, guesswork, or inappropriate characterizations
of people and companies that can be misunderstood. This applies to e-mail,
internal memos, formal reports and all other business communications.


                                       4


Record Retention

In the course of its business, the Company produces and receives large numbers
of records. Numerous laws and certain agreements require the retention of
certain Company records for various periods of time. The Company is committed to
compliance with applicable laws and regulations relating to the preservation of
records and to agreed upon arrangements with potential or existing clients.
Under no circumstances are Company records to be destroyed selectively or to be
maintained outside Company premises or designated storage facilities and any
Company policy to return records to clients or to destroy such records should be
adhered to.

If you learn of a subpoena or a pending or contemplated litigation or government
investigation, you should immediately contact the Legal Department. You must
retain and preserve ALL records that may be responsive to the subpoena or
relevant to the litigation or that may pertain to the investigation until you
are advised by the Legal Department as to how to proceed. You must not destroy
or alter any such records in your possession or control. You must also
affirmatively preserve from destruction all relevant records that without
intervention would automatically be destroyed or erased (such as e-mails and
voicemail messages). Destruction of such records, even if inadvertent, could
seriously prejudice the Company. If you have any questions regarding whether a
particular record pertains to a pending or contemplated investigation or
litigation or may be responsive to a subpoena or regarding how to preserve
particular types of records, you should preserve the records in question and ask
the Legal Department for advice.

Confidential Information

We may all learn, to a greater or lesser degree, facts about the Company's
business, plans, or "secrets of success" that are not known to the general
public or to competitors. Confidential information and trade secrets may consist
of any information, including any formula, pattern, device or compilation of
information that is not known to the general public and that is used in
business, which gives a company a potential advantage over competitors that lack
it. A few examples of confidential information and trade secrets include
customer data, the terms offered or prices charged to particular customers and
marketing or strategic plans. During the course of performing your
responsibilities, you may obtain information concerning possible transactions
with other companies or receive confidential information concerning other
companies, such as our customers, which the Company may be under an obligation
to maintain as confidential.

You must maintain the confidentiality of information entrusted to you by the
Company or its customers, except when disclosure is authorized or legally
mandated. If you possess or have access to confidential information or trade
secrets, you must:

      o     Not use the information for your own benefit.

      o     Carefully guard against disclosure of the information to people
            outside the Company. For example, you should not discuss such
            matters with family members or business or social acquaintances or
            in places where the information may be overheard, such as taxis,
            public transportation, elevators or restaurants.

      o     Not disclose the information to another colleague unless he or she
            needs the information to carry out business responsibilities.


                                       5


Your obligation to treat information as confidential does not end when you leave
the Company. Upon the termination of your employment, you must return everything
that belongs to the Company, including all documents and other materials
containing Company and customer confidential information. You must not disclose
confidential information to a new employer or to others after ceasing to work
for PDI.

You may not disclose your previous employer's confidential information to the
Company. Of course, you may use general skills and knowledge acquired during
your previous employment.

Trademarks and Copyrights

Trademarks Our logos and the name PDI, Inc. are examples of Company trademarks.
You must always properly use our trademarks and advise your supervisor or the
Legal Department of infringements by others. Similarly, the trademarks of third
parties must be used properly.

Copyright Compliance Works of authorship such as books, articles, computer
software and other such materials may be covered by copyright laws. It is a
violation of those laws and of Company policy to make unauthorized copies of or
derivative works based upon copyrighted materials. The absence of a copyright
notice does not necessarily mean that the materials are not copyrighted.

The Company licenses the use of much of its computer software from outside
companies. In most instances, this computer software is protected by copyright.
You may not make, acquire or use unauthorized copies of computer software.

Computer and Communication Resources

PDI's computer and communication resources, including computers, voicemail and
e-mail, provide substantial benefits, but they also present significant security
and liability risks to you and the Company. It is extremely important that you
take all necessary measures to secure your computer and any computer or
voicemail passwords. If you have any reason to believe that your password or the
security of a Company computer or communication resource has in any manner been
compromised, you must change your password immediately and report the incident
to the Information Technology Department.

When you are using Company resources to send e-mail, voicemail or to access
Internet services, you are acting as a representative of the Company. Any
improper use of these resources may reflect poorly on the Company, damage its
reputation, and expose you and the Company to legal liability.

All of the computing resources used to provide computing and network connections
throughout the organization are the property of PDI and are intended for use by
Company employees to conduct the Company's business. All e-mail, voicemail and
personal files stored on Company computers are Company property, and PDI retains
the right, from time to time and at its sole discretion, to review any files
stored or transmitted on its computer and communication resources, including
e-mail messages, for compliance with Company policy. Incidental and occasional
personal use of e-mail and telephones is permitted, but such use should be
minimized


                                       6


and the length of the messages should be kept as short as possible, as these
messages cost the Company in productivity, time and money.

You should not use Company resources in a way that may be unlawful or disruptive
or offensive to others. At all times when sending e-mail or transmitting any
other message or file, you should not transmit comments, language, images or
other files that you would be embarrassed to have read by any person. Remember
that your "private" e-mail messages are easily forwarded to a wide audience. In
addition, do not use these resources in a wasteful manner. Unnecessarily
transmitting messages and other files wastes not only computer resources, but
also the time and effort of each person having to sort and read through his or
her own e-mail.

Use of computer and communication resources must be consistent with all other
Company policies, including those relating to harassment, record retention,
privacy, copyright, trademark, trade secret and other intellectual property
considerations.

Insider Trading

You are prohibited by Company policy and the law from buying or selling
securities of the Company, directly or indirectly through your family or others,
when in possession of "material nonpublic information." (There is, however, an
exception for trades made pursuant to a pre-existing trading plan.) This conduct
is known as "insider trading." Passing such information on to someone who may
buy or sell securities - known as "tipping" - is also illegal. The prohibition
applies to Company securities and to securities of other companies if you learn
material nonpublic information about other companies, such as the Company's
customers, in the course of your duties for the Company. Violations of insider
trading laws may be punishable by fines and/or imprisonment under applicable
laws.

Material information is any information which could reasonably be expected to
affect the price of a stock. If you are considering buying or selling a stock
because of inside information that you possess, you should assume that the
information is material. It is also important to keep in mind that if any trade
you make becomes the subject of an investigation by the government, the trade
will be viewed after-the-fact with the benefit of hindsight. Consequently, you
should always carefully consider how your trades would look from this
perspective.

Information is considered to be non-public unless it has been adequately
disclosed to the public, which means that the information must be publicly
disclosed, and adequate time must have passed for the securities markets to
digest the information. Examples of adequate disclosure include public filings
with securities regulatory authorities and the issuance of press releases, and
may also include meetings with members of the press and the public. A delay of
one or two business days is generally considered a sufficient period for routine
information to be absorbed by the market. Nevertheless, a longer period of delay
might be considered appropriate in more complex disclosures.

If you are not sure whether particular information is material or has been made
generally available to the investing public, contact the Legal Department and
refrain from trading in the Company's (or other relevant company's) securities
until you have been advised either that the


                                       7


information is not material or that it has been made generally available to the
investing public and that the public has had an opportunity to evaluate it.

Do not disclose material nonpublic information to anyone, including co-workers,
unless the person receiving the information has a legitimate need to know the
information for purposes of carrying out the Company's business. If your family
or friends ask for advice about buying or selling Company stock, you should not
provide it. You should be careful to avoid discussing sensitive Company
information in any place where others may hear such information. If you leave
the Company, you must maintain the confidentiality of such information until it
has been adequately disclosed to the public by the Company.

For additional information on trading in the Company's securities and trading
plans, consult the Statement of Policy Regarding Trading in Company Securities
by PDI, Inc., a copy of which may be obtained from the Legal Department.

External Communications

If you are not an official Company spokesperson, you may not speak with the
press, securities analysts, other members of the financial community,
shareholders or groups or organizations as a Company representative or about
Company business unless specifically authorized to do so. If you receive a
request for financial or other information about the Company from the media, the
press, the financial community, shareholders or the public, you should decline
to answer and refer the request to the General Counsel. Requests for information
from regulators or the government should be referred to the General Counsel. You
should then report any such contact to the General Counsel.

Certain internet sites have bulletin boards or "chat rooms" devoted to
discussions regarding specific public companies. Some of these bulletin boards
relate to the Company. No Company employee should post confidential information
relating to the Company in any external forum.

Special Ethics Obligations for Employees with Financial Reporting
Responsibilities(1)

It is Company policy to make full, fair, accurate, timely and understandable
disclosure in compliance with all applicable laws and regulations in all reports
and documents that the Company files with, or submits to, the Securities and
Exchange Commission and in all other public communications made by the Company.
Depending on their position with the Company, employees may be called upon to
provide information to assure that the Company's public reports are complete,
fair, accurate and understandable. The Company expects all of its personnel to
take this responsibility very seriously and to provide prompt and accurate
answers to inquiries related to the Company's public disclosure requirements.

The Finance Department (this includes the CFO and all other individuals within
the Company and its subsidiaries who work on financial matters) bears a special
responsibility for promoting

- ----------
(1)      This section of the Code is intended to satisfy the requirements of
         section 406 of the Sarbanes-Oxley Act of 2002 and the SEC's regulations
         promulgated pursuant thereto. Amendments to this section of the Code
         will be disclosed as required by law or regulations.


                                       8


the integrity of the Company's financial statements. The CEO, the CFO and other
Finance Department personnel have a special role both to adhere to these
principles themselves and also to promote a culture throughout the Company of
the importance of full, fair, accurate, timely and understandable reporting of
the Company's financial results and conditions.

Because of this special role, the CEO, the CFO and all other members of the
Company's Finance Department are bound by the following financial officer code
of ethics (the "Financial Officer Code of Ethics"), and by accepting this Code,
each agrees that he or she will:

      o     Act with honesty and integrity, and ethically handle actual or
            apparent conflicts of interest in personal and professional
            relationships.

      o     Comply with and promote those Company standards, policies and
            procedures designed to generate full, fair, accurate, timely and
            understandable public disclosures in compliance with applicable laws
            and regulations.

      o     Comply with applicable laws, rules and regulations of federal,
            state, provincial and local governments, and applicable rules and
            regulations of appropriate private and public regulatory agencies.

      o     Act in good faith, responsibly, with due care, competence and
            diligence, without misrepresenting material facts or allowing one's
            independent judgment to be subordinated.

      o     Respect the confidentiality of information acquired in the course of
            one's work except when authorized or otherwise legally obligated to
            disclose. Confidential information acquired in the course of one's
            work will not be used for personal advantage.

      o     Share knowledge and maintain skills important and relevant to
            stakeholders' needs.

      o     Proactively promote and be an example of ethical behavior as a
            responsible partner among peers, in the work environment and the
            community.

      o     Achieve responsible use of and control over all assets and resources
            employed by or entrusted to you.

      o     Promptly report to the General Counsel and/or the Chairman of the
            Audit Committee of the Board of Directors any conduct that the
            individual believes to be a violation of law or business ethics or
            any provision of the Code, including any transaction or relationship
            that reasonably could be expected to give rise to a conflict.

      o     Subject to applicable law, violations of this Financial Officer Code
            of Ethics, including failures to report violations by others, will
            be viewed as a severe disciplinary matter that may result in
            personnel action, including termination of employment. If you
            suspect that a violation of the Financial Officer Code of Ethics has
            occurred, you must report the suspected violation in accordance with
            those procedures set forth in the section of this Code entitled
            "Implementation of the Code."

FAIR DEALING

The Company depends on its reputation for quality, service and integrity. The
way we deal with our customers, competitors and suppliers molds our reputation,
builds long-term trust and


                                       9


ultimately determines our success. We must never take unfair advantage of others
through manipulation, concealment, abuse of privileged information,
misrepresentation of material facts or any other unfair dealing practice.

Antitrust Laws

While the Company competes vigorously in all of its business activities, its
efforts in the marketplace must be conducted in accordance with the letter and
spirit of applicable antitrust and competition laws. While it is impossible to
describe antitrust and competition laws fully in any code of business conduct,
this Code will give you an overview of the types of conduct that are
particularly likely to raise antitrust concerns.

Conspiracies and Collaborations Among Competitors

One of the primary goals of the antitrust laws is to promote and preserve each
competitor's independence when making decisions on price, output, and other
competitively sensitive factors. Some of the most serious antitrust offenses are
agreements between competitors that limit independent judgment and restrain
trade, such as agreements to fix prices, restrict output or control the quality
of products, or to divide a market for customers, territories, products or
purchases. You should not agree with any competitor on any of these topics, as
these agreements are virtually always unlawful. (In other words, no excuse will
absolve you and/or the Company of liability.)

Unlawful agreements need not take the form of a written contract or even express
commitments or mutual assurances. Courts can -- and do -- infer agreements based
on "loose talk," informal discussions, or the mere exchange between competitors
of information from which pricing or other collusion could result. Any
communication with a competitor's representative, no matter how innocuous it may
seem at the time, may later be subject to legal scrutiny and form the basis for
accusations of improper or illegal conduct. You should take care to avoid
involving yourself in situations from which an unlawful agreement could be
inferred. If you come into possession of any competitor's information, you
should inform the Legal Department promptly.

By bringing competitors together, trade associations can raise antitrust
concerns, even though such groups serve many legitimate goals. The exchange of
sensitive information with competitors regarding topics such as prices, profit
margins, output levels, or billing or advertising practices can potentially
violate antitrust and competition laws, as can creating a standard with the
purpose and effect of harming competition. You must notify the Legal Department
before joining any trade association.

Joint ventures with competitors are not illegal under antitrust and competition
laws. However, like trade associations, joint ventures present potential
antitrust concerns. The Legal Department should therefore be consulted before
negotiating or entering into a joint venture.

Penalties

Failure to comply with the antitrust laws could result in jail terms for
individuals and large criminal fines and other monetary penalties for both the
Company and individuals. In addition,


                                       10


private parties may bring civil suits to recover three times their actual
damages, plus attorney's fees and court costs.

The antitrust laws are extremely complex. Because antitrust lawsuits can be very
costly, even when a company has not violated the antitrust laws and is cleared
in the end, it is important to consult with the Legal Department before engaging
in any conduct that even appears to create the basis for an allegation of
wrongdoing. It is far easier to structure your conduct to avoid erroneous
impressions than to have to explain your conduct in the future when an antitrust
investigation or action is in progress. For that reason, when in doubt, consult
the Legal Department with your concerns.

RESPONSIBILITY TO OUR PEOPLE

Respecting One Another

The way we treat each other and our work environment affects the way we do our
jobs. We all want and deserve a work place where we are respected and
appreciated. Everyone who works for the Company must contribute to the creation
and maintenance of such an environment, and supervisors and managers have a
special responsibility to foster a workplace that supports honesty, integrity,
respect and trust.

Privacy

PDI respects the privacy and dignity of all individuals. The Company collects
and maintains personal information that relates to your employment, including
benefit information. Special care is taken to limit access to personal
information to Company personnel with a need to know such information for a
legitimate purpose. Employees, partners and officers who are responsible for
maintaining personal information and those who are provided access to such
information must not disclose private information in violation of applicable law
or in violation of the Company's policies.

You should not search for or retrieve items from another's workspace without
prior approval of that person or management. Similarly, you should not use
communication or information systems to obtain access to information directed to
or created by others without the prior approval of management, unless such
access is part of your job function and responsibilities at the Company.

Personal items, messages, or information that you consider to be private should
not be placed or kept in telephone systems, computer or electronic mail systems,
office systems, offices, work spaces, desks or file cabinets. The Company
reserves all rights, to the fullest extent permitted by law, to inspect such
systems and areas and to retrieve information or property from them when deemed
appropriate in the judgment of management.

Equal Employment Opportunity and Nondiscrimination

The diversity of the Company's employees and partners is a tremendous asset. The
Company is an equal opportunity employer in hiring and promoting practices,
benefits and wages. PDI will not tolerate discrimination against any person on
the basis of race, religion, color, gender, age,


                                       11


marital status, national origin, sexual orientation, citizenship, Vietnam-era or
disabled veteran status or disability (where the applicant or employee is
qualified to perform the essential functions of the job with or without
reasonable accommodation), or any other basis prohibited by law in recruiting,
hiring, placement, promotion, or any other condition of employment.

Sexual and Other Forms of Harassment

Company policy strictly prohibits any form of harassment in the workplace,
including sexual harassment. Sexual harassment consists of unwelcome sexual
advances, requests for sexual favors and other verbal or physical conduct of a
sexual nature when:

      o     submission to such conduct is made a term or condition of
            employment;

      o     submission to or rejection of such conduct is used as a basis for
            employment decisions; or

      o     such conduct has the purpose or effect of unreasonably interfering
            with an individual's work performance or creating an intimidating,
            offensive or hostile work environment.

Forms of sexual harassment include, but are not limited to, the following:

      o     verbal harassment, such as unwelcome comments, jokes, or slurs of a
            sexual nature;

      o     physical harassment, such as unnecessary or offensive touching, or
            impeding or blocking movement; and

      o     visual harassment, such as derogatory or offensive posters, cards,
            cartoons, graffiti, drawings or gestures.

Other Forms of Harassment

Harassment on the basis of other characteristics is also strictly prohibited.
Under this policy, harassment is verbal or physical conduct that degrades or
shows hostility or hatred toward an individual because of his or her race,
color, national origin, citizenship, religion, sexual orientation, marital
status, age, mental or physical handicap or disability, veteran status or any
other characteristic protected by law, which

      o     has the purpose or effect of creating an intimidating, hostile, or
            offensive work environment;

      o     has the purpose or effect of unreasonably interfering with an
            individual's work performance; or

      o     otherwise adversely affects an individual's employment.

Harassing conduct includes, but is not limited to, the following: epithets;
slurs; negative stereotyping; threatening, intimidating or hostile acts; and
written or graphic material that ridicules or shows hostility or aversion to an
individual or group and that is posted on Company premises or circulated in the
workplace.

Reporting Responsibilities and Procedures If you believe that you have been
subjected to harassment of any kind, you should promptly report the incident to
your supervisor, a Director of Human Resources or the Legal Department.
Complaints of harassment, abuse or discrimination will be investigated promptly
and thoroughly and will be kept confidential to the extent possible.


                                       12


The Company will not in any way retaliate against anyone for making a good faith
complaint or report of harassment or participating in the investigation of such
a complaint or report.

The Company encourages the prompt reporting of all incidents of harassment,
regardless of who the offender may be, or the offender's relationship to the
Company. This procedure should also be followed if you believe that a
non-employee with whom you are required or expected to work has engaged in
prohibited conduct. Supervisors must promptly report all complaints of
harassment to the Director of Human Resources or the Legal Department.

Remember that, regardless of legal definitions, we should interact with each
other in a professional and respectful manner.

Safety in the Workplace

Safety and security are of primary importance. You are responsible for
maintaining our facilities free from recognized hazards and obeying all Company
safety rules. Working conditions should be maintained in a clean and orderly
state to encourage efficient operations and promote good safety practices.

Weapons and Workplace Violence No one may bring firearms, explosives, incendiary
devices or any other weapons into the workplace or any work-related setting,
regardless of whether or not the person is licensed to carry such weapons.
Similarly, the Company will not tolerate any level of violence in the workplace
or in any work-related setting. Violations of this policy must be referred to
your supervisor and the Legal Department immediately. Threats or assaults that
require immediate attention should be reported to the police. In the United
States, you should call 911.

Drugs and Alcohol The Company intends to maintain a drug-free work environment.
You may not use, possess or be under the influence of alcohol on Company
premises.

You cannot use, sell, attempt to use or sell, purchase, possess or be under the
influence of any illegal drug on Company premises or while performing Company
business on or off the premises.

INTERACTING WITH GOVERNMENT

Prohibition on Gifts to Government Officials and Employees

The various branches and levels of government have different laws restricting
gifts, including meals, entertainment, transportation and lodging, that may be
provided to government officials and government employees. You are prohibited
from providing gifts, meals or anything of value to government officials or
employees or members of their families without prior written approval from the
Legal Department.

Political Contributions and Activities

Laws of certain jurisdictions prohibit the use of Company funds, assets,
services, or facilities on behalf of a political party or candidate. Payments of
corporate funds to any political party,


                                       13


candidate or campaign may be made only if permitted under applicable law and
approved in writing and in advance by the Legal Department.

Your work time may be considered the equivalent of a contribution by the
Company. Therefore, unless required by applicable law, you will not be paid by
the Company for any time spent running for public office, serving as an elected
official, or campaigning for a political candidate. Nor will the Company
compensate or reimburse you, in any form, for a political contribution that you
intend to make or have made.

You must notify the Legal Department before running for election or seeking
appointment to any government-related position.

Bribery of Foreign Officials

Company policy, the U.S. Foreign Corrupt Practices Act (the "FCPA"), and the
laws of many other countries prohibit the Company and its officers, employees
and agents from giving or offering to give money or anything of value to a
foreign official, a foreign political party, a party official or a candidate for
political office in order to influence official acts or decisions of that person
or entity, to obtain or retain business, or to secure any improper advantage. A
foreign official is an officer or employee of a government or any department,
agency, or instrumentality thereof, or of certain international agencies, such
as the World Bank or the United Nations, or any person acting in an official
capacity on behalf of one of those entities. Officials of government-owned
corporations are considered to be foreign officials.

Payments need not be in cash to be illegal. The FCPA prohibits giving or
offering to give "anything of value." Over the years, many non-cash items have
been the basis of bribery prosecutions, including travel expenses, golf outings,
automobiles, and loans with favorable interest rates or repayment terms.
Indirect payments made through agents, contractors, or other third parties are
also prohibited. You may not avoid liability by "turning a blind eye" when
circumstances indicate a potential violation of the FCPA.

The FCPA does allow for certain permissible payments to foreign officials.
Specifically, the law permits "facilitating" payments, which are payments of
small value to effect routine government actions such as obtaining permits,
licenses, visas, mail, utilities hook-ups and the like. However, determining
what is a permissible "facilitating" payment involves difficult legal judgments.
Therefore, you must obtain permission from the Legal Department before making
any payment or gift thought to be exempt from the FCPA.

IMPLEMENTATION OF THE CODE

Copies of this Code are available from the Legal Department and on the Company's
Intranet. A statement of compliance with the Code must be signed by all
employees, officers, directors and consultants.

Seeking Guidance

This Code cannot provide definitive answers to all questions. If you have
questions regarding any of the policies discussed in this Code or if you are in
doubt about the best course of action in


                                       14


a particular situation, you should seek guidance from your supervisor, the Legal
Department or the other resources identified in this Code.

Reporting Violations

If you know of or suspect a violation of applicable laws or regulations, the
Code, or the Company's related policies, you must immediately report that
information to your supervisor or the Legal Department. The procedure for the
anonymous submission of complaints or concerns regarding financial statement
disclosures, accounting, internal accounting controls or auditing matters is set
forth in Annex A to the Audit Committee Charter which appears on the Company's
website and a copy of which is attached to this Code. No one will be subject to
retaliation because of a good faith report of suspected misconduct.

Investigations of Suspected Violations

All reported violations will be promptly investigated and treated confidentially
to the extent reasonably possible, given the need to conduct an investigation.
It is imperative that reporting persons not conduct their own preliminary
investigations. Investigations of alleged violations may involve complex legal
issues, and acting on your own may compromise the integrity of an investigation
and adversely affect both you and the Company. You are expected to cooperate in
internal investigations of suspected misconduct.

Reports Regarding Accounting Issues

The Company is committed to compliance with applicable securities and other
laws, rules, and regulations, accounting standards and internal accounting
controls. You are expected to report any complaints or concerns regarding
accounting, internal accounting controls and auditing matters ("Accounting
Issues") promptly. Reports may be made in writing to the Chair of the Audit
Committee of the Board of Directors (the "Audit Committee"), in care of the
Company's Legal Department at 10 Mountainview Road, Suite C200, Upper Saddle
River, NJ 07458. Reports may be made anonymously. Reports will be treated
confidentially to the extent reasonably possible given the need to conduct an
investigation. No one will be subject to retaliation because of a good faith
report of a complaint or concern regarding Accounting Issues. For more
information regarding the Audit Committee's Procedures for the Anonymous
Submission of Complaints or Concerns Regarding Financial Statement Disclosures,
Accounting, Internal Accounting Controls or Auditing Matters, see Annex A to the
Charter of the Audit Committee of the Board of Directors of PDI, Inc., posted on
the Company's website or the copy of which is attached to this Code.

The Company has also established and published on its website a mailing address
for receiving complaints regarding Accounting Issues from employees and others.
That mailing address is:

               PDI, Inc.
               Chair of the Audit Committee of the Board of Directors
               c/o Legal Department
               10 Mountainview Road, Suite C200
               Upper Saddle River, NJ 07458


                                       15


Treatment of Complaints and Retention of Records Regarding Accounting Issues

Reports of concerns or complaints regarding Accounting Issues will be
investigated in accordance with Company policy. The Company's Legal Department
will forward, as appropriate, complaints and concerns regarding Accounting
Issues to the Audit Committee. The Legal Department will retain copies of all
reports, investigative reports, summaries of reports and other documents
relating to complaints and concerns regarding Accounting Issues in accordance
with the Company's records retention policy.

Discipline for Violations

The Company intends to use every reasonable effort to prevent the occurrence of
conduct not in compliance with its Code and to halt any such conduct that may
occur as soon as reasonably possible after its discovery. Subject to applicable
law, Company personnel who violate this Code and other Company policies and
procedures may be subject to disciplinary action, up to and including discharge.

A Framework for Approaching Questions and Problems

Everyone must work to ensure prompt and consistent action against violations of
this Code. However, in some situations it is difficult to know right from wrong.
Since it is impossible to anticipate every situation that will arise, it is
important to have a way to approach a new question or problem. These are the
steps to keep in mind:

      o     Make sure you have all the facts. In order to reach the right
            solutions, we must be as fully informed as possible.

      o     Ask yourself: What specifically am I being asked to do? Does it seem
            unethical or improper? This will enable you to focus on the specific
            question you are faced with, and the alternatives you have. Use your
            judgment and common sense; if something seems unethical or improper,
            it probably is.

      o     Clarify your responsibility and role. In most situations, there is
            shared responsibility. Are your colleagues informed? It may help to
            get others involved and discuss the problem.

      o     Discuss the problem with your supervisor. This is the basic guidance
            for all situations. In many cases, your supervisor will be more
            knowledgeable about the question, and will appreciate being brought
            into the decision-making process. Remember that it is your
            supervisor's responsibility to help solve problems.

      o     Seek help from Company resources. In the rare case where it may not
            be appropriate to discuss an issue with your supervisor, or where
            you do not feel comfortable approaching your supervisor with your
            question, address your concerns to: PDI, Inc., Audit Committee of
            the Board of Directors, c/o Legal Department, 10 Mountainview Road,
            Suite C200, Upper Saddle River, NJ 07458.


                                       16


Waivers of the Code

Waivers of the Code for directors and executive officers may be made only by the
Board of Directors and must be disclosed as required by law or regulation.

No Rights Created

This Code is a statement of the fundamental principles and key policies and
procedures that govern the conduct of the Company's business. It is not intended
to and does not create any rights in any employee, partner, officer, customer,
supplier, competitor, shareholder or any other person or entity.


                                       17


Procedures for the Anonymous Submission of Complaints or Concerns Regarding
Financial Statement Disclosures, Accounting, Internal Accounting Controls or
Auditing Matters

The following is the procedure for the confidential, anonymous submission by
employees of PDI, Inc. and its subsidiaries (the "Corporation") of concerns
regarding questionable accounting, internal control, auditing or related matters
("Concerns"):

1.    The Corporation shall forward to the Audit Committee of the Board of
      Directors (the "Audit Committee") any complaints that it has received
      regarding financial statement disclosures, accounting, internal accounting
      controls or auditing matters.

2.    Any employee of the Corporation may submit, on a confidential, anonymous
      basis if the employee so desires, any Concerns by setting forth such
      Concerns in writing and forwarding them in a sealed envelope to the Chair
      of the Audit Committee, in care of the Corporation's Corporate Secretary
      (the "Secretary"), such envelope to be labeled with a legend such as:
      "Anonymous Submission of Complaint or Concern." If an employee would like
      to discuss any matter with the Audit Committee, the employee should
      indicate this in the submission and include a telephone number at which he
      or she might be contacted if the Audit Committee deems it appropriate. Any
      such envelopes received by the Secretary shall be forwarded promptly to
      the Chair of the Audit Committee.

3.    The Secretary shall prepare an executive summary of the contents of each
      submission with respect to Concerns that do not specifically allege
      participation in wrongdoing by the Corporation's Chief Executive Officer
      (the "CEO") and send it to the CEO. The CEO shall promptly investigate the
      subject of each such executive summary and report his findings in writing
      to the Chairman of the Audit Committee with recommendations, if any. The
      Secretary shall send a copy of each submission with respect to Concerns
      that specifically allege participation in wrongdoing by the CEO both to
      the Chairman of the Audit Committee and to the CEO.

4.    At each of its meetings, including any special meeting called by the Chair
      of the Audit Committee following the receipt of any information pursuant
      to this Annex, the Audit Committee shall review and consider any such
      complaints or concerns that it has received and take any action that it
      deems appropriate in order to respond thereto.

5.    The Audit Committee shall retain any such complaints or concerns for a
      period of no less than 7 years.


                                       18


ACKNOWLEDGMENT FORM

I have received and read the Code of Business Conduct, and I understand its
contents. I agree to comply fully with the standards, policies and procedures
contained in the Code and the Company's related policies and procedures. I
understand that I have an obligation to report to my supervisor or the Legal
Department any suspected violations of the Code that I am aware of. I
acknowledge that the Code is a statement of policies for business conduct and
does not, in any way, constitute an employment contract or an assurance of
continue employment.

                                          __________________________
                                          Printed Name

                                          __________________________
                                          Signature

                                          __________________________
                                          Date

[OPTIONAL]

I would like to disclose the following possible conflicts for the Legal
Department to review:
________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________


                                       19

EX-23.1

                                                                    Exhibit 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement of PDI, Inc. on Form S-8 (File No. 333-61231) and in the Registration
Statement of PDI, Inc. on Form S-3 (File No. 333-50024) of our report dated
March 3, 2004 relating to the financial statements and financial statement
schedule, which appears in this Form 10-K.


PricewaterhouseCoopers LLP


Florham Park, NJ
March 3, 2004

EX-31.1

                                                                    Exhibit 31.1

                                    PDI, INC.

                     CERTIFICATIONS PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

     CERTIFICATION

     I, Charles T. Saldarini, certify that:

     1. I have reviewed this Annual Report on Form 10-K of PDI, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

          (b) Evaluated the effectiveness of the registrant's disclosure
     controls and procedures and presented in this report our conclusions about
     the effectiveness of the disclosure controls and procedures, as of the end
     of the period covered by this report based on such evaluation; and

          (c) Disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's most
     recent fiscal quarter (the registrant's fourth fiscal quarter in the case
     of annual report) that has materially affected, or is reasonably likely to
     materially affect, the registrant's internal control over financial
     reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     control over financial reporting.


                                               /s/ Charles T. Saldarini
                                       -----------------------------------------
                                                 Charles T. Saldarini
                                       Vice Chairman and Chief Executive Officer

Date: March 3, 2004

EX-31.2

                                                                    Exhibit 31.2

                                    PDI, INC.

                     CERTIFICATIONS PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

     CERTIFICATION

     I, Bernard C. Boyle, certify that:

     1. I have reviewed this Annual Report on Form 10-K of PDI, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

          (b) Evaluated the effectiveness of the registrant's disclosure
     controls and procedures and presented in this report our conclusions about
     the effectiveness of the disclosure controls and procedures, as of the end
     of the period covered by this report based on such evaluation; and

          (c) Disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's most
     recent fiscal quarter (the registrant's fourth fiscal quarter in the case
     of annual report) that has materially affected, or is reasonably likely to
     materially affect, the registrant's internal control over financial
     reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     control over financial reporting.


                                                         /s/ Bernard C. Boyle
                                                         -----------------------
                                                            Bernard C. Boyle
                                                         Chief Financial Officer

Date: March 3, 2004

EX-32.1

                                                                    Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of PDI, Inc. (the "Company") on Form 10-K
for the fiscal year ended December 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Charles T. Saldarini,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.

A signed original of this written statement has been provided to the Company and
will be retained by the Company and furnished to the SEC or its staff upon
request.


/s/ Charles T. Saldarini
- ----------------------------
Charles T. Saldarini
Chief Executive Officer
March 3, 2004

EX-32.2

                                                                    Exhibit 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of PDI, Inc. (the "Company") on Form 10-K
for the fiscal year ended December 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Bernard C. Boyle,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.

A signed original of this written statement has been provided to the Company and
will be retained by the Company and furnished to the SEC or its staff upon
request.


/s/ Bernard C. Boyle
- --------------------------
Bernard C. Boyle
Chief Financial Officer
March 3, 2004